CHAPTER I - INTRODUCTION

India is a developing country. Nowadays many people are interested to invest in financial markets especially on
equities to get high returns, and to save tax in honest way. Equities are playing a major role in contribution of
capital to the business from the beginning. Since the introduction of shares concept, large numbers of investors
are showing interest to invest in stock market.

In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if
one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor.

The price of a security represents a consensus. It is the price at which one person agrees to buy and another
agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If
he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These
simple statements are the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If
prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental
analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that
knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a
stock's future earnings that the average investor cannot disprove

Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since all the
investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore
either fundamental or technical analysis.
What Is Equity Research?

The idea behind Equity Research is simple: Information is the prized asset.

The desire for information availability and consumption spurned a whole new industry, popularly known
as Equity Research.

Well, to start with, equity research is the study of equities or stocks for the purpose of investments. Equity
research is what an equity research analyst does. In simpler terms, equity research is the act of gathering
information:

(1)    information that helps investors to decide where to put in their money;

(2)   information that traders require to understand whether to enter or exit a market position;

(3)    information that financiers (bankers and firms) need to evaluate companies.

Equities or common stock comprises a big chunk in any company’s capital and shareholders need to know
whether to stay invested in the company or sell the shares and come out. Both the buy-side and the sell-side
companies invest in maintaining an equity research division. This research may also include bonds and
commodities.

The function of the equity researcher is to present a detailed analysis of a company, enabling investors to make
an informed decision.

The research report is used by investment banks and private equity firms to evaluate the company for IPO,
LBO, mergers and others.

For an investment bank, the equity research segment produces revenue as buy-side firms pay the equity research
team to delve into its records and analyse information.

As an individual, it is time consuming to do equity research, that is, to study the company, its financial
statements, products, management and take a decision about investment. Exactly for the same reason, there are
people working in research companies whose job is to do equity research and recommend companies for
investment.
The application of equity research varies. Primarily, equity research is used in the mutual funds industry,
investment evaluation, merger and acquisition deals, financial publications and charitable endowments.

Purpose of Equity Research

As stated before, the purpose of equity research is to study companies, analyze financials and look at quantitative and
qualitative aspects, helping investors of varying degrees to make an informed decision.

As the name suggests, ‘research’ plays the most important role here.

Over the years, research methods have changed but the sole intention of research remains the same.

The number of investors is booming and so is the need for exploring the nature of investments.

Investors wish to take calculated and informed decisions, and this is where the role of equity research begins.

The purpose of equity research and the researcher is manifold.

To begin with, one gathers and analyses industry data and financial models of a specific company or an industry.

It also involves understanding current market trends, both from the perspectives of macro economy and micro
economy, and report findings. Since the equity research targets a specific audience, it is necessary to tailor the
findings to the audience demand.

Further, adequate stress is laid on the accuracy of information. If investors take actions based on any kind of
misinformation or misrepresentation, losses are tremendous and harmful to both the investor and the company.
Therefore, equity analysts spend a considerable amount of time analyzing stocks and valuating estimates.
Process of equity analysis

SECURITY ANALYSIS

Investment success is pretty much a matter of careful selection and timing of stock purchases coupled with
perfect matching to an individuals risk tolerance. In order to carry out selection, timing and matching actions an
investor must conduct deep security analysis.

Investors purchase equity shares with two basic objectives;

1. To make capital profits by selling shares at higher prices.
2. To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully understand and analyze all these
factors. There are basically two approaches to study security prices and valuation i.e. fundamental analysis and
technical analysis

The value of common stock is determined in large measure by the performance of the firm that issued the stock.
If the company is healthy and can demonstrate strength and growth, the value of the stock will increase. When
values increase then prices follow and returns on an investment will increase. However, just to keep the savvy
investor on their toes, the mix is complicated by the risk factors involved. Fundamental analysis examines all
the dimensions of risk exposure and the probabilities of return, and merges them with broader economic
analysis and greater industry analysis to formulate the valuation of a stock.
FUNDAMENTAL ANALYSIS

Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on
economic, political, environmental and other relevant factors and statistics that will affect the basic supply and
demand of whatever underlies the financial instrument. It is the study of economic, industry and company
conditions in an effort to determine the value of a company’s stock. Fundamental analysis typically focuses on
key statistics in company’s financial statements to determine if the stock price is correctly valued. The term
simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price
movements.

Fundamental analysis is the cornerstone of investing. The basic philosophy underlying the fundamental analysis
is that if an investor invests re.1 in buying a share of a company, how much expected returns from this
investment he has.

The fundamental analysis is to appraise the intrinsic value of a security. It insists that no one should purchase or
sell a share on the basis of tips and rumors. The fundamental approach calls upon the investors to make his buy
or sell decision on the basis of a detailed analysis of the information about the company, about the industry, and
the economy. It is also known as “top-down approach”. This approach attempts to study the economic scenario,
industry position and the company expectations and is also known as “economic-industry-company approach
(EIC approach)”.

