Fundamental and Technical Analysis of Five Major Companies in the Information Technology Sector

EXECUTIVE SUMMARY

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Executive summary

The report "

Fundamental and Technical Analysis of Five Major Companies in the Information Technology Sector"

is a study to analyze the strength and weakness of the scrip's of five major companies in the IT industry. The five major companies include Tata Consultancy Services, Infosys, Oracle, HCL and Wipro. The primary objective of the study to suggest the investors, whether to buy the scrip or not, based on the valuation (Under priced or Over priced) of shares. Also to analyze the trend (Bullish or Bearish) of this scrip's in the market. The secondary objective of the study is Analyze the company's performance, Understand the capital market and its functioning, and to compare theoretical knowledge with actual industry practice.

To analyze the scrip, Fundamental and Technical analyses are used. In the fundamental analysis the method of intrinsic value of calculation is used. For the technical analysis, tools like Relative Strength Index (RSI), Moving Average convergence and divergence(MACD), Moving average crossover, Stochastic and Momentum are used. In the fundamental analysis the intrinsic value is compared with the current market value to suggest the investor to buy or sell the share. In the Technical Analysis, the movement of the corresponding graphs are studied to

interpret whether to buy sell or hold the share.

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1. INRODUCTION

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1. Introduction An investor means people who invest savings. Investment is an activity, which is different from savings. Savings are generated when a person abstains from present consumption for a future use. Savings kept as cash are barren and do not earn anything. Hence the saver has to find a temporary for his savings until they are required for his future. This results in investment.

Today, investment has become a household word and is very popular with people from all walks of life. It is because of increase in working population, higher family incomes and consequent savings, availability of large and attractive investment alternatives, increase in investment related publicity and so on.

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to detuning its financial health and gives you an idea of the value its stock. Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purpose. The goal is to determine the current wealth and more importantly, how the market values the stock. The Return on Equity (ROE) is one measure of how efficiently a company uses its assets to produce earnings . The fundamental forecast stock prices on the basis of economic industry and company statistics. So this study also analyses the economy, the industry and company analysis to know the behavior of stock performance of the IT industry.

One of the primary assumptions of the fundamental analysis is the price of the stock market does not fully reflect a stocks real value. In the financial jargon, this true value is known as the intrinsic value. If the market price is less than intrinsic value, then such shares are considered to be under priced and are suitable for investment. Thus the shares have to be held in hand or if necessary more shares can be brought as the share sis expected to move up in the future to match with

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its intrinsic value. If the market price is greater than the intrinsic value then such shares is considered to be overpriced and it is not suitable for investment. The market price of such shares may come down in future and the investors will sell such a share. This leads us to the second major assumptions of fundamental analysis: in the long run, the stock market will reflect the fundamentals. There is no point in buying a stock based on intrinsic value if the price never reflected that value.

1.1 Objectives of the study 1.1.1 Primary Objective To carry out the fundamental analysis and technical analysis for five selected companies in the IT sector and to suggest whether to buy the scrip or not to invest based on the valuation(under priced or over priced) of shares. Also to analyze the trend( bullish and bearish) of these scrip’s in the market.

1.1.2 Secondary Objectives •

Analyze the companies performance

•

Understand the capital market and its functioning

•

To compare theoretical knowledge with actual industry practice

1.2 Scope of the study The stock market is a major source of investment. The risk associated with the investment is relatively high compared to bank deposit and real estate, with high yield. Cochin stock exchange limited(CSE) is one of the premier stock exchange of India established in the year 1978. CSE: introduced

the facility for

computerized trading-“ Cochin Online Trading(COLT)”. CSE was one of the promoters of interconnected stock exchange of India(ISE). CSE promoted a 100% subsidiary called the “Cochin stock brokers ltd(CSBL)” and started trading in the national stock exchange(NSE) and Bombay Stock Exchange(BSE).

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Due to time restriction and resource constraints the study has been confined to only one sector i.e., IT sector. The period of the study covers only 5 years starting from 2005 to 2009. This study will cover % companies from the IT sector selected based on the highest market capital in the industry. The most suitable company to be invested and the performance of the company will be analyzed.

1.3 Limitations of the Study •

The data collected is secondary in nature

•

Only 5 widely traded securities of the IT sector were taken for the study

•

The accuracy and correctness of the tools used depends on the accuracy of the published accounts

•

A detailed study was not possible due to shortage of time

•

The inherent limitations of the fundamental and technical analysis also exist here

1.4 Statement of the problem Indian has a well developed capital market which provides huge investment opportunity for investors. Indian IT sector is the centre of attraction for many investors residing within and outside India. These days IT index is highly volatile.

So it is inevitable to evaluate the performance of each security before investing.

This study is an attempt to guide the investor to identify the best performing security in the IT sector. The study includes the analysis of financial statement of 5 major companies in IT sector, evaluation of the shares that it posses.

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2. PROFILE

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2.1 Industry Profile 2.1.1 Indian capital market an overview Indian stock market is one of the oldest market in Asia. Its history dates back to nearly 200 years ago. The earliest record of security dealing in India is merger and obscure. The east Indian company was dominant institution in those days and business in its loan security used to be transacted towards close of the eighteenth century.

By 18~0’s business on stock rates and shares initiated in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers recognized by banks and merchants during 1840’s. The 1850’s witnessed a rapid development in commercial enterprise and brokerage business attracted many men into the field and by 1860’s, the number of brokers increased into 60. In 1860-61, the American civil war broke out and cotton supply from United States to Europe was stopped. This increased the brokers in India to about 200 to 250.

However by the end of the American Civil war in 1965, disastarous slumps begain( for example, Bank of Bombay share that had reached Rs.2850 could only be sold at Rs. 87).

At the end of Mexican civil war the brokers who thrived out of civil war in 1874 found a place in a street( now called the Dalal street) where they would conveniently assemble and transact business. In 1887, they finally established in Bombay, “The Native Share and stock Brokers Association”( which is attractively known as “The Stock Exchange”).

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2.1.2 Stock Exchange “Stock Exchange means any body of individuals whether incorporated or not, consolidated for the purpose of assisting , regulating and controlling the business of buying, selling and sealing with securities. It is a market where stocks, shares and other securities are bought and sold and also to provide avenue for disposal of securities, when owners feel like. It is an essential component of the economy and indispensable for the proper functioning of corporate enterprise.

The business is done using a screen based trading technology through dually authorized members of the exchange. The stock exchange is opened to anyone big or small with money to invest or securities to sell. In modern capitalized economy almost all commodities even in small are produced in large scale and large scale means large amount of capital. The joint stock company or corporate fund of organization is ideally suited for large amount of capital from all those who have surplus fund. When a joint company issues stock and bonds, surplus fund employed profitably in either of them according to

convince and

temperament. The stock exchange enables the investigating to shift from one business to another without any difficulty. An investor, who put his saving in a companyby buying its securities, cannot get the amount back from the company directly. The only way in which the capital invested in stock and shares of a joint stock company may be realized by its owner is through the sale of those stock and shares to others. The stock changes , but it circulates within the market only.

2.1.3 National stock exchange National stock exchange(NSE) of India became operational in the capital market segment on 3rd November 1994 in Mumbai. The genesis ot the NSE lies in the recommendation of the Pherwani Committee. Apart from the NSE, it had recommended for the establishment of the National Stock Market System.

The main objectives of NSE is •

To establish a nation wide trading facility for equities, debt and hybrids.

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•

To ensure equal access to investors all over the country through appropriate communication network.

•

To provide fair, efficient and transparent security market to investors by using an electronic communication network.

•

To enable shorter settlement cycle and book entry system.

•

To meet current international standards of securities market.

2.1.4 Promoters of NSE IDBI, ICICI, IFCI, LIC, OIC, SBI, Bank of Baroda, Canara Bank, Corporation bank, Indian bank, Oriental bank of commerce, Union bank of India, Punjab national bank, Infrastructure leasing and financial service, Stock holding corporation of India and SBI capital market.

2.1.5 Membership criteria Membership is based on factor such as capital adequacy, corporate structure, track record, education, experience etc. Admission is a two stage process with the applicant need to go through a written examination followed by an interview.

The exchange admits members separately to WDM segment and the Capital market segment. Corporate members are admitted on the debt market segment whereas individual and firms are also eligible on the capital market segment.

2.1.6 Trading System The software in the NSE trading system is known as National Exchange for automated trading(NEAT). The trade takes place through computers. The trading members computer is connected with the central computer at NSE through leased lines and VSAT, which are small dish antenna. Communication is carried out with the help of satellites. Network management centre is setup to enable remote diagnosing and solving problems related to network through out the day.

This helps the traders to carry out their activities with minimum interruption.

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2.1.7 Stock market indices An Index is used to give information about the price movement of products in the financial, commodities or any other markets. Financial Indices are constructed to measure the price movement of stocks, bonds, T bills and other forms of investments. Stock market indices are meant to capture the overall behavior of equity market. A stock market is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. An indices is calculated with reference to a base period and a base index value.

2.1.8 Important Indian stock market Indices •

S&P CNXNIFTY

•

BSE Sensex

•

CNXMIDCAP

•

BSE 100

•

BSE 200

•

NYSE Indexes

•

Dow Jones Industrial average

•

NASDAQ Index

2.2 Company Profile 2.2.1 Introduction COCHIN STOCK EXCHANGE LTD, Is one of the premier stock exchanges in India, established in the year 1978. The exchange had a humble beginning with just 5 companies listed in 1978~79 and had only 4 members. Today the exchange has more than 508 members and 240 listed companies. In 1980 the exchange computerized its offices. In order to keep pace with the changing scenario in the capital market, CSE took various steps including trading in dematerialized shares. CSE introduced the facility for computerized trading

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–“Cochin Online Trading (COLT)” on March 17, 1997. CSE was one of the promoters of “Interconnected Stock Exchange of India (ISE)”. The objective was to consolidate the small, fragmented and less liquid markets into a national level liquid market. With enforcement of efficient margin system and surveillance, CSE has successfully prevented defaults. Introduction of the fast track system made CSE the stock exchange with the shortest settlement cycle in the country at that time. By the dawn of the new century, the regional exchanges faced a serious challenge from the NSE and BSE. To face this challenge CSE promoted a 100% subsidiary called the “Cochin Stock Brokers Ltd. (CSBL)’ and started trading in the National Stock Exchange and Bombay stock Exchange.

CSBL is the first subsidiary of a stock exchange to get membership in both NSE and BSE. CSBL also became a depository participant in the Central Depository Services Ltd. The CSE has been playing a vital role in the economic development of the country in general and Kerala in particular and striving hard to achieve the following goals: •

Providing investors with high level of liquidity whereby the cost and time involved in the entry and exit from the market are minimized.

•

Bringing in high tech solution and making all operations transparent.

•

Building infrastructure for capital market by turning CSE into a financial supermarket

•

Serve the investors of the region.

•

Professional stock broking and management.

•

Imparting capital market knowledge to all intermediates on a continuous basis.