Thus the EIC approach involves three steps:

1. Economic analysis
2. Industry analysis
3. Company analysis

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 COMPANY
ANALYSIS

INDUSTRY
ANALYSIS

ECONOMIC
ANALYSIS

1. ECONOMIC ANALYSIS

The level of economic activity has an impact on investment in many ways. If the economy grows rapidly, the
industry can also be expected to show rapid growth and vice versa. When the level of economic activity is low,
stock prices are low, and when the level of economic activity is high, stock prices are high reflecting the
prosperous outlook for sales and profits of the firms. The analysis of macro economic environment is essential
to understand the behavior of the stock prices.

The commonly analyzed macro economic factors are as follows:

Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It represents the aggregate
value of the goods and services produced in the economy. It consists of personal consumption expenditure,
gross private domestic investment and government expenditure on goods and services and net exports of goods
and services. The growth rate of economy points out the prospects for the industrial sector and the return
investors can expect from investment in shares. The higher growth rate is more favorable to the stock market.

Savings and investment: It is obvious that growth requires investment which in turn requires substantial
amount of domestic savings. Stock market is a channel through which the savings are made available to the
corporate bodies. Savings are distributed over various assets like equity shares, deposits, mutual funds, real
estate and bullion. The savings and investment patterns of the public affect the stock to a great extent.
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Inflation: Along with the growth of GDP, if the inflation rate also increases, then the real growth would be very
little. The effects of inflation on capital markets are numerous. An increase in the expected rate of inflation is
expected to cause a nominal rise in interest rates. Also, it increases uncertainty of future business and
investment decisions. As inflation increases, it results in extra costs to businesses, thereby squeezing their profit
margins and leading to real declines in profitability.

Interest rates: The interest rate affects the cost of financing to the firms. A decrease in interest rate implies
lower cost of finance for firms and more profitability. More money is available at a lower interest rate for the
brokers who are doing business with borrowed money. Availability of cheap funds encourages speculation and
rise in the price of shares.

Tax structure: Every year in March, the business community eagerly awaits the Government’s announcement
regarding the tax policy. Concessions and incentives given to a certain industry encourage investment in that
particular industry. Tax relief’s given to savings encourage savings. The type of tax exemption has impact on
the profitability of the industries.

Infrastructure facilities: Infrastructure facilities are essential for the growth of industrial and agricultural
sector. A wide network of communication system is a must for the growth of the economy. Regular supply of
power without any power cut would

boost the production. Banking and financial sectors also should be sound enough to provide adequate support to
the industry. Good infrastructure facilities affect the stock market favorably.

2. INDUSTRY ANALYSIS

An industry is a group of firms that have similar technological structure of production and produce similar
products and Industry analysis is a type of business research that focuses on the status of an industry or an
industrial sector (a broad industry classification, like "manufacturing"). Irrespective of specific economic
situations, some industries might be expected to perform better, and share prices in these industries may not
decline as much as in other industries. This identification of economic and industry specific factors influencing
share prices will help investors to identify the shares that fit individual expectations

Industry Life Cycle: The industry life cycle theory is generally attributed to Julius Grodensky. The life cycle of
the industry is separated into four well defined stages.
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 Pioneering stage: The prospective demand for the product is promising in this stage and the technology
of the product is low. The demand for the product attracts many producers to produce the particular
product. There would be severe competition and only fittest companies survive this stage. The producers
try to develop brand name, differentiate the product and create a product image. In this situation, it is
difficult to select companies for investment because the survival rate is unknown.
 Rapid growth stage: This stage starts with the appearance of surviving firms from the pioneering stage.
The companies that have withstood the competition grow strongly in market share and financial perfor-
mance. The technology of the production would have improved resulting in low cost of production and
good quality products. The companies have stable growth rate in this stage and they declare dividend to
the shareholders. It is advisable to invest in the shares of these companies.
 Maturity and stabilization stage: the growth rate tends to moderate and the rate of growth would be
more or less equal to the industrial growth rate or the gross domestic product growth rate. Symptoms of
obsolescence may appear in the technology. To keep going, technological innovations in the production
process and products should be introduced. The investors have to closely monitor the events that take
place in the maturity stage of the industry.
 Decline stage: demand for the particular product and the earnings of the companies in the industry
decline. It is better to avoid investing in the shares of the low growth industry even in the boom period.
Investment in the shares of these types of companies leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms of growth and profitability should
be analyzed. The past variability in return and growth in reaction to macro economic factors provide an insight
into the future.

Nature of competition: Nature of competition is an essential factor that determines the demand for the
particular product, its profitability and the price of the concerned company scrips. The companies' ability to
withstand the local as well as the multinational competition counts much. If too many firms are present in the
organized sector, the competition would be severe. The competition would lead to a decline in the price of the
product. The investor before investing in the scrip of a company should analyze the market share of the
particular company's product and should compare it with the top five companies.

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SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and threat for an industry.
Every investor should carry out a SWOT analysis for the chosen industry. Take for instance, increase in demand
for the industry’s product becomes its strength, presence of numerous players in the market, i.e. competition
becomes the threat to a particular company. The progress in R & D in that industry is an opportunity and entry
of multinationals in the industry is a threat. In this way the factors are to be arranged and analyzed.

3. COMPANY ANALYSIS
In the company analysis the investor assimilates the several bits of information related to the company and
evaluates the present and future values of the stock. The risk and return associated with the purchase of the
stock is analyzed to take better investment decisions. The present and future values are affected by a number of
factors.

Competitive edge of the company: Major industries in India are composed of hundreds of individual
companies. Though the number of companies is large, only few companies control the major market share. The
competitiveness of the company can be studied with the help of the following;
 Market share: The market share of the annual sales helps to determine a company’s relative competitive
position within the industry. If the market share is high, the company would be able to meet the
competition successfully. The companies in the market should be compared with like product groups
otherwise, the results will be misleading.
 Growth of sales: The rapid growth in sales would keep the shareholder in a better position than one with
stagnant growth rate. Investors generally prefer size and growth in sales because the larger size
companies may be able to withstand the business cycle rather than the company of smaller size.
 Stability of sales: If a firm has stable sales revenue, it will have more stable earnings. The fall in the
market share indicates the declining trend of company, even if the sales are stable. Hence the stability of
sales should be compared with its market share and the competitor’s market share.

Earnings of the company: Sales alone do not increase the earnings but the costs and expenses of the company
also influence the earnings. Further, earnings do not always increase with increase in sales. The company’s sales
might have increased but its earnings per share may decline due to rise in costs. Hence, the investor should not
only depend on the sales, but should analyze the earnings of the company.

Financial analysis: The best source of financial information about a company is its own financial statements.
This is a primary source of information for evaluating the investment prospects in the particular company’s

9
stock. Financial statement analysis is the study of a company’s financial statement from various viewpoints. The
statement gives the historical and current information about the company’s operations. Historical financial
statement helps to predict the future and the current information aids to analyze the present status of the
company. The two main statements used in the analysis are Balance sheet and Profit and Loss Account.

The balance sheet is one of the financial statements that companies prepare every year for their shareholders. It
is like a financial snapshot, the company's financial situation at a moment in time. It is prepared at the year end,
listing the company's current assets and liabilities. It helps to study the capital structure of the company. It is
better for the investor to avoid a company with excessive debt component in its capital structure.

From the balance sheet, liquidity position of the company can also be assessed with the information on current
assets and current liabilities.

Ratio analysis: Ratio is a relationship between two figures expressed mathematically. Financial ratios provide
numerical relationship between two relevant financial data. Financial ratios are calculated from the balance
sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient. Ratios
summarize the data for easy understanding, comparison and interpretations.

Ratios for investment purposes can be classified into profitability ratios, turnover ratios, and leverage ratios.
Profitability ratios are the most popular ratios since investors prefer to measure the present profit performance
and use this information to forecast the future strength of the company. The most often used profitability ratios
are return on assets, price earnings multiplier, price to book value, price to cash flow, and price to sales,
dividend yield, return on equity, present value of cash flows, and profit margins.

a) Return on Assets (ROA)

ROA is computed as the product of the net profit margin and the total asset turnover ratios.
ROA = (Net Profit/Total income) x (Total income/Total Assets)

This ratio indicates the firm's strategic success. Companies can have one of two strategies: cost leadership, or
product differentiation. ROA should be rising or keeping pace with the company's competitors if the company is
successfully pursuing either of these strategies, but how ROA rises will depend on the company's strategy. ROA
should rise with a successful cost leadership strategy because the company’s increasing operating efficiency. An
example is an increasing, total asset, turnover ratio as the company expands into new markets, increasing its

10
market share. The company may achieve leadership by using its assets more efficiently. With a successful
product differentiation strategy, ROA will rise because of a rising profit margin.

b) Return on Investment (ROI)

ROI is the return on capital invested in business, i.e., if an investment Rs 1 crore in men, machines, land and
material is made to generate Rs. 25 lakhs of net profit, then the ROI is 25%. The computation of return on
investment is as follows:

Return on Investment (ROI) = (Net profit/Equity investments) x 100

As this ratio reveals how well the resources of a firm are being used, higher the ratio, better are the results. The
return on shareholder’s investment should be compared with the return of other similar firms in the same
industry. The inert-firm comparison of this ratio determines whether the investments in the firm are attractive or
not as the investors would like to invest only where the return is higher.

c) Return on Equity
Return on equity measures how much an equity shareholder's investment is actually earning. The return on
equity tells the investor how much the invested rupee is earning from the company. The higher the number, the
better is the performance of the company and suggests the usefulness of the projects the company has invested
in.
The computation of return on equity is as follows:

Return on equity = (Net profit to owners/value of the specific owner's

Contribution to the business) x 100

The ratio is more meaningful to the equity shareholders who are invested to know profits earned by the
company and those profits which can be made available to pay dividend to them.

d) Earnings per Share (EPS)

This ratio determines what the company is earning for every share. For many investors, earnings are the most
important tool. EPS is calculated by dividing the earnings (net profit) by the total number of equity shares.
The computation of EPS is as follows:

Earnings per share = Net profit/Number of shares outstanding

11
The EPS is a good measure of profitability and when compared with EPS of similar other companies, it gives a
view of the comparative earnings or earnings power of a firm. EPS calculated for a number of years indicates
whether or not earning power of the company has increased.