•

The CE is directly under the control and supervision of Securities and Exchange Board of India (SEBI) and is today a demutualized entity in accordance with the CSE (Demutualization) scheme and notified by SEBI on 29th of august 2005. Demutualization essentially means de-linking and separation of ownership and trading rights and restructuring the board in

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accordance with the provision of the scheme. The exchange has been demutualized and the notification thereof published in the Gazette.

2.2.2 Management of CSE Ltd. The policy decisions of the CSE are taken by the Board of Directors. The board is constituted with 12 members of whom less than one-fourth are elected from amongst the trading members of CSE, another one-fourth are public interested directors selected by SEBI from the panel submitted by the exchange and the remaining are share holder directors. The board appoints the executive director who functions as an ex-officio member of the board and takes charge of the administration of the Exchange.

3.2.3 Organisatinal structure Board of Directors

Executive director

Legal

Administration Personal

Systems

Legal and Secretarial

Listing

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Settlement

Surveillance

Marketing & Public Relations

Finance

2.2.4 Various departments at CSE Membership The membership department screens application from prospective members to ensure that they are eligible to be members of exchange as per provisions of the Securities Contracts Regulations Act. It is also verified they are ‘Fit and Proper’ persons eligible to be member as per SEBI Regulation 2004. The eligible application are processed and forwarded to SEBI for the purpose of obtaining registration with SEBI. The department continuously follows up the status of the applications with SEBI and provides necessary data if any required by SEBI. The members are informed of their fee liability as and when information in this regard is obtained from SEBI. The membership department also assist SEBI by ensuring proper delivery of notices and letters issued by SEBI to the concerned members. The changes in the status and constitution of the brokers are send for the approval of the governing board of the Exchange and thereafter send to SEBI and members are given necessary directions wherever required. Changes in address and contact information are updated in the finance and accounting system and SEBI intimated.

System The system department is the heart of the various operations of the CSE. The department provides the necessary technical support for the screen based trading and the computerized functioning of all to other department.

The activities of the department includes: •

Development of software needed for the functions of the Exchange.

•

Maintenance of Multex software, which enables online trading with NSE and BSE.

•

Maintenance of an efficient computer network for the smooth working of the exchange.

•

Providing the necessary services to the settlement and surveillance departments.

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•

The support for maintenance of the depository participants accounts with the CSBL DP.

The major office system software’s used are NESS and BOSS respectively for NSE and BSE trades calculations. These software’s are developed in-house by software professional at the exchange and are used to maintain the entire records of all trades that occur each day.

It also does all the required calculations for the deductions and also generates the reports required by the brokers and their clients.

The trading software used in CSBL is Multex, developed by CMC. The advantage of using it is that both BSE and NSE scrips can be traded using this facility.

CSBL has trading facility in equities through Multex to a large number of their clients over the WAN. Currently, the clients are connected by VPN, VSAT etc.

Legal Guided by the Officer-Legal, the Legal Department is primarily responsible for advising the management about the merits and demerits of legal issues involving the Exchange. The department consistently monitors the compliance parameters in the terms of Companies Act, SEBI Act, Securities Contracts Regulation Act, and other related statutes. Listing guidelines and related criteria stipulated by SEBI, and the rules, regulations, directives and circulars issued by SEBI with regards to trading in the capital market are consistently scrutinized and necessary directions are given to the concerned departments to ensure strict and continued compliance. Relevant developments are brought to the notice of the members and the investing public. Officer-Legal is the Compliance officer as per the provision of SEBI regulations and also functions as Secretary to the Board of Directors. Other major activities undertaken by the department relate to Investor Grievance Services, arbitration and Resolution of issue pertaining to declare defaulters.

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Listing The listing department guides prospective companies desirous of being listed on the exchange by providing the knowledge base and information on the statutory requirements that have to be compiled with. The major functions undertaken by the department include post-listing monitoring and compliance with the listing agreement, monitoring the listing agreement and reviewing the provisions of the listing agreement from time to time with specific reference to SEBI regulation/circulars that are in force. The department also ensures diligence in scrutinizing listing applications and adhering t the listing norms.

Finance The finance department controls the financial transactions of the exchange and is the life line of the organization. The department is headed by a Finance Officer.

The activities of the department includes: •

Fund management

•

Interaction with bankers

•

Maintaining general account of the exchange

•

Preparation of various financial statements

•

Maintaining payrolls and cash registers

•

Coordinating

accounting

transactions

of

different

branches

and

departments •

Taxations

•

Budgeting and expense research

Settlement Settlement Department is a key department of the exchange, dealing with cash and securities. It assist the brokers in settling the matters related to their pay-in and payout, recovery of dues and settlement issues related to bad deliveries.

This department is headed by a Deputy Manager assisted by two Senior Officer who take care of the operations involved in the settlement activities in CSE. The Exchange follows the T+2 settlement system.

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Marketing The Marketing Department interacts with the brokers of the exchange, trading both within the state and outside and collects their opinion and suggestions.

These are brought to the notice of the committee constituted for the purpose and decisions of the committee are placed for approval of the governing of the exchange. The efforts are aimed at improving the quality and efficiency of the services offered. I addition the department conducts extensive surveys and campaigns in remote areas ad wherever necessary, conducts awareness programs about Capital Market. Experts with sufficient experience in the trade brief the participants and address their queries. Talk shows and interviews are conducted on television channels, clipping are displayed in theatres all with an intension to increase public awareness and motivate their interest in capital market. The marketing wing also coordinates the of campus programmes of CSE. Institutes and organizes regular classes at authorized centers after verifying the availability of suitable infrastructure and facilities.

Surveillance The exchange has set up the surveillance department to keep a close watch on price movement of scrip and to detect market abuse like price rigging, monitor abnormal prices and volumes which are not consistent with the normal trading patterns etc. The main objective of the department is to ensure a free and fair market, to avoid manipulation and to manage risk. The surveillance functions at the exchange has assumed greater importance in the last few years. SEBI has directed the exchange to set up a separate surveillance department with staff exclusively for this function.

The surveillance department •

Keeps a close watch on the price movement of the scrips

•

Detects market manipulations like price riggings

•

Monitors abnormal changes in price and volumes which are not consistent with normal trading pattern

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•

Monitors the member brokers position to ensure that defaults do not occour

The department conducts in-depth investigation based on preliminary enquires made into trading of the scrip as also at the instance of SEBI. Conducting investigation involves the following stages:•

Identification of scrip based on the alerts thrown by the online system and offline reports

•

Identification of members from whom the client details have to be called for.

•

Preparation of company profile including Corporate news and Financial results.

•

Compilation of Client details

•

Preparation of reports

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2.3 PROFILE OF THE SELECTED IT COMPANIES 3.3.1 INFOSYS Infosys technologies limited, is a public limited and India's second largest software exporter company incorporated in the year 1981 as Infosys consultants private limited by Mr.N.R.Narayana Murthy at karnataka, who is chairman and chief mentor of the company. It became public limited company in the year 1992.

It has received CMM-5 status and it functioning collaborated with ANALOG DEVICES INC of USA. Infosys is a groundbreaking company in the field of information technology and it enjoys the privilege of being a dept free company.

It's only the company to be part of the major global index. Company offers the services of consulting, process re-engineering, modular global sourcing and Business Process Outsourcing services. It has developed finacle, a universal banking solution to large and medium size banks across India and oversees. The company has entered in marketing and technical alliance with FileNet, IBM, Intel, Microsoft, Oracle and System Application Products. Infosys is listed in BSE, NSE and NASDAQ. Infosys, the country's second-biggest IT/ITES services companies, which was the first Indian company to be listed on the NASDAQ at the year 1999. Infosys also forms a part of the NASDAQ-100 index. Continuously the year 2001, 2002 and 2003 company wins the National award for excellence in corporate governance conferred by the Govt of India. In the year 2003 it acquired Expert Information Services in Australia for $22.9 million. Its has five wholly owned subsidiaries namely as Infosys technologies China, Infosys technologies Australia, Infosys consultancy INC, Infosys BPO SRO and Infosys BPO Ltd previously known as progeon. CRISIL assigned the ' CRISIL GVC level 1' rating for corporate governance. In the year 2004 company crosses US $ 1 billion in revenue. 2005 was the year the largest international equity offering of US $ 1 billion from India

by Infosys and in 2006 company celebrated 25th year. Infosys selected as 'Best Outsourcing Partner' by the readers of Waters, a publication covering the needs 19

of chief information officers in the capital market firms. In 2007 it increased stake value in progeon to 98.9 % after acquiring shares from Citicorp International Financial Company and a subsequent buy back offer to its share holders. Infosys had taken over Philips' finance and administration business process outsourcing (BPO) centers spread across India, Poland and Thailand for $28 million. A Finacle from Infosys completes Phase 1 of implementation in Stroyvestbank subsidiary

structure

of

URALSIB

BANK.

Infosys Technologies has 47% of core business assets stagnating. The company scanning the markets of Europe and Japan for acquisitions in the price band of $200-$300 million to energies its non-linear business strategy as well as to expand its geographic reach. Infosys set up various Special Economic Zone that for the company has an additional tax benefit. It set up another Special Economic Zone unit in Chandigarh which will be eligible for 100 % deduction of profit from exports tax calculation for the first five years followed by 50% deduction for next five years. Infosys has been pursuing its expansion plans over the past few years. As of March 2007 it has a capital expenditure commitment of Rs 655 crs, it is in the process of expanding its operations by adding amount 32,967 seats to its completed 58.488 seats. The entire capital expenditure was funded out of internal cash flows. The future enhancement of the company is to emerge the developing economies changing the business landscape with help of accessible talent pools and the adoption of non-linear growth model, it is a long term strategy. Infosys Technologies Ltd has partnered with ACDI/VOCA for promotes broad-based economic growth and to develop information and communication technology- enabled application to improve efficiencies in the agro supply chain in India. As of April 2008 the company acquired Internet Protocol (IP) from an Australian company to add more functionality to finacle.

The IP, that provides a comprehensive set of financial tools to company's existing product line. As on May 2008 the company ranked third in the largest 2008 Global Outsourcing 100, compiled by the International Association of Outsourcing Professionals (IAOP).

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2.3.2 TCS Established in 1968, Tata Consultancy Services has grown to its current position as the largest IT services firm in Asia based on its record of outstanding service, collaborative partnerships, innovation, and corporate responsibility. TCS is headquartered in Mumbai, and operates in more than 50 countries and has more than 170 offices across the world. In the year 1979 it established its first office in New York City. It is the world's first organization to achieve an enterprise-wide Maturity Level 5 on quality improvement models, CMMI and P-CMM, using the most rigorous assessment methodology, SCAMPISM. TCS Division of Tata Sons Ltd was transferred to TCS as on April 2004 for a consideration of Rs.2300 crores and the company went to public in the same year 2004.

The company's major areas of business are comes under five services, such as Consulting, Information Technology Services, Business Process Outsourcing, Infrastructure Outsourcing, Engineering and Industrial Services which covers the industries namely Banking and Financial Services, Energy and Utilities, Government, Healthcare and Life Sciences, Hi Technology, Insurance, Manufacturing,

Retail,

Telecom,

Travel

and

Hospitality.