e) Dividend per Share (DPS)

The extent of payment of dividend to the shareholders is measured in the form of dividend per share. The
dividend per share gives the amount of cash flow from the company to the owners and is calculated as follows:

Dividend per share = Total dividend payment / Number of shares outstanding

The payment of dividend can have several interpretations to the shareholder. The distribution of dividend could
be thought of as the distribution of excess profits/abnormal profits by the company. On the other hand, it could
also be negatively interpreted as lack of investment opportunities. In all, dividend payout gives the extent of
inflows to the shareholders from the company.

f) Dividend Payout Ratio

From the profits of each company a cash flow called dividend is distributed among its shareholders. This is the
continuous stream of cash flow to the owners of shares, apart from the price differentials (capital gains) in the
market. The return to the shareholders, in the form of dividend, out of the company's profit is measured through
the payout ratio. The payout ratio is computed as follows:

Payout Ratio = (Dividend per share / Earnings per share) * 100

The percentage of payout ratio can also be used to compute the percentage of retained earnings. The profits
available for distribution are either paid as dividends or retained internally for business growth opportunities.
Hence, when dividends are not declared, the entire profit is ploughed back into the business for its future
investments.

g) Dividend Yield
Dividend yield is computed by relating the dividend per share to the market price of the share. The market place
provides opportunities for the investor to buy the company's share at any point of time. The price at which the
share has been bought from the market is the actual cost of the investment to the shareholder. The market price
is to be taken as the cum-dividend price. Dividend yield relates the actual cost to the cash flows received from
the company. The computation of dividend yield is as follows
12
 Dividend yield = (Dividend per share / Market price per share) * 100

High dividend yield ratios are usually interpreted as undervalued companies in the market. The market price is a
measure of future discounted values, while the dividend per share is the present return from the investment.
Hence, a high dividend yield implies that the share has been under priced in the market. On the other hand a low
dividend yield need not be interpreted as overvaluation of shares. A company that does not pay out dividends
will not have a dividend yield and the real measure of the market price will be in terms of earnings per share and
not through the dividend payments.

h) Price/Earnings Ratio (P/E)

The P/E multiplier or the price earnings ratio relates the current market price of the share to the earnings per
share. This is computed as follows:

Price/earnings ratio = Current market price / Earnings per share

This ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely
used by investors to decide whether or not to buy shares in a particular company. Many investors prefer to buy
the company's shares at a low P/E ratio since the general interpretation is that the market is undervaluing the
share and there will be a correction in the market price sooner or later. A very high P/E ratio on the other hand
implies that the company's shares are overvalued and the investor can benefit by selling the shares at this high
market price.

i) Debt-to-Equity Ratio
Debt-Equity ratio is used to measure the claims of outsiders and the owners against the firm’s assets.
Debt-to-equity ratio = Outsiders Funds / Shareholders Funds

The debt-equity ratio is calculated to measure the extent to which debt financing has been used in a business. It
indicates the proportionate claims of owners and the outsiders against the firm’s assets. The purpose is to get an
idea of the cushion available to outsiders on the liquidation of the firm.

CHAPTER III - INDUSTRY PROFILE

13
FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a vital role in the economic
system. It is through financial markets and institutions that the financial system of an economy works. Financial
markets refer to the institutional arrangements for dealing in financial assets and credit instruments of different
types such as currency, cheques, bank deposits, bills, bonds, equities, etc.

Financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of
assets such as equities, bonds, currencies and derivatives. They are typically defined by having transparent
pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that
trade.

Generally, there is no specific place or location to indicate a financial market. Wherever a financial transaction
takes place, it is deemed to have taken place in the financial market. Hence financial markets are pervasive in
nature since financial transactions are themselves very pervasive throughout the economic system. For instance,
issue of equity shares, granting of loan by term lending institutions, deposit of money into a bank, purchase of
debentures, sale of shares and so on.

In a nutshell, financial markets are the credit markets catering to the various needs of the individuals, firms and
institutions by facilitating buying and selling of financial assets, claims and services.

CLASSIFICATION OF FINANCIAL MARKETS

14
 Financial
markets

Organized Unorganized
markets markets

Money Lenders,
Capital Markets Money Markets Indigenuos
Bankers

Industrial
Call Money
Securities
Market
Market

Commercial Bill
Primary Market
Market

Secondary Treasury Bill

market Market

Government
Securities
Market

Long-term loan
market

15
Capital Market
The capital market is a market for financial assets which have a long or indefinite maturity. Generally, it deals
with long term securities which have a period of above one year. In the widest sense, it consists of a series of
channels through which the savings of the community are made available for industrial and commercial
enterprises and public authorities. As a whole, capital market facilitates raising of capital.

The major functions performed by a capital market are:

1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the required resources for economic
growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing the same to projects yielding
highest yield or to the projects needed to promote balanced economic development.

Capital market consists of primary market and secondary market.