During the year 2004-05 the company has acquired WTI Advanced Technology LTD and TCS Business Transformation Solutions Ltd (Previously, Phoenix Global Solutions (India) LTD), subsequently these two companies have turned as the subsidiaries of the company. In between 2005-06, the year covers the acquisitions of three companies Comicrom S.A., Chile, Financial Network Services (Holdings) Pty Ltd, Australia (FNS) and Swedish Indian IT Resources AB (SITAR). Tata Infotech Limited and three wholly owned subsidiaries of the company, viz Airline Financial Support Services (India) Ltd (AFSL), Aviation Software Development Consultancy India Ltd (ASDC) and TCS Business Transformation Solutions Ltd (TCS BTS) have amalgamated with the company on April 2005. Apart from this the company made strategic alliances during the year with Diligenta Limited for Life Insurance business and entered into a Joint

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Venture Agreement with the State Bank of India (SBI). The new company was formulated and named C-Edge Technologies Limited (C-Edge) to provide advanced technology solutions and world-class domain consulting for the banking

and

financial

services

sector.

In the year of 2006, TCS formed a company as MP Online Limited, partnership with the Government of Madhya Pradesh, offering a wide range of computer enabled services in the State of Madhya Pradesh. The company, through its wholly owned subsidiaries Tata Consultancy Services Asia Pacific Pte Ltd and Tata Consultancy Services Malaysia Sdn Bhd, subscribed to 100% share capital of PT Tata Consultancy Services, Indonesia, a Company formed to provide consulting and IT related services in Indonesia. Through its wholly owned subsidiary Tata Consultancy Services Netherlands B.V., acquired 75% equity interest in Switzerland based TKS - Teknosoft S.A., for a consideration of Rs. 368.06 crores The company, through its wholly owned subsidiary TCS FNS Pty Limited, acquired 100% equity interest in an Australia based company TCS Management Pty Ltd., for a total consideration of Rs. 15.75 crores. TCS's share capital of Tata Consultancy Services (China) Co., Ltd leads the company to frame a partnership with Chinese companies to provide IT outsourcing services and solutions. The Company, through its wholly owned subsidiaries Tata Consultancy Services BPO Chile S.A. and TCS Inversiones Chile Limitada, subscribed to 100 % share capital of Tata solution Center S.A., a Company formed to provide BPO services in Ecuador. Another one of its wholly owned subsidiary TCS FNS Pty Limited, subscribed to 100% share capital of Financial Network Services Beijing Co. Ltd., a company formed to provide consulting and IT related services in China and the company has increased its investment in TCS

Iberoamerica

to

Rs.

165.23

crore

as

on

March

31,

2007

The company received International Credit Rating from Moody's Investors Service and has assigned an investment-grade issuer rating of A3 as well an indicative foreign currency debt rating of Baa1. TCS gathered various awards

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and recognitions, significant amongst which are Special Award by the UK Prime Minister, Tony Blair 'Outstanding Contribution to UK Knowledge Industry' in 2005, Company of the Year - 2006 from the Economic Times, Dataquest Best IT Employer for 2006, CII-EXIM Bank Award for Business Excellence 2006, Golden Peacock Global Award for Corporate Social Responsibility, Ranked among the Top 10 US application management services vendors India's largest egovernance initiative of the Ministry of Company Affairs, which is implemented by TCS, Most Distinguished Achievement Award in Information Management (APAC) - 2006' from IBM and Verizon's Supplier Excellence Award for the third consecutive year. Eaton Premier Supplier Award 2007 for the Indirect Supplier for Information Technology Services category honored by Eaton Corporation.

As on 2008 TCS has signed a new multi-year contract with Chrysler LLC to provide a comprehensive portfolio of IT services, in March 2008 opened its North America Delivery Center called TCS Seven Hills Park. Located in Milford, Ohio, a suburb of Cincinnati, the facility sits on 220 wooded acres and is the largest TCS facility in North America. As on May 2008 the company ranked sixth in the largest 2008 Global Outsourcing 100, compiled by the International Association of Outsourcing Professionals (IAOP). In June of the year 2008, the company gets $11.5 million transformational deal to design, install and integrate a tax administration system for the Uganda Revenue Authority (URA). TCS is going with certainty, lot of innovations and strategies to attain the vision of Global Top 10 by the year 2010.

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2.3.3 ORACLE Oracle Financial Services Software Limited (erstwhile i-flex solutions) (OFSSL) is a world leader in providing IT solutions to the financial services industry. The Company was incorporated in September 27, 1989 as Citicorp Information Technology Industries Ltd. The Company addressing the entire financial services space through a comprehensive portfolio of products, IT services, consulting and knowledge process outsourcing services. With the experience of delivering value-based IT solutions to over 810 financial institutions across 130 countries.

OFSSL has 14 development centers across India, Singapore and the USA. The Company has a strong global reach with a sales, marketing and support presence in 27 overseas locations operating across four subsidiaries (i-flex solutions inc. in the USA, i-flex solutions b.v. in the Netherlands, i-flex solutions ltd. in Singapore and iPSL in India). In addition, 30 corporate business partners and 32 implementation partners represent i-flex across the globe. The Company also has strong alliance and/or implementation relationships with industry leaders such

as

Hewlett-Packard,

IBM,

Sun

Microsystems

and

Intel.

CITIL (Citicorp Information Technology Industries Limited), spun off from COSL (Citicorp Overseas Software Limited), commences first year of operations in the year 1992. In 1995, CITIL gains recognition for establishing world-class processes and quality Standards, It attained SEI CMM Level 4, becomes the first financial software firm in the world and one out of six companies worldwide to achieved this distinction at that time. CITIL established the Center of Excellence during the year 1996 for business intelligence to provide specialized consulting and software products, as well as services in data warehousing and business intelligence. A complete banking product suite for retail, consumer, corporate, investment and internet banking, consumer lending, asset management and investor servicing, including payments (SWIFTNet and SEPA) was launched in the year 1997 under the name of FLEXCUBE. MicroBanker becomes the 6th international banking product in the world to be used by 100 customers in 1998 and the FLEXCUBE starts gaining traction and international leadership.

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During the year 1999, FLEXCUBE Information Center, a Web-enabled business intelligence system was launched along with a Center of Excellence for CRM and the Java Center for financial services also established. CITIL was renamed as iflex solutions limited in the year 2000. During the same year 2000, Center of Excellence for e-services launched Separate business unit established to address the Applications Services Provider (ASP) market. i-fl ex solutions b.v., a 100 percent subsidiary of the company opened in Amsterdam, The Netherlands.

The company's financial software development facilities were established in the year 2001 at Pune and Chennai and fully owned subsidiaries set up in USA and Singapore, i-flex solutions b.v. in Amsterdam, The Netherlands, becomes operational, i-fl ex Consulting was launched. EBZ Online, a software company was joined with the company during the year 2002 through which i-flex's product, Flexcube, for made available to cooperative banks. Dotex International, a joint venture company supported by NSE.IT and i-flex Solutions Ltd, signed a memorandum of understanding (MoU) with BgSE Financials Ltd, a subsidiary of the Bangalore Stock Exchange, to give Internet trading service to the members of the exchange. The Company entered into capital market with Initial Public Offering (IPO) of an issue of 3,961,700 equity shares. I-flex opened its first Overseas Software Development Center in Singapore in the year 2002.

In the year 2003, the company's flagship product FLEXCUBE ranked the world's No.1 selling Universal Banking Solution and during the same year 2003, I-flex sets up development centre in New York, Wins a major order from HypoVereinsbank Group (HVB Group), Germany, Inaugurated FLEXCUBE Support & Prime Sourcing Solutions Centre in London and acquisition of Super Solutions Corporation in all cash deal of .5 million was made. Waters Magazine ranked Mantas as the Best Anti-Money Laundering Solution and Best Compliance Solution for 2003.

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Waters Magazine ranked Mantas as the Best Anti-Money Laundering Solution for 2003 and also for 2004. During the year 2004, i-flex opened its wholly owned holding company in US, namely i-flex America, for carrying out all future acquisitions in the USA. The Golden Peacock National Quality Award was awarded to the company. i-flex Solutions ties up with Barbados-based first Caribbean International for internet banking and e-finance platform of i-flex Solutions. The core banking solution Flexcube had won The Banker Core Banking Solution of the Year and Application of the Year'' awards. The Company and YES Bank has signed Global Strategic Memorandum to collaborate on technology led innovations to enhance quality and efficiency in banking products and delivery processes. i-flex joined hands with People Soft to develop and market

an

integrated

solution

for

the

banking

industry.

Entered into strategic alliance with Castek Software Inc., a Toronto based provider of insurance systems for the global Property & Casualty (P&C) in the year 2005. The decade-old relationship between Oracle and i-flex was further strengthened in 2005 at a strategic level. In August 2005, Oracle Corporation bought Citigroup's 41 percent equity interest in i-flex and floated an open offer to purchase up to an additional 20 percent ownership from existing shareholders. iflex assessed at CMMi Level 5 also certified BS 7799 compliant. BS 7799 is security standards and policies addressing information security. In the same year i-flex and EDB Business Partner ASA had entered into an agreement to jointly offer comprehensive retail banking solutions to financial institutions in the Nordic region. Reveleus was positioned in Gartner's 'Leaders Quadrant' in its 'Basel II Risk Management Application Software Magic Quadrant for 2005' and '2006 Basel II Software Applications Magic Quadrant'. Reveleus was also 'Highly Commended' for its Compliance Initiative Innovation in The Banker Technology Awards for 2006. The Black Book of Outsourcing, ranked i-flex BPO as the top outsourcing vendor to the Mortgage Banking Industry in 2006. The FLEXCUBE 10.0 was released in 2007, it helps financial institutions respond faster to market dynamics and define and track processes, while ensuring compliance. The suite

26

also equipped with SWIFT 2007 enhancements and supports SEPA payment processing. New Version of FLEXCUBE Core Banking for IBM System z active from April 2008. During August of the year 2008, the company changed its name from I-flex solutions Limited to Oracle Financial Services Software Limited.

FLEXCUBE, Reveleus, Daybreak, Mantas, PrimeSourcing, i-flex Consulting and iPFB are trademarks of i-flex solutions and are registered in several countries.

Together, Oracle and i-flex solutions offer financial services institutions the world's most comprehensive and contemporary banking applications and want to embark technology footprint that address their complex IT and business requirements.

27

2.3.4 HCL HCL Technologies Limited was incorporated in 1991, as HCL Overseas Limited.

The certificate of commencement of business was received on 10th February 1992. On July 14, 1994, the name of the Company was changed to HCL Consulting Limited. The company provides software-led IT solutions, remote infrastructure management services and BPO. In 1996 the 50:50 joint venture with Perot Systems Corporation was formed to provide access to high value client base of Perot Systems under the name of HCL Perot Systems NV. HCL Technologies focuses on Transformational Outsourcing, working with clients in areas that impact and re-define the core of their business after its IPO in 1999 with aim of foray into the global IT landscape and in the same year again the Company changed its name to HCL Technologies Limited. The company encompasses global offshore infrastructure and its global network of offices in 18 countries to deliver solutions across selected verticals including Financial Services, Retail & Consumer, Life Sciences & Healthcare, Hi-Tech & Manufacturing,

Telecom

and

Media

&

Entertainment

(M&E).

HCL Tech started to create wholly owned subsidiaries to cater specific geographic regions from the year 1999. HCL has the widest service portfolio among Indian IT service providers, with each of its services having attained critical mass. In the year of 2000 the company has set up a dedicated offshore development centre in Chennai for KLA-Tencor Corporation, a supplier of process control and yield management solutions for the semiconductor and related microelectronics industry and HCL Comnet, the wholly owned subsidiary of HCL Technologies in association with its new partner Globeset Inc for scouting largest Internet Service Providers and payment gateways in India to introduce Net security management solutions. The Company launched the Nokia professional centre in New Delhi, second among the chain of centres across the country. HCL Technologies has entered into a strategic alliance with Nasdaqlisted Vitesse Semiconductor to develop software solutions for global networking markets in the year 2001 and also entered into a strategic alliance with Toshiba

28

Information Systems (Japan) Corporation to set up a dedicated offshore software development centre for developing embedded software for the Japanese company. HCL Comnet Systems & Services Ltd., a fully owned subsidiary of HCL Technologies was gone into the business of Web-enabling applications through

the

launch

of

demand-chain

management

solutions.

In 2002 the company acquired Gulf Computers Inc, USA and formed a JV with Answerthink, Inc., a leading US based provider of technology enabled business transformation solutions to Global 2000 firms. A strategic technology joint venture was made with Jones Apparel Group, Inc. Jones Apparel Group, Inc. a Fortune 500 Company in the same year and also entered into a joint venture with M.A. Partners, a management consulting firm to address software services opportunities in Global Finance Markets, especially in the areas of Investment Banking, Asset Management and Private Banking. M.A. Partners brings a wealth of domain expertise and clients including many of the top Global Investment Banking firms to the JV. In the year 2003, BT Group UK's telecom service provider gave a contract worth of $160 million for BPO service operations and the company has set up an exclusive centre in Noida for exeucting the orders given by BT Group. The software business of HCL Infosystems Limited was transferred to HCL Technologies Limited additionally. HCL Comnet, a whollyowned flagship of HC Technologies, secured Rs 31 crore network management order from National Insurance Corporation (NIC).

HCL Technologies sets up Insurance Solutions Center in Chennai and the company has entered into a strategic tie-up with IBM Rational Software, a division of IBM, to strengthen its software development capabilities during the year 2004. The Company has been conferred the prestigious Excellence in Education Award for 2004 by the Life Office Management Association (LOMA).

BPO delivery centre in Chennai gets BS7799 certification, by the British Standards Institute (BSI) on August of the same year. The company has

29

Introduced Cross View; a framework based Computer Systems Validation (CSV) methodology for the development of robust software applications in the Life Sciences arena.

During the year 2005 SEBI ties up with HCL Technologies for market surveillance and the company formed joint venture with NEC, Japan. The company amalgamated its six wholly owned subsidiaries with company itself, such subsidiaries are DSL Software Ltd, Shipara Technologies Ltd, HCL Technologies BPO Services Ltd, HCL Technologies (Mumbai) Ltd, Aquila Technologies Ltd and HCL Enterprise Solutions (India) Ltd and the course of event the company acquired an Irish Call centre during February 2005 and this acquisition establishes HCL's position as the single largest BPO Centre operation on the Island of Ireland. HCL's Infrastructure Services Division ranked a 'Strong Performer' in Remote Infrastructure Management by an International Research Firm and made a strategic partnership with EXA, Japan in same year. In the year of 2006 the company launched RoHS Compliance Management System for Medical Device Users and entered $70 million outsourcing deal with Teradyne of US. HCL developed Trusted ICT Infrastructure Platforms for BPO-ITE'S Segment and has linked pact with Canada based electronics manufacturing services company Celestica Inc to jointly design and manufacture electronic products for global original equipment manufacturers (OEMs). The company has forayed into an alliance with $200 million Saudi Arabian company namely Advanced Electronics Company (AEC) to implement IT projects in West Asia in the year 2007 and formed a strategic alliance with Eckler to strengthen Insurance Domain expertise. The company made US $15 million contract with Aleni Aeronautica, to provide engineering services that will support the improvement of the C-27J Spartan production line. HCL Venture Capital Ltd., a company incorporated in Bermuda and downstream subsidiary of the company was merged with HCL Bermuda Ltd and HCL Technologies (Mass) Inc., a company incorporated in United States of America and a down stream subsidiary of the company was

30

merged with HCL America Inc in the year 2007.

As on January 2008, HCL's Electro Magnetic Compatibility (EMC) and Durability Test Lab located in Chennai, the first of its kind private Technology facility sector to obtained the ISO/IEC 17025 Accreditation from NABL (National Board for Accreditation of Testing and Calibration Laboratories, India) and a new partnership with Mark Logic Corporation, provider of the industry's leading XML content server was made on same month of the year. As on February 2008 the acquired Capital Stream, Inc., a US based leader in providing comprehensive end-to-end lending and straight through processing solutions to commercial banks and finance companies in North America worth about US $ 40 Million and in same month company expanded global services partnership with SAP AG (NYSE: SAP). During April 2008 HCL Technologies Ltd announced to launch of its new SaaS Service Delivery Platform (SDP) AGORA - at Software 2008 in Las Vegas and in the same month of the same year the company launched an innovative on-demand software testing lab at Software 2008 that allows Independent Software Vendors (ISVs) to reduce their software testing cycle times and lower their capital expenditure on testing hardware and software.

31

2.3.5 WIPRO Wipro Limited, the successful company crossed six decade of years. Wipro though started as a edible oil producer way back in 1945 under the name Western India Vegetable Products, a private limited company has transformed itself into leading player in Fast Moving Consumer Goods and IT services & Products business. It was incorporated at Karnataka by Mr. Azim H Premji who is promoter and chairman of the company. Five of Wipro's manufacturing and development facilities secured the Indian Standard Organization (ISO) 9001 certification during 1994-95. Company provides the integrated business, technology and process solution on a global delivery platform to customers across Americas, Europe, Middle East and Asia Pacific, they offer business value to clients through process excellence and service delivery innovation such as Information Technology services, Product Engineering services, Technology Infrastructure services, Business Process Outsourcing services and consulting services. 23 subsidiaries running under in Wipro. This company is listed in BSE , NSE and Newyork .

In February 2001, Wipro became the first software technology and services company in India to be certified for ISO 14001 certification for complying with the international standards for Environmental Management System (EMS) in three major software development and technology centers in Bangalore and also achieved ISO 9000 certification and they are ISO 14000 certificate holder also for good citizenship. Wipro Technologies has won the 'Banker Technology Award' for the year 2004 Instituted by the Financial Times in the 'Risk Management Award' category. During December 2005 the company has signed a definitive agreement to acquire mPower Inc, a US based company with a development center in Chennai and MPACT Technology Services which is also based in Chennai. Wipro received the BEST award from American society for training & development (ASTD) for three consecutive years 2004, 2005 and 2006. Wipro Ltd is a largest 3rd party Research & Development service provider in the world, Wipro is among the top 3rd Indian BPO service providers by revenue identified

32

by NASSCOM, the IDC India noted among the top 2nd domestic IT services companies in India. Wipro is the world first PCMM level 5 company and it is a winner company of the Dale Carnegie Leadership award in 2007 for people excellence. Wipro is a first company to be assessed at level 5 on CMMi for process excellence as well as its a company to deploy six sigma in IT services at first. Second time Wipro has announced that it has been recognized winner of the 2007 global MAKE award, the 2007 Asian MAKE award fifth time in a row and also received the 2007 Indian MAKE award third time organized by CII (Confederation of Indian Industry).

2006-07 was the year for acquisition to Wipro, during the year company acquired six companies namely Quntech Global Services, Saraware Oy, Enabler Informatica S A, 3D Networks Pte Ltd, Hydrauto Engineering AB and Northwest Switchgear. Wipro partnered with Motorola to form a joint venture namely WMNETSERV, At the same time company invested Rs.16,684 million on fixed assets during the year. Wipro has set up an overseas design center as Odyssey 21 for undertaking projects and product developments in advanced technologies for overseas clients.

Wipro has been a pioneer in fostering a culture of Innovation. This culture manifested in small and big acts of Innovation of wiproites everyday. In the year 2000 itself Wipro launched Innovation Initiative for business development and right now they engaged across 55 CoE's and 30 innovation projects with over 500 peoples. Its not a edge, the companies future enhancement also to continued focus on Innovation has caught the attention of stakeholders and industry. Wipro wants to make a geographical footprint in Germany, Canada, Japan and Middle East that is likely to become the next growth engines and wants to frame a end-to-end solutions for business needs of customer. Wipro plans to set up a Global IT Services Center in Sydney.

33

3. LITERATURE REVIEW

34

3. Review of literature Fundamental analysis is a sock valuation method that uses financial and economic analysis to predict the movement of stock prices. The fundamental information that is analyzed can include a company’s financial reports, and nonfinancial information such as estimates of the growth of demand for products sold by the company, industry comparisons, and economy-wide changes, changes in government policies etc. Security analysis is the initial phase of the portfolio management process. This step consists of examining the risk-return characteristics of individual Securities.

3.1 Fundamental analysis An investor who would like to be rational and scientific in his investment activity has to evaluate a lot of information about the past performance and the expected future performance of the companies, industries and the economy as a whole taking the investment decision. Such evaluation or analysis is called fundamental analysis.

Fundamental analysis is really a logical and systematic approach to estimating in the future dividends by a number of fundamental factor relating to the economy, industry

and

company.

Hence,

the

economy

fundamentals,

industry

fundamentals and company fundamentals have to be considered while analyzing a security for investing purpose. It is in other words, a detailed analysis of the fundamental factors affecting the performance of companies.

Each share is assumed to have an economics worth based on its present and future earning capacity. This is called its intrinsic value or fundamental value. The purpose of fundamental analysis is to evaluate the present and future earning capacity of a share based on the economy, industry and company fundamentals and there by asses the intrinsic value of the share. The investor can then compare the intrinsic value of the share with the prevailing market price to arrive 35

at an investment decision. If the market price of the share is lower than its intrinsic value, the investor would decide to buy the share as it is under priced.

The price of such a share is expected to move up in future to match with its intrinsic value.

On the contrary, when the market price of a share is higher than its intrinsic values, it is perceived to be over priced. The market price of such a share is expected to come down in future and hence the investor would decide to sell such a share. Fundamental analysis thus provides an analytical framework for rational investment decision-making . This analytical framework known as E-I-C framework, or economy–industry company analysis.