Primary market: Primary market is a market for new issues or new financial claims. Hence it is also called as
New Issue Market. It basically deals with those securities which are issued to the public for the first time. The
market, therefore, makes available a new block of securities for public subscription. In other words, it deals with
raising of fresh capital by companies either for cash or for consideration other than cash. The best example
could be Initial Public Offering (IPO) where a firm offers shares to the public for the first time.

Secondary market: Secondary market is a market where existing securities are traded. In other words, securities
which have already passed through new issue market are traded in this market. Generally, such securities are
quoted in the stock exchange and it provides a continuous and regular market for buying and selling of
securities. This market consists of all stock exchanges recognized by the government of India.

Money Market
Money markets are the markets for short-term, highly liquid debt securities. Money market securities are
generally very safe investments which return relatively low interest rate that is most appropriate for temporary
cash storage or short term time needs. It consists of a number of sub-markets which collectively constitute the
money market namely call money market, commercial bills market, acceptance market, and Treasury bill
market.

16
Derivatives Market
The derivatives market is the financial market for derivatives, financial instruments like futures contracts or
options, which are derived from other forms of assets. A derivative is a security whose price is dependent upon
or derived from one or more underlying assets. The derivative itself is merely a contract between two or more
parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets
include stocks, bonds, commodities, currencies, interest rates and market indexes. The important financial
derivatives are the following:

 Forwards: Forwards are the oldest of all the derivatives. A forward contract refers to an agreement
between two parties to exchange an agreed quantity of an asset for cash at a certain date in future at a
predetermined price specified in that agreement. The promised asset may be currency, commodity,
instrument etc.

 Futures: Future contract is very similar to a forward contract in all respects excepting the fact that it is
completely a standardized one. It is nothing but a standardized forward contract which is legally
enforceable and always traded on an organized exchange.

 Options: A financial derivative that represents a contract sold by one party (option writer) to another
party (option holder). The contract offers the buyer the right, but not the obligation, to buy (call) or sell
(put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period
of time or on a specific date (exercise date). Call options give the option to buy at certain price, so the
buyer would want the stock to go up. Put options give the option to sell at a certain price, so the buyer
would want the stock to go down.

 Swaps: It is yet another exciting trading instrument. Infact, it is the combination of forwards by two
counterparties. It is arranged to reap the benefits arising from the fluctuations in the market – either
currency market or interest rate market or any other market for that matter.

17
Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on currencies.  Foreign
exchange markets are made up of banks, commercial companies, central banks, investment management firms,
hedge funds, and retail forex brokers and investors. The forex market is considered to be the largest financial
market in the world. It is a worldwide decentralized over-the-counter financial market for the trading of
currencies. Because the currency markets are large and liquid, they are believed to be the most efficient
financial markets. It is important to realize that the foreign exchange market is not a single exchange, but is
constructed of a global network of computers that connects participants from all parts of the world.

Commodities Market

It is a physical or virtual marketplace for buying, selling and trading raw or primary products. For investors'
purposes there are currently about 50 major commodity markets worldwide that facilitate investment trade in
nearly 100 primary commodities. Commodities are split into two types: hard and soft commodities. Hard
commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas
soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.)

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CHAPTER II – RESEARCH METHODOLOGY

NEED OF THE STUDY

To start any business capital plays major role. Capital can be acquired in two ways by issuing shares or by
taking debt from financial institutions or borrowing money from financial institutions. The owners of the
company have to pay regular interest and principal amount at the end.

Stock is ownership in a company, with each share of stock representing a tiny piece of ownership. The more
shares you own, the more of the company you own. The more shares you own, the more dividends you earn
when the company makes a profit. In the financial world, ownership is called “Equity”.
Advantages of selling stock:

 A company can raise more capital than it could borrow.

 A company does not have to make periodic interest payments to creditors.
 A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors are paid dividends to the
shares they own. The more shares you own the more dividends you receive.

The role of equity analysis is to provide information to the market. An efficient market relies on information: a
lack of information creates inefficiencies that result in stocks being misrepresented (over or under valued). This
is valuable because it fills information gaps so that each individual investor does not need to analyze every stock
thereby making the markets more efficient.

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OBJECTIVES OF THE STUDY

The objective of this project is to deeply analyze our Indian Automobile Industry for investment purpose by
monitoring the growth rate and performance on the basis of historical data.

The main objectives of the Project study are:

 Detailed analysis of Automobile industry which is gearing towards international standards

 Analyze the impact of qualitative factors on industry’s and company’s prospects
 Comparative analysis of two tough competitors TATA Motors and Mahindra and Mahindra through
fundamental analysis.
 Suggesting as to which company’s shares would be best for an investor to invest.

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The project is based on tools like
fundamental analysis and ratio analysis. Further, the study is based on information of last five years.

 The analysis is made by taking into consideration two companies i.e. TATA Motors and Mahindra and
Mahindra.
 The scope of the study is limited for a period of five years.
 The scope is limited to only the fundamental analysis of the chosen stocks.
 The scope of the study is to understand about investment in the equity.
 The comparison is done to make understand when to invest, how to invest, at which moment to invest,
etc

20
METHODOLOGY
Research design or research methodology is the procedure of collecting, analyzing and interpreting the data to
diagnose the problem and react to the opportunity in such a way where the costs can be minimized and the
desired level of accuracy can be achieved to arrive at a particular conclusion.
The methodology used in the study for the completion of the project and the fulfillment of the project
objectives.