Fundamental analysis thus involves three steps: 1. Economy analysis 2. Industry analysis 3. Company analysis 3.1.1 Economy analysis The performance of a company depends on the performance of the economy. If the economy is booming, incoming rise and demand for goodwill increase, the industries and companies in the general trend to be prosperous. On the other and if the economy is in recession, the performance of the company will be generally bad.

Growth rate of National Income The rate of growth of the National Economy is an important variable to be considered by an investor. GNP, NNP and GDP are the different measures of the total income or total economic output of the country as a whole. The growth rate of these measures indicate the growth rate of the economy. The estimate of GNP, NNP, GDP and their growth rate are made available by the government from time to time.

36

The estimated growth of the economy would be pointed towards the prosperity of the economy. An economy typically passes through different phases of prosperity known as the different stager of the economic or business cycle. The four stages of the economic cycle are depression, recovery, boom and recession. The stage of economic cycle through which a country passes has different impact on the performance of industries and companies.

Infrastructure The development of an economy depends very much on the infrastructure available. Industry needs electricity for its manufacturing activities, road and railways to transport raw materials and finished goods, communication channels to keep in touch with suppliers and customers. The availability of infrastructure facilities such as power, transportation and communication systems affect the performance of companies. Bad infrastructure leads to inefficiencies, louder productivity, wastage and delays. An investor should assess the status of the infrastructure facilities available in the economy before finalizing his investment plans.

Monsoon The Indian economy is essentially an agrarian economy and agriculture is a important sector of the Indian Economy. Because of the strong forward and backward linkages between agriculture and industry, performance of several industries and companies are dependent to the performance of agriculture to a very great extend that depends on monsoon. The adequacy of the monsoon detains the success or failure of the agriculture activities in India. Hence the progress and adequacy of monsoon becomes a matter of great concern for an investor in Indian content.

37

Economic and political stability A stable political environment is necessary for steady and balanced growth. No industry or company can grow and prosper in the midst of political turmoil. Stable long term economic policies are what that is needed for industrial growth. Such stable policies can emanate only through stable political system.

3.1.2 INDUSTRY ANALYSIS An investor ultimately invests his money in the securities of one or more specific companies. Each company can be characterized as belonging to an industry.

The performance of companies would therefore be influenced by the fortunes of the industry to which it belongs. For this reason an analyst has to undergo an industry analysis so as to study the fundamental factors affecting the performance of different industries.

At any stage in the economy, there are some industries which are fast growing while others are stagnating or declining. If an industry is growing, the companies within the industry may also be prosperous. The performance of companies will also depend on the state of the company to which it belongs. Industry analysis refers to an evaluation of the relative strength and weakness of weakness of particular industries.

An industry is generally described as a homogenous group of companies. We may define an industry as a group of firms producing reasonably similar products which serve the same needs of a common set of buyers. Industries are traditionally classifies as cement industry, steel, cotton, textile, software industry and so forth. However industry classification becomes difficult while dealing with firms having a diverse product line. And such firms are now on the trend. Due to the difficulties that they suffer, each country follows a standardized classification to facilitate data collection. The reports can effect the growth of other industries.

38

Industry characteristics In an industry analysis, there are a number of key characteristics that should be considered by the analyst, These features broadly relate to the operational and structural aspects of the industry. They have a bearing on the prospects of the industry. Some of there are discussed below: •

Demand supply graph:

The demand for a product, usually tend to change at a steady rate. Whereas, the capacity to produce the product tends to change at regular intervals, depending upon the installation of additional production capacity. As a result am industry is likely to experience undersupply and oversupply of capacity at different times. Excess supply reduces the profitability of the industry through a decline in the Unit prize realization.

•

Labour condition:

The state of labour condition in the industry under analysis is an important consideration in an economy such as ours where the labour union are very powerful. If the labour in a particular industry is rebellious and is inclined to resort to strikes frequently. The prospects of that industry cannot become bright.

•

Attitude of government

•

The attitude of the government towards an industry has a significant impact on its prospects. The government may encourage the growth of certain industries can assist such industries through favorable legislation.

3.1.3 Company Analysis Company analysis is the final stage of fundamental analysis. The economy analysis provides the investors a broad outline of the prospects of growth in the economy. The industry analysis helps the investor to select the industry in which the investment would be rewarding. Now he should find the company in which, he should invest his money. Company analysis gives an answer to this question.

Company analysis deals with the estimation of returns and risk of individual

39

shares. This calls for information. Many pieces of information influences the investment decisions. Information regarding companies can be broadly classified into two groups: internal and external. Internal information consist of data and events made public by companies concerning their operations. The internal information source includes annual reports to shareholders, public and private statements of officers of the company, the companies financial statements, etc.

External sources of information are those generated independently outside the company. Investment services and the financial press prepares these.

In company analysis, the analyst tries to forecast the future earnings of the company because there is strong evidence and that earnings have a direct and powerful effect upon share prices level, trend and stability of earnings of a company, however depending upon a number of factors concerning the operations of the company.

40

3.1.4 FINANCIAL TOOLS Earnings Per Share (EPS) =

Profit After Tax (PAT) No. of Equity share

Dividend Per Share (DPS) =

Amount declared as Dividend No. of Equity shares

Dividend Payout Ratio

=

Dividend Per Share (DPS) Earnings Per Share (EPS)

Return on Equity

=

Profit After Tax (PAT) * 100 Net worth * 100

Price Earning Ratio

=

Market price per share EPS

3.1.5 INTRINSIC VALUE CALCULATION Dividend Payout Ratio

=

Dividend Per Share(DPS) Earnings Per Share(EPS)

Average DPOR for 5 years

=

Sum of DPOR for 5 years 5

Average Return on Equity

=

1- Avg DPOR

41

Average return on Equity

=

Sum of ROE for years 5

Growth rate in Dividend

=

Avg retention ratio * Avg return on equity

and equity Normalized average

=

Sum of price to equity ratio for 5 years 5

Projected earning per share Intrinsic value P/E ratio

= EPS for current year * ( 1+ growth rate) = Projected EPS * normalized average

Projected Dividend per share = DPS for current year * (1+ growth rate)

3.1.6 Financial statements The prosperity of a company would depend upon its profitability and financial health. The financial statements published by a company periodically helps us to assess the profitability and financial health of the company. The two basic financial statement provided by the company are the balance sheet and profit and loss account. The first gives us the picture of the companies asset and liabilities while the second gives us a picture of its earnings.

The balance sheet gives the list of assets and liabilities of a company on a specific date. The major categories of assets are fixed assets and current assets.

Fixed assets are those assets, which are intended to be used up over a period of years. Current assets are those assets that are intended to be converted into cash in the near future (within 1 year). The major categories of liabilities are outside liabilities and liabilities towards shareholders. The outside liabilities are categorized as short term liabilities and long term liabilities. The short term liabilities which are expected to be paid off within the next 1 year are known as

42

the current liabilities. The balance sheet indicates the financial position of a company on a particular date namely, the last date of the accounting year.

The profit and loss account also called income statement, reveals the revenue earned, the Cost incurred and the resulting profit or loss of the company for one accounting year. The profit after tax divided by the number of shares gives the Earnings per Share, which is a figure in which most investors are interested. The profit and loss account summarizes the activities of the company during an accounting year.

43

3.2 Technical Analysis Technical analysis is an alternative approach to fundamental analysis for the study of stock price behavior. Technical Analyst believes that the share price movement are systematic and exhibit certain consistent patterns. He studies past movements in the share price to identify trend and pattern, and then try to predict the future price movements. The current market price is compared with the future predicted price to determine the extend of miss-pricing. Technical analysis is an approach which concentrates on the price movements and ignores the fundamentals in the share.

Technical analysis really just studies the supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components.

•

Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity. It is based on three assumptions.

1. The market discounts everything 2. Price moves in trends 3. History tends to repeat itself

•

Technicians believe that all the information they need about a stock can found in its chart

•

Technical traders take a short-term approach to analyze the market .

•

Criticism of Technical analysis stems from the efficient market hypothesis, which states that the market price is always the correct one, making any historical analysis useless.

•

One of the most important concepts in technical analysis is that of a trend, which is the general direction that a security is headed. There are three types of trends: 1. Upward trend 2. Downward Trend 44

3. Sideways or Horizontal trend •

A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock.

Share price are determined by the demand and supply forces operating in the market. These demand and supply factors are in turn influenced by a number of fundamental factors as well as psychological or emotional factors. Many of these factors cannot be quantified. The combined impact of all these factors is reflected in the share price movement.

The technical analyst therefore concentrates on the movement of share price and analyses the price and volume of individual securities as well as market index.

3.2.1 Steps in Technical Analysis: 1. Study the past movement in share price and identify the trends and establish patterns.

2. Look at the current movement in the share price and identify the trends and establish patterns. With this the future price movement is predicted.

The rationale behind the Technical Analysis is that share price moves in trend or waves which may be upward or downward. It is believed that the present trends are influenced by the past trends. The technical analyst, therefore analyses the price and volume movement of individual securities as well as the market index. Thus technical analysis is really a study of past or historical price volume so as to predict the future stock.

45

3.2.2 The basic principle behind technical analysis: 1. The market value of a share is related to the demand and supply factors operating in the market.

2. There are both rational factors which surrounds the supply and demand factors of security.

3. Security prices behaves in a manner that their movements are continuous in particular direction for some length of time 4. Trends in stock prices have been seen to change when there is shift in demand and supply.

5. The shift in demand and supply factors can be detected through charts prepared specially to show market action.

3.2.3 TOOLS USED 1. Moving Average Crossover 2. MACD 3. Momentum 4. Stochastic 5. Relative Strength Index(RSI)

46

MOMENTUM Momentum is a simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference:

Rate of change scales by the old close, so as to represent the increase as a fraction,

"Momentum" in general refers to prices continuing to trend. The momentum and ROC indicators show trend by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained. A crossing up through zero may be used as a signal to buy, or a crossing down through zero as a signal to sell. How high (or how low when negative) the indicators get shows how strong the trend is?

STOCHASTIC The stochastic indicator has been developed by Georges Lane. This indicator has been build based on the following concept: •

In a positive trend, if the price is close to his maximum value, the intra day closing price will tend to be closer and closer to his intra day high.

•

In a negative trend, if the price is close to his minimum value, the intra day closing price will tend to be closer and closer to his intra day low.

47

This system uses two lines: %K and %D. With: n the chosen lag.

Ct the stock price at the date t.

Bn the lowest price during the last n days.

Hn the highest price during the last n days.

The stochastic %K is: %K= 100 * {(C-Bn)/(Hn-Bn)} The second step is to compute the %D. %D is the moving average at j days of the numerator of %K (Nj) divided by the moving average of the denominator of %K (Dj).

The stochastic indicator is interpreted like the RSI. The sale signal is given when both lines are over 80% and the purchase signal when both lines are under 20%.

The lag used for n in %K is often 5 days but (9,11 and 14 days are used as well).

The lag used for j in %D is often 3 MOVING AVERAGE CROSSOVER Moving average crossovers are a common way traders use Moving Averages. A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average) crosses either above a slower Moving Average (i.e. a longer period Moving Average) which is considered a bullish crossover or below which is considered a bearish crossover.

48

The chart below of the S&P Depository Receipts Exchange Traded Fund (SPY) shows the 50-day Simple Moving Average and the 200-day Simple Moving Average; this Moving Average pair is often looked at by big financial institutions as a long range indicator of market direction:

Note how the long-term 200-day Simple Moving Average is in an uptrend; this is a signal that the market is quite strong. Generally, a buy signal is established when the shorter-term 50-day SMA crosses above the 200-day SMA and contrasts, a sell signal is indicated when the 50-day SMA crosses below the 200day SMA. In the chart above of the S&P 500, both buy signals would have been extremely profitable, but the one sell signal would have caused a small loss. Keep in mind, that the 50-day, 200-day Simple Moving Average crossover is a very long-term strategy.

49

Moving Average crossovers are important tools in a traders toolbox. In fact crossovers are included in the most popular technical indicators including the Moving Average Convergence Divergence (MACD) indicator RELATIVE STRENGTH INDEX(RSI) The relative Strength Index is a financial technical analysis momentum oscillator measuring the velocity and magnitude of directional price movement by comparing upward and downward close to close movement. It was first introduced by Wells Wilder. It is a powerful indicator used to identify the inherent strength and weakness of a particular scrip or market. This is a powerful indicator that signals buying and selling opportunities ahead of the market. The name “relative strength Index” is slightly misleading, as the RSI does not compare the relative strength of two securities, but rather the internal strength of a single security.

•

RSI for security is calculated by the following formulae: RSI = 100 – [100/(1+RS)] Where RS = Avg gain per day / Avg loss per day

The most commonly used time period for calculation of RS is 14 days. For the calculation a 14 day RSI, the gain per day or loss per day is arrived at by comparing the closing price of a day with that of the previous day for a period of 14 days. The gains are added up and divided by 14 to get the average gain per day. The average gain per day and average loss per day are used in the above formula for calculating the RSI for a day. In this way RSI values can be calculated for a number of days. After calculating such data for a number of days, graph can be plotted.

MOVING AVERAGE CONVERGENCE DIVERGENCE(MACD)

50

Developed by Gerald Appel, Moving Average Convergence / Divergence (MACD) is one of the simplest and most reliable indicators available. MACD uses moving averages, which are lagging indicators, to include some trend-following characteristics. These lagging indicators are turned into a momentum oscillator by subtracting the longer moving average from the shorter moving average. The resulting plot forms a line that oscillates above and below zero, without any upper or lower limits. MACD is a centered oscillator and the guidelines for using centered oscillators apply.

The most popular formula for the "standard" MACD is the difference between a security's 26-day and 12-day Exponential Moving Averages (EMAs). This is the formula that is used in many popular technical analysis programs, including SharpCharts, and quoted in most technical analysis books on the subject. Appel and others have since tinkered with these original settings to come up with a MACD that is better suited for faster or slower securities. Using shorter moving averages will produce a quicker, more responsive indicator, while using longer moving averages will produce a slower indicator, less prone to whipsaws. For our purposes in this article, the traditional 12/26 MACD will be used for explanations.

Later in the indicator series, we will address the use of different moving averages in calculating MACD. Of the two moving averages that make up MACD, the 12-day EMA is the faster and the 26-day EMA is the slower. Closing prices are used to form the moving averages. Usually, a 9-day EMA of MACD is plotted along side to act as a trigger line. A bullish crossover occurs when MACD moves above its 9-day EMA, and a bearish crossover occurs when MACD moves below its 9-day EMA. The Merrill Lynch (MER)

chart below shows the 12-day EMA (thin blue line) with the 26-

day EMA (thin red line) overlaid the price plot. MACD appears in the box below as the thick black line and its 9-day EMA is the thin blue line. The histogram represents the difference between MACD and its 9-day EMA. The histogram is

51

positive when MACD is above its 9-day EMA and negative when MACD is below its 9-day EMA

52

MACD measures the difference between two Exponential Moving Averages (EMAs). A positive MACD indicates that the 12-day EMA is trading above the 26day EMA. A negative MACD indicates that the 12-day EMA is trading below the 26-day EMA. If MACD is positive and rising, then the gap between the 12-day EMA and the 26-day EMA is widening. This indicates that the rate-of-change of the faster moving average is higher than the rate-of-change for the slower moving average. Positive momentum is increasing, indicating a bullish period for the price plot. If MACD is negative and declining further, then the negative gap between the faster moving average (blue) and the slower moving average (red) is expanding. Downward momentum is accelerating, indicating a bearish period of trading. MACD centerline crossovers occur when the faster moving average crosses the slower moving average.

53

4. RESEARCH METHODOLOGY

54

4.1 RESEARCH METHODOLOGY Research is a scientific and systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. Research considered as an effort to gain new knowledge. Research finds out the solution for the problem. Research is essentially an investigation, a recording and analysis of evidence for purpose of gaining knowledge. It demands accurate observation and experimental evidences. The collected data is used for the new purpose. A good research should be systematic, logical, empirical and replicable.

Research methodology is a scientific and systematic way to solve research problems. Researcher has to design his methodology. Research methodology deals with and takes into consideration the logic behind the method. An extensive literature survey is undertaken to understand the concept of financial performance. It also deals with objective of research study, the method of defining the problem, type of data collected, method used for collecting and analyzing data.

4.2 TYPES OF RESEARCH The purpose of research is to discover answer to question through the application of scientific procedures. The main aim of it is to find out the truth which is hidden and which is to be discovered. There are various types of researches. The type of research used in the study is Historical research.

HISTORICAL RESEARCH: - Historical research is based on historical data. It attempt to find out what happened in the past and to reveal reasons for why and how things happened.

55

4.3 METHODS OF DATA COLLECTION SECONDARY DATA: The nature of data collected for the data is secondary. Secondary data are those, which have already collected tabulated and presented in some forms by some one else for some other purpose. Secondary data are already available data. Researchers have to modify such data for their individual requirement. In this case researcher is certainly not confronted with the problem that usually associated with the collection of original data. The researchers have to scrutinize the secondary data. The sources of secondary data in this project are: •

Books

•

Websites

•

Magazines

SAMPLING: The sample stocks were selected by considering various stocks having high market capitalization in the IT sector. The five Banks selected for the study are: 1 Infosys Technologies 2 Tata Consultancy Services 3 Oracle 4 Wipro 5 HCL Technologies SOURCES: Market capitalization given in the official site of Bombay Stock Exchange as on 10thJan, 2009.

56

5. DATA ANALYSIS AND INTERPRETATION

57

5.1 INFOSYS TECHNOLOGIES Fundamental analysis Table 1. BOOK VALUE ITEMS Book

2009

2008

2007

2006

2005

Value(Rs) Market : High

311.35 2614.90

235.84 2017.00

195.14 2439.00

249.89 3400.00

194.15 3039.70

1101.00

1040.00

1511.15

Low

1850.00

72.5 13.25

64.35 11.50

1572.10 81.41 7.50

2008 72.5 13.25 .18

2007 64.35 11.50 .18

2006 81.41 7.50 .09

2005 68.96 5.75 .08

ITEMS 2009 Share Capital 286 Reserve and

2008 286

2007 286

2006 138

2005 135

Surplus Net worth PAT ROE

13204.00 13490.00 4470 .33

10876.00 11162.00 3783 .34

6759.00 6897.00 2421 .35

5107.00 5242.00 1904 .21

EPS DPS

97.74 23.50

68.96 5.75

Table 2. PAY OUT RATIO ITEMS EPS DPS Pay-out ratio

2009 97.74 23.50 .24

Table 3. RETURN ON EQUITY

17523.00 17809.00 5819 .33

58

Table 4. RATE OF GROWTH ITEMS Sales PAT EPS DPS

2009 20264 5819 97.74 23.50

2008 15648 4470 72.5 13.25

2007 13149 3783 64.35 11.50

2006 9028 2421 81.41 7.50

2005 6860 1904 68.96 5.75

2009 3.97

2008 3.85

2007 3.75

2006 2.77

2005 2.19

5118 0

4153 0

2737 0

2230 0

Table 5. RATIOS ITEMS Current Ratio Interest Coverage Ratio Debit

3370.5 Equity 0

Ratio

Table 6. RETURN ON ASSET YEAR 2009 2008 2007 2006 2005

PAT 5819 4470 3783 2421 1904

TOTTAL ASSET 17809.00 13490.00 11162.00 6897.00 5242.00

59

ROA .3267 .3313 .3389 .3510 .3632

Table 7. RETURN ON CAPITAL EMPLOYED YEAR

EBIT

TOTAL CAPITAL ROCE

2009 2008 2007 2006 2005

7435 5664 4622 3146 2498

EMPLOYED 17262.60 13641.62 10050.01 6977.16 4758.10

.4307 .4152 .4599 .4509 .525

Table 8. PRICE EARNNG RATIO YEAR 2009 2008 2007 2006 2005

EPS

MARKET PRICE PRICE EARNING

97.74 72.5 64.35 81.41 68.96

PER SHARE 1857.95 1528.50 1975.08 2486.05 2444.85

Fig 1. The market price of shares in 5 years 3000 2500 2000 Series1

1500

Series2

1000 500 0 2005

2006

2007

2008

2009

60

RATIO 19.01 21.08 30.69 30.54 35.45

CALCULATION OF INTRINSIC VALUE 1) Average dividend pay out ratio

= .24 + .18 + .18 + .09 + .08 / 5 = 0.154

2) Average retention ratio

= 1- 0.154 = 0.846

3) Average return on equity

= .33+.33+.34+.35+.21/5 = 0.312

4) Growth in equity

= 0.312*.846 = 0.263952

5) Normalized avg PE ratio

=19.01+21.08+30.69+30.54+35.45/5 = 27.354

6) Long term growth in dividend & equity = 27.354* .846 = 23.141484 7) Projected EPS

= 97.74 * (1+0.263952) = 123.53866848

8) Intrinsic value

= 123.53866848* 27.354 = 3379.27673760192

9) Projected DPS

= 23.5 * (1+0.263952) = 29.702872

61

Technical analysis

Fig 2. PRICE CHART

INTERPRETATION: The trend line is connecting November 09 low and January 10 low. This forms the support line for the shares.

62

Fig 3. MACD

INTERPRETATION: MACD signals a long term bullishness for Infosys. It is in the high value and will tend to be in it for some time.

63

Fig 4. MOMENTUM

INTERPRETATION: Momentum was coming down but now is in the verge of climbing up. This signals the buy signal.

64

Fig 5. MOVING AVERAGE CROSSOVER

INTERPRETATION: The two line, red representing 20 days and black representing 50 days and blue is the share price. Here the red line is now over the blue line indicating price going up.

65

Fig 6. RELATIVE STRENGTH INDEX

INTERPRETATION: The RSI line is coming down from over bought to neutral. Now the line is going to reverse signaling a buy signal.