The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random
Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other
stocks chosen. The stocks are chosen from the automobile sector.

The sample size for the number of stocks is taken as 2 for fundamental analysis of stocks as fundamental
analysis is very exhaustive and requires detailed study.

LIMITATIONS
 This study has been conducted purely to understand Equity analysis for investors.
 The study is restricted to three companies based on Fundamental analysis.
 The study is limited to the companies having equities.
 Detailed study of the topic was not possible due to limited size of the project.
 There was a constraint with regard to time allocation for the research study.
 Suggestions and conclusions are based on the limited data of five years.

21
 CHAPTER II - REVIEW OF LITERATURE

INDIA INFOLINE LIMITED

India Infoline is a one-stop financial services shop, most respected for quality of its information, personalized
service and cutting-edge technology.

Vision
Our vision is to be the most respected company in the financial services space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned
subsidiaries, include the entire financial services space with offerings ranging from Equity research, Equities
and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,
Fixed deposits, GoI bonds and other small savings instruments to loan products and Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and www.5paisa.com. The company
has a network of over 2100 business locations (branches and sub-brokers) spread across more than 450 cities
and towns. The group caters to approximately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an independent business research
and information provider, the company gradually evolved into a one-stop financial services solutions provider.

India Infoline received registration for a housing finance company from the National Housing Bank and
received the ‘Fastest growing Equity Broking House - Large firms’ in India by Dun & Bradstreet in 2009. It
also received the Insurance broking license from IRDA; received the venture capital license; received in
principle approval to sponsor a mutual fund; received ‘Best broker- India’ award from Finance Asia; ‘Most
Improved Brokerage- India’ award from Asia money.

COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai
(BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the
businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking
22
services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is
registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients
trading in the equities market. It has recently launched its Investment banking and Institutional Broking
business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are
offered to clients as different schemes, which are based on differing investment strategies made to reflect the
varied risk-return preferences of clients.

India Infoline Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual fund and portfolio
management services businesses. It undertakes equities research which is acknowledged by none other than
Forbes as 'Best of the Web' and '…a must read for investors in Asia'. India Infoline's research is available not
just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call
and Internet Securities where India Infoline is amongst the most read Indian brokers.

India Infoline Commodities Limited.

23
India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Their experience in
securities broking empowered them with the requisite skills and technologies to allow them to offer
commodities broking as a contra-cyclical alternative to equities broking. It enjoys memberships with the MCX
and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. It has a
multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services
Limited and India Infoline Insurance Brokers Limited.
 India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory
and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life
Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the
first corporate agent to get licensed by IRDA in early 2001.
 India Infoline Insurance Brokers Limited India Infoline Insurance Brokers Limited is a newly formed
subsidiary which will carry out the business of Insurance broking.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one
subsidiary. Recently, Orient Global, a Singapore-based investment institution invested USD 76.7 million for a
22.5% stake in India Infoline Investment Services. This will help focused expansion and capital raising in the
said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of
retail loan products, consumer finance business and housing finance business. India Infoline Investment
Services Private Limited consists of the following step-down subsidiaries.
 India Infoline Distribution Company Limited (distribution of retail loan products)
 Moneyline Credit Limited (consumer finance)
 India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue
financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the
company has been initially capitalized at 1 million Singapore dollars.
IIFL MANAGEMENT

24
  THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director

Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded India’s leading financial
services company India Infoline Ltd. in 1995, providing globally acclaimed financial
services in equities and commodities broking, life insurance and mutual funds
distribution, among others.

Mr. R Venkataraman, Executive Director

R Venkataraman, co-promoter and Executive Director of India Infoline Ltd., is a B.
Tech (Electronics and Electrical Communications Engineering, IIT Kharagpur) and an
MBA (IIM Bangalore). He joined the India Infoline board in July 1999.

 THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. comprises:
Mr. Nilesh Vikamsey, Independent Director
Mr. Vikamsey, Board member since February 2005 - a practicing Chartered Accountant and partner (Khimji
Kunverji & Co., Chartered Accountants), a member firm of HLB International, headed
the audit department till 1990 and thereafter also handles financial services, consultancy,
investigations, mergers and acquisitions, valuations etc

Mr Sat Pal Khattar, Non Executive Director

Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority Rights member,
Chairman of the Board of Trustee of Singapore Business Federation, is also a life trustee of
SINDA, a non profit body, helping the under-privileged Indians in Singapore. He joined
the India Infoline board in April 2001.

Mr Kranti Sinha, Independent DirectorMr. Kranti Sinha — Board member since January
2005 — completed his masters from the Agra University and started his career as a Class I
officer with Life Insurance Corporation of India.

25
Mr Arun K. Purvar, Independent Director

Mr. A.K. Purvar – Board member since March 2008 – completed his Masters degree in
commerce from Allahabad University in 1966 and a diploma in Business
Administration in 1967.

PRODUCTS & SERVICES

Equities

India Infoline provided the prospect of researched investing to its clients, which was hitherto restricted only to
the institutions. Research for the retail investor did not exist prior to India Infoline. India Infoline leveraged
technology to bring the convenience of trading to the investor’s location of preference (residence or office)
through computerized access. India Infoline made it possible for clients to view transaction costs and ledger
updates in real time. The Company is among the few financial intermediaries in India to offer a complement of
online and offline broking. The Companies network of branches also allows customers to place orders on phone
or visit our branches for trading.

Commodities

India Infoline’s extension into commodities trading reconciles its strategic intent to emerge as a one stop
solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and
technologies. The Companies commodities business provides a contra-cyclical alternative to equities broking.
The Company was among the first to offer the facility of commodities trading in India’s young commodities
market (the MCX commenced operations in 2003). Average monthly turnover on the commodity exchanges
increased from Rs 0.34 bn to Rs 20.02 bn.

Insurance

An entry into this segment helped complete the client's product basket; concurrently, it graduated the Company
into a one stop retail financial solutions provider. To ensure maximum reach to customers across India, it has
employed a multi pronged approach and reaches out to customers via our Network, Direct and Affiliate
channels. India Infoline was the first corporate in India to get the agency license in early 2001.
26
Invest Online

India Infoline has made investing in Mutual funds and primary market so effortless. Only registration is needed.
No paperwork no queues and No registration charges. India Infoline offers a host of mutual fund choices under
one roof, backed by in-depth research and advice from research house and tools configured as investor friendly.

Wealth Management

The key to achieving a successful Investment Portfolio is to have a carefully planned financial strategy based on
a thorough understanding of the client's investment needs and risk appetite. The IIFL Private Wealth
Management Team of financial experts will recommend an appropriate financial strategy to effectively meet
customer’s investment requirements.

Asset Management

India Infoline is a leading pan-India mutual fund distribution house associated with leading asset management
companies. It operates primarily in the retail segment leveraging its existing distribution network to reach
prospective clients. It has received the in-principle approval to set up a mutual fund.

Portfolio Management

IIFL Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the
investment objectives of a client. India Infoline invests the client’s resources into stocks from different sectors,
depending on client’s risk-return profile. This service is particularly advisable for investors who cannot afford to
give time or don't have that expertise for day-to-day management of their equity portfolio.

Newsletters

As a subscriber to the Daily Market Strategy, client’s get research reports of India Infoline research team on a
priority basis. The Indiainfoline Weekly Newsletter is the flashback for the week gone by. A weekly outlook
coupled with the best of the web stories from Indiainfoline and links to important investment ideas, Leader
Speak and features is delivered in the client’s inbox every Friday evening.

27
 DATA ANALYSIS & INTERPRETATIONS

INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the fastest growing and best
among all the markets of the emerging economies.

The history of Indian capital markets dates back 200 years toward the end of the 18th century when India was
under the rule of the East India Company. The development of the capital market in India concentrated around
Mumbai where no less than 200 to 250 securities brokers were active during the second half of the 19th century.

The financial market in India today is more developed than many other sectors because it was organized long
before with the securities exchanges of Mumbai, Ahmadabad and Kolkata were established as early as the 19th
century.

By the early 1960s the total number of securities exchanges in India rose to eight, including Mumbai,
Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi, Bangalore and Pune. Today there are 21 regional
securities exchanges in India in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over
the Counter Exchange of India).

However the stock markets in India remained stagnant due to stringent controls on the market economy that
allowed only a handful of monopolies to dominate their respective sectors. The corporate sector wasn't allowed
into many industry segments, which were dominated by the state controlled public sector resulting in stagnation
of the economy right up to the early 1990s. Thereafter when the Indian economy began liberalizing and the
controls began to be dismantled or eased out; the securities markets witnessed a flurry of IPO’s that were
launched. This resulted in many new companies across different industry segments to come up with newer
products and services.

A remarkable feature of the growth of the Indian economy in recent years has been the role played by its
securities markets in assisting and fuelling that growth with money rose within the economy. This was in
marked contrast to the initial phase of growth in many of the fast growing economies of East Asia that
witnessed huge doses of FDI (Foreign Direct Investment) spurring growth in their initial days of market
decontrol. During this phase in India much of the organized sector has been affected by high growth as the
financial markets played an all-inclusive role in sustaining financial resource mobilization. Many PSUs (Public
28
Sector Undertakings) that decided to offload part of their equity were also helped by the well-organized
securities market in India.

The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter Exchange of India) during
the mid 1990s by the government of India was meant to usher in an easier and more transparent form of trading
in securities. The NSE was conceived as the market for trading in the securities of companies from the large-
scale sector and the OTCEI for those from the small-scale sector. While the NSE has not just done well to grow
and evolve into the virtual backbone of capital markets in India the OTCEI struggled and is yet to show any sign
of growth and development. The integration of IT into the capital market infrastructure has been particularly
smooth in India due to the country’s world class IT industry. This has pushed up the operational efficiency of
the Indian stock market to global standards and as a result the country has been able to capitalize on its high
growth and attract foreign capital like never before.