66

Fig 7. STOCHASTICS

INTERPRETATION: The graph is coming down from over bought. In a few days the price is going to go up signaling a buy signal after waiting for 2 to 3 days.

67

5.2 TCS Fundamental analysis Table 9. BOOK VALUE ITEMS Book

2009

2008

2007

2006

2005

Value(Rs) Market : High

136.38 805.00

111.43 1078.00

82.35 1399.00

114.64 2099.00

69.17 1750.85

355.25

418.00

935.00

900.00

1091.00

45.53 14.00

43.69 14.00

36.66 11.50

53.63 13.50

36.6 11.50

2008 43.69 14.00 .32

2007 36.66 11.50 .31

2006 53.63 13.50 .25

2005 36.6 11.50 .31

Low EPS DPS

Table 10. PAY OUT RATIO ITEMS EPS DPS Pay-out ratio

2009 45.53 14.00 .31

Table 11. RETURN ON EQUITY ITEMS 2009 Share Capital 197.86 Reserve and

2008 197.86

2007 97.86

2006 48.93

2005 48.01

Surplus Net worth PAT ROE

10,806.95 11004.86 4508.76 .41

7,961.13 8058.99 3757.29 .47

5,560.40 5609.33 2716.87 .48

3,273.04 3321.05 1831.42 .55

13,248.39 13446.30 4696.21 .35

68

Table 12. RATE OF GROWTH ITEMS Sales PAT EPS DPS

2009 22406.08 4696.21 45.53 14.00

2008 18292.68 4508.76 43.69 14.00

2007 14942.09 3757.29 36.66 11.50

2006 11236.01 2716.87 53.63 13.50

2005 8051.11 1831.42 36.6 11.50

2009 1.89

2008 1.99

2007 2.08

2006 1.96

2005 1.15

691.82

1464.12

1216.94

685.71

204.09

0

0

0.01

0.02

0.15

Table 13. RATIOS ITEMS Current Ratio Interest Coverage Ratio Debit Ratio

Equity

Table 14. RETURN ON ASSET YEAR 2009 2008 2007 2006 2005

PAT 4696.21 4508.76 3757.29 2716.87 1831.42

TOTTAL ASSET 13486.67 11023.11 8109.73 5644.83 3441.79

69

ROA .3482 .4090 .4633 .4813 .5321

Table 15. RETURN ON CAPITAL EMPLOYED YEAR

EBIT

TOTAL CAPITAL ROCE

2009 2008 2007 2006 2005

5564.59 5466.06 4517.52 3336.22 2255.8

EMPLOYED 13249.02 10443.37 7443.60 4922.86 2053.15

.42 .5234 .6069 .6777 1.0987

Table 16. PRICE EARNNG RATIO YEAR 2009 2008 2007 2006 2005

EPS

MARKET PRICE PRICE EARNING

45.53 43.69 36.66 53.63 36.6

PER SHARE 580.13 748.00 1167.00 1499.00 1420.93

Fig 8. The market price of shares in 5 years for TCS

2500 2000 1500

Series1 Series2

1000 500 0 2005

2006

2007

2008

2009

70

RATIO 12.74 17.12 31.83 27.95 38.82

CALCULATION OF INTRINSIC VALUE 1) Average dividend pay out ratio

= .31+.32+.31+.25+.31 /5 = 0.3

2) Average retention ratio

= 1-.3 = 0.7

3) Average return on equity

=.35+.41+.47+.48+.55/5 = 0.452

4) Growth in equity

= 0.452 * .7 = 0.3164

5) Normalized avg PE ratio

= 12.74+17.12+31.83+27.95+38.82/5 = 25.692

6) Long term growth in dividend & equity = 25.692 * 0.7 = 17.9844 7) Projected EPS

= 45.53 * (1+.3164) = 59.935692

8) Intrinsic value

= 59.935692*25.692 = 1539.87

9) Projected DPS

= 14 * (1+.3164) = 18.4296

71

Technical analysis

Fig 9. PRICE CHART

INTERPRETATION: Trend line is drawn connecting Oct 09 and Jan10. This forms the support line for the price chart of TCS. If it comes down the support line then it would be a sell signal.

72

Fig 10. MACD

INTERPRETATION: MACD signals a long term bullishness for TCS. It is in the high value and will tend to be in the same trend for a few days.

73

Fig 11. MOMENTUM

INTERPRETATION: Momentum is now climbing so it is a buy signal for TCS.

74

Fig 12. MOVING AVERAGE CROSSOVER

INTERPRETATION: Here the red line is now over the black line for a long time, indicating share price going up.

75

Fig 13. RELATIVE STRENGH INDEX

INTERPRETATION: The RSI line is coming down from over bought to neutral. Now the line is going to reverse signaling a buy signal.

76

Fig 14. STOCHASTICS

INTERPRETATION: The graph is coming down from over bought. In a few days the price is going to go up signaling a buy signal after waiting for 2 to 3 days.

77

5.3 ORACLE Fundamental analysis Table 17. BOOK VALUE ITEMS Book

2009

2008

2007

2006

2005

Value(Rs) Market : High

418.98 2364.70

335.88 1664.00

283.18 2630.00

178.65 2068.90

150.27 1088.00

428.00

405.00

1225.00

840.00

541.10

83.06 0

49.06 0

42.59 0

30.86 5.00

25.69 5.00

2008 49.06 0 0

2007 42.59 0 0

2006 30.86 5.00 .16

2005 25.69 5.00 .29

Low EPS DPS

Table 18. PAY OUT RATIO ITEMS EPS DPS Pay-out ratio

2009 83.06 0 0

Table 19. RETURN ON EQUITY ITEMS 2009 Share Capital 41.88 Reserve and

2008 41.87

2007 41.64

2006 38.14

2005 37.44

Surplus Net worth PAT ROE

2,770.75 2812.65 410.87 .15

2,316.67 2398.48 354.67 .15

1,324.59 1362.73 240.8 .18

1,087.75 1125.19 197.64 .18

2008 1792.97 410.87 49.06 0

2007 1552.34 354.67 42.59 0

2006 1153.82 240.8 30.86 5.00

2005 902.86 197.64 25.69 5.00

3,467.53 3509.42 695.71 .20

Table 20. RATE OF GROWTH ITEMS Sales PAT EPS DPS

2009 2212.62 695.71 83.06 0

78

Table 21. RATIOS ITEMS Current Ratio Interest

2009 4.58

2008 3.99

2007 3.34

2006 3.29

2005 3.69

0

0

0

0

0

0

0

0

0

0

Coverage Ratio Debit Ratio

Equity

Table 22. RETURN ON ASSET YEAR 2009 2008 2007 2006 2005

PAT 695.71 410.87 354.67 240.8 197.64

TOTTAL ASSET 3509.42 2812.65 2398.48 1362.73 1125.19

79

ROA 0.1982 0.1461 0.1479 0.1767 0.1757

Table 23. RETURN ON CAPITAL EMPLOYED YEAR

EBIT

TOTAL CAPITAL ROCE

2009 2008 2007 2006 2005

732.3 431.53 381.04 285.55 247.11

EMPLOYED 3160.55 2605.86 1880.75 1244.23 1045.75

.2317 .1656 .2026 .2295 .2363

Table 24. PRICE EARNNG RATIO YEAR

EPS

MARKET PRICE PRICE EARNING

2009 2008 2007 2006 2005

83.06 49.06 42.59 30.86 25.69

PER SHARE 1396.35 1034 1927.5 1454.95 814.55

Fig. 15 The market price of shares in 5 years for Oracle

2500 2000 1500

Series1 Series2

1000 500 0 2005

2006

2007

2008

2009

80

RATIO 16.81 21.08 45.26 47.15 31.71

CALCULATION OF INTRINSIC VALUE 1) Average dividend pay out ratio

= 0+0+0+.16+.29/5 = 0.09

2) Average retention ratio

= 1- 0.09 = 0.91

3) Average return on equity

= .20+.15+.15+.18+.18/5 = 0.172

4) Growth in equity

= .91 * .172 = 0.15652

5) Normalized avg PE ratio

= 16.81+21.08+45.26+47.15+31.71/5 = 32.402

6) Long term growth in dividend & equity = 32.402 * .91 = 29.48582 7) Projected EPS

= 83.06*(1+0.15652) = 96.0605512

8) Intrinsic value

= 96.0605512 * 32.402 = 3112.5539799824

9) Projected DPS

= 0 *(1+0.15652) =0

81

Technical analysis

Fig 16. PRICE CHART

INTERPRETATION: The trend line is connecting Feb 09 low and July09. This forms the support line for the shares.

82

Fig 17. MACD

INTERPRETATION: MACD signals a long term bullishness for Oracles.It is at the highest values and will tend to be in it for some time.

83

Fig 18. MOMENTUM

INTERPRETATION: Momentum was coming down but now is in the verge of climbing up. This signals the buy signal.

84

Fig 19. MOVING AVERAGE CROSSOVER

INTERPRETATION: The red line has crossed over the blue line in December showing a price rise in the share.

85

Fig 20. RELATIVE STRENGTH INDEX

INTERPRETATION: The RSI shows a bent and will rise in two to three days indicating a buy signal for Oracle.

86

Fig 21. STOCHASTIC

INTERPRETATION: The graph is coming down from over bought. In a few days the price is going to go up signaling a buy signal after waiting for 2 to 3 days.

87

5.4 HCL Fundamental analysis Table 25. BOOK VALUE ITEMS Book

2009

2008

2007

2006

2005

Value(Rs) Market : High

52.04 377.45

48.22 333.80

51.6 715.00

79.64 706.65

89.6 555.00

89.10

102.50

260.25

362.00

295.00

13.69 7.00

10.19 9.00

15.37 8.00

17.5 16.00

8.18 16.00

2008 10.19 9.00 .88

2007 15.37 8.00 .52

2006 17.5 16.00 .91

2005 8.18 16.00 1.96

Low EPS DPS

Table 26. PAY OUT RATIO ITEMS EPS DPS Pay-out ratio

2009 13.69 7.00 .51

Table 27. RETURN ON EQUITY ITEMS 2009 Share Capital 134.05 Reserve and

2008 133.27

2007 132.74

2006 64.69

2005 63.84

Surplus Net worth PAT ROE

3,079.85 3214.83 780.65 .24

3,292.28 3425.02 1101.82 .32

2,511.18 2575.87 638.38 .25

2,796.14 2859.98 329.27 .12

3,353.72 3488.24 997.31 .29

88

Table 28. RATE OF GROWTH ITEMS Sales PAT EPS DPS

2009 4675.09 997.31 13.69 7.00

2008 4615.39 780.65 10.19 9.00

2007 3768.62 1101.82 15.37 8.00

2006 3032.92 638.38 17.5 16.00

2005 1447.01 329.27 8.18 16.00

2009 1.37

2008 1.24

2007 1.22

2006 0.93

2005 0.77

43.42

41.35

91.8

46.33

61.3

0.08

0.01

0.01

0.02

0.04

Table 29. RATIOS ITEMS Current Ratio Interest Coverage Ratio Debit Ratio

Equity

Table 30. RETURN ON ASSET YEAR 2009 2008 2007 2006 2005

PAT 997.31 780.65 1101.82 638.38 329.27

TOTTAL ASSET 4001.97 3240.16 3465.91 2589.25 2956.67

89

ROA 0.2492 0.2409 0.3179 0.2466 0.1114

Table 31. RETURN ON CAPITAL EMPLOYED YEAR

EBIT

TOTAL CAPITAL ROCE

2009 2008 2007 2006 2005

1219.79 894.32 1190.66 666.57 344.53

EMPLOYED 3620.63 3802.38 3027.36 3132.38 2672.85

.3369 .2352 .3933 .2128 .1289

Table 32. PRICE EARNNG RATIO YEAR 2009 2008 2007 2006 2005

EPS

MARKET

PRICE PRICE EARNING

13.69 10.19 15.37 17.5 8.18

PER SHARE 233.28 218.15 487.63 534.33 425

RATIO 17.04 21.41 31.73 30.53 51.96

Fig 22. The market price of shares in 5 years 2500 2000 1500

Series1 Series2

1000 500 0 2005

2006

2007

2008

2009

90

CALCULATION OF INTRINSIC VALUE 1) Average dividend pay out ratio

= .51+.88+.52+.91+1.96/5 = 0.956

2) Average retention ratio

= 1-0.956 = 0.044

3) Average return on equity

= .29+.24+.32+.25+.12/5 = 0.244

4) Growth in equity

= 0.244 * .0044 = 0.0010736

5) Normalized avg PE ratio

= 17.04+21.41+31.73+30.53+51.96/5 = 30.534

6) Long term growth in dividend & equity = 30.534* .044 = 1.343496 7) Projected EPS

= 13.69* (1+0.0010736) = 13.704697584

8) Intrinsic value

= 13.704697584*30.534 = 418.459236029856

9) Projected DPS

= 7 * (1+0.0010736) = 7.0075152

91

Technical analysis

Fig 23. PRICE CHART

INTERPRETATION: The support line is drawn connecting Oct 09 low and Dec 09 low.

92

Fig 24. MACD

INTERPRETATION: The MACD line is coming down from the high values but is still in the safe region of buying the share.

93

Fig 25. MOMENTUM

INTERPRETATION: Momentum was coming down but now is now climbing up. This signals the bullishness of the shares.

94

Fig 26. MOVING AVERAGE CROSSOVER

INTERPRETATION: Here the red line is now over the blue line which has cut over in the month of December indicating price going up. This should sustain for some time.

95

Fig 27. RELATIVE STRENGTH INDEX

INTERPRETATION: The RSI line is coming down from over bought to neutral. Now the line is going to reverse signaling a buy signal in two to three days.

96

Fig 28. STOCHASTIC

INTERPRETATION: The graph is coming down from over bought. In a few days the price is going to go up signaling a buy signal after waiting for 2 to 3 days.

97

5.5 WIPRO Fundamental analysis Table 33. BOOK VALUE ITEMS Book

2009

2008

2007

2006

2005

Value(Rs) Market : High

85.42 699.00

79.05 537.90

63.86 690.00

45.03 614.00

69.54 776.00

195.00

181.70

425.00

383.00

350.05

19.62 4.00

19.94 6.00

18.61 6.00

13.47 5.00

20.55 5.00

2008 19.94 6.00 .3009

2007 18.61 6.00 .3224

2006 13.47 5.00 .3712

2005 20.55 5.00 .2433

Low EPS DPS

Table 34. PAY OUT RATIO ITEMS EPS DPS Pay-out ratio

2009 19.62 4.00 .2038

Table 35. RETURN ON EQUITY ITEMS 2009 Share Capital 293 Reserve and

2008 346.3

2007 291.8

2006 285.15

2005 140.71

Surplus Net worth PAT ROE

11,260.40 11,610.70 3063.3 .26

9,025.10 9,320.40 2842.1 .30

6,135.30 6,420.45 2020.48 .31

4,751.73 4,892.44 1494.82 .31

12,220.40 12,514.90 2973.8 .24

98

Table 36. RATE OF GROWTH ITEMS Sales PAT EPS DPS

2009 21612.8 2973.8 19.62 4.00

2008 17658.1 3063.3 19.94 6.00

2007 13758.5 2842.1 18.61 6.00

2006 10264.09 2020.48 13.47 5.00

2005 7276.18 1494.82 20.55 5.00

2009 2.11

2008 2.15

2007 1.57

2006 1.46

2005 1.32

19.03

30.71

442.14

748.5

316.29

0.37

0.19

0.02

0.01

0.02

Table 37. RATIOS ITEMS Current Ratio Interest Coverage Ratio Debit Ratio

Equity

Table 38. RETURN ON ASSET YEAR 2009 2008 2007 2006 2005

PAT 2973.8 3063.3 2842.1 2020.48 1494.82

TOTTAL ASSET 17528.80 15433.10 9558.40 6470.61 4954.53

99

ROA 0.1697 0.1985 0.2973 0.3123 0.3017

Table 39. RETURN ON CAPITAL EMPLOYED YEAR

EBIT

TOTAL CAPITAL ROCE

2009 2008 2007 2006 2005

3744.7 3586.5 3183.4 2342.81 1761.75

EMPLOYED 16481.95 12496.52 8014.60 5712.78 4281.29

.2272 .287 .3972 .4101 .4115

Table 40. PRICE EARNNG RATIO YEAR 2009 2008 2007 2006 2005

EPS

MARKET PRICE PRICE EARNING

19.62 19.94 18.61 13.47 20.55

PER SHARE 447 359.8 557.5 498.5 563.03

Fig 29 The market price of shares in 5 years for Wipro 2500 2000 1500

Series1 Series2

1000 500 0 2005

2006

2007

2008

2009

100

RATIO 22.78 18.04 29.96 37.01 27.40

CALCULATION OF INTRINSIC VALUE 1) Average dividend pay out ratio

=

2038+.3009+.3224+.3712+.2433/5 = 0.28832

2) Average retention ratio

= 1- 0.28832 = 0.71168

3) Average return on equity

= .24+.26+.30+.31+.31/5 = 0.284

4) Growth in equity

= 0.284* .71168 = 0.20211712

5) Normalized avg PE ratio

= 22.78+18.04+29.96+37.01+27.40/5 = 27.038

6) Long term growth in dividend & equity = 27.038 * 0.71168 = 19.24240384 7) Projected EPS

= 19.62*(1+.71168) = 33.5831616

8) Intrinsic value

= 33.5831616 * 27.038 = 908.0215233408

9) Projected DPS

= 4*(1+.71168) = 6.84672

101

Technical Analysis

Fig 30. PRICE CHART

INTERPRETATION: The trend line is connecting Octobe 09 low and January 10 low. This forms the support line for the shares.

102

Fig 31. MACD

INTERPRETATION: MACD signals a long term bullishness for Wipro. It is in the high value and thus signals a bullishness of the share of Wipro.

103

Fig 32. MOMENTUM

INTERPRETATION: Momentum was coming down but now is in the verge of climbing up. This signals the buy signal.

104

Fig 33. MOVING AVERAGE CROSS OVER

INTERPRETATION: Here the red line is over the black line indicating price going up. This indicates a buy signals foe share of Wipro.

105

Fig 34. RELATIVE STRENGTH INDEX

INTERPRETATION: The RSI line is coming down from over bought to neutral. Now the line is going to reverse signaling a buy signal after 1 or 2 days.

106

Fig 35. STOCHASTICS

INTERPRETATION: The graph is coming down from over bought. In a few days the price is going to go up signaling a buy signal after waiting for 2 to 3 days.

107

6. SUMMARY FINDINGS AND CONCLUSION

108

6.1 SUMMARY India has emerged as a leading offshore software development centre in little more than a decade. This achievement has been made possible by domestic regulation, entrepreneurial flair, and the soaring global demand for high quality, low cost software and services. For India, the software industry has become a beacon of success. It has [proved that, given the right framework, India can compete globally.

The success of India's software development industry reflects a number of factors. I particular, faced with a growing shortage of software engineers in the west, hundreds o companies have turned to India's computer software and services companies for the IT skills they need to maintain and enhance their competitiveness. Because of high level growth potential in the IT and ITE sector, investor attention has been gaining towards such companies This study is a humble attempt to identify the investment potential of five major IT sector companies from Indian capital market.

6.2 FINDINGS Company Name Infosys TCS Oracle Wipro HCL

Intrinsic value

Market value as Interpretation

3379.28 1539.87 3112.55 908.02 418.46

on 29th Jan 2010 2476.70 735.45 2,165.20 647.40 346.45

Buy Buy Buy Buy Buy

• For all the companies like Infosys, TCS, Oracle, HCL and Wipro the intrinsic value is higher than the market value, which gives a buy signal. These

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securities are under priced. The share price of these companies may rise in the future as these securities have high intrinsic value. • The Return on Equity of Infosys, TCS, HCL and Wipro is decreasing, whereas for Oracle it is a decreasing trend in the past and now is in the state of increasing indicating an increase in profitability. EPS of Infosys, TCS, and Oracle is increasing whereas for HCL, EPS is decreasing. For Wipro it is a stable EPS. •

Current ratio of Infosys, TCS, Wipro Oracle and HCL is 2.77, 1.96, 1.46, 6.5, and 3.24 respectively. The current ratio of all companies is above the bench mark of 2:1.This indicates that liquidity and short term solvency of all companies are satisfactory.

6.3 Conclusion The IT industry plays a vital role in the growth of Indian industries. The Indian IT companies not only contributes to export but also attracts new forign investments in the country. It was expected that the IT industry would grow to take a major percent of export. The IT sector is a wonderful area for investors.

For this study 5 major IT companies with the largest market capitalization was selected and their data was analysed. It was seen that for all the major companies selected that is Infosys, TCS, Oracle, HCL and Wipro, the calculated intrinsic value was higher than the current market value. This shows that the buying of such shares will be profitable for the investors. Also the tools used in technical analysis shows that all the companies under study is in a state of growth.

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BIBLIGRAPHY REFERENCE BOOKS 1.

Prassana

chandran,

Investment

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management, New Delhi: Tata Mc Graw- Hill Publishing Company Limited 2002.

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Avadhani V A, Investment management, Mumbai : Himalaya Publishing House, 1998

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Donald E. Fischer and Ronald. J. Jordan, Security Analysis and Portfolio

Management

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Delhi:

Prentice-Hall

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S. Kevinn, Portfolio Management, New Delhi: Prentice Hall of India Private Ltd.1998.

NEWS PAPERS AND JOURNALS 5 Chartered Financial Analysis. Vol.10, December 2005.

6 The Hindu Business Line.

7 Economic Time.

8 Dalal Street WEB SITES •

www.capitaline.com

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www.nseindia.com

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www.bseindia.com

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www.indiabulls.com

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www.cochinstockexchange.com

•

www.rediffmoney.com

•

www.moneycontrol.com

•

www.wikepedia.com

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