The regulating authority for capital markets in India is the SEBI (Securities and Exchange Board of India).
SEBI came into prominence in the 1990s after the capital markets experienced some turbulence. It had to take
drastic measures to plug many loopholes that were exploited by certain market forces to advance their vested
interests. After this initial phase of struggle SEBI has grown in strength as the regulator of India’s capital
markets and as one of the country’s most important institutions.

FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital markets throughout the
world. The development of a market economy is dependent on the development of the capital market. The
regulation of a capital market involves the regulation of securities; these rules enable the capital market to
function more efficiently and impartially.

A well regulated market has the potential to encourage additional investors to partake, and contribute in,
furthering the development of the economy. The chief capital market regulatory authority is Securities and
Exchange Board of India (SEBI).

SEBI is the regulator for the securities market in India. It is the apex body to develop and regulate the stock
market in India It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed
by the Indian Parliament. Chaired by C B Bhave, SEBI is headquartered in the popular business district of
29
Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New
Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a statutory and autonomous
regulatory board with defined responsibilities, to cover both development & regulation of the market, and
independent powers has been set up.

The basic objectives of the Board were identified as:

 to protect the interests of investors in securities;

 to promote the development of Securities Market;
 to regulate the securities market and
 For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to the fulfillment of its
objectives with commendable zeal and dexterity. The improvements in the securities markets like capitalization
requirements, margining, establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.

SEBI has introduced the comprehensive regulatory measures, prescribed registration norms, the eligibility
criteria, the code of obligations and the code of conduct for different intermediaries like, bankers to issue,
merchant bankers, brokers and sub-brokers, registrars, portfolio managers, credit rating agencies, underwriters
and others. It has framed bye-laws, risk identification and risk management systems for Clearing houses of
stock exchanges, surveillance system etc. which has made dealing in securities both safe and transparent to the
end investor.

Another significant event is the approval of trading in stock indices (like S&P CNX Nifty & Sensex) in 2000. A
market Index is a convenient and effective product because of the following reasons:

 It acts as a barometer for market behavior;

 It is used to benchmark portfolio performance;
 It is used in derivative instruments like index futures and index options;
 It can be used for passive fund management as in case of Index Funds.

30
Two broad approaches of SEBI is to integrate the securities market at the national level, and also to diversify the
trading products, so that there is an increase in number of traders including banks, financial institutions,
insurance companies, mutual funds, primary dealers etc. to transact through the Exchanges. In this context the
introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD is a real
landmark.

SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the
quick movement towards making the markets electronic and paperless rolling settlement on T+2 bases). SEBI
has been active in setting up the regulations as required under law.

STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual organization, where members of
the organization gather to trade company stocks or other securities. The members may act either as agents for
their customers, or as principals for their own accounts.

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an association, organization or body of
individuals whether incorporated or not, established for the purpose of assisting, regulating and controlling
business in buying, selling and dealing in securities.

Stock exchanges facilitate for the issue and redemption of securities and other financial instruments including
the payment of income and dividends. The record keeping is central but trade is linked to such physical place
because modern markets are computerized. The trade on an exchange is only by members and stock broker do
have a seat on the exchange.

31
List of Stock Exchanges in India

Bombay Stock Exchange

National Stock Exchange
OTC Exchange of India
Regional Stock Exchanges
1. Ahmedabad
2. Bangalore
3. Bhubaneswar
4. Calcutta
5. Cochin
6. Coimbatore
7. Delhi
8. Guwahati
9. Hyderabad
10. Jaipur
11. Ludhiana
12. Madhya Pradesh
13. Madras
14. Magadh
15. Mangalore
16. Meerut
17. Pune
18. Saurashtra Kutch
19. Uttar Pradesh
20. Vadodara

32
 BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock Exchange. It is the
oldest market not only in the country, but also in Asia. In the early days, BSE was known as "The Native
Share & Stock Brokers Association." It was established in the year 1875 and became the first stock exchange
in the country to be recognized by the government. In 1956, BSE obtained a permanent recognition from the
Government of India under the Securities Contracts (Regulation) Act, 1956.

In the past and even now, it plays a pivotal role in the development of the country's capital market. This is
recognized worldwide and its index, SENSEX, is also tracked worldwide. Earlier it was an Association of
Persons (AOP), but now it is a demutualised and corporatised entity incorporated under the provisions of the
Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by
the Securities and Exchange Board of India (SEBI).

BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock exchange by
establishing global benchmarks."

BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It comprises of eminent
professionals, representatives of Trading Members and the Managing Director. The Board is an inclusive
one and is shaped to benefit from the market intermediaries participation.
The Board exercises complete control and formulates larger policy issues. The day-to-day operations of BSE
are managed by the Managing Director and its school of professional as a management team.
BSE Network
The Exchange reaches physically to 417 cities and towns in the country. The framework of it has been
designed to safeguard market integrity and to operate with transparency. It provides an efficient market for
the trading in equity, debt instruments and derivatives. Its online trading system, popularly known as BOLT,
is a proprietary system and it is BS 7799-2-2002 certified. The BOLT network was expanded, nationwide, in
1997. The surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000 certified.

33
BSE Facts

BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the benchmark equity
index that reflects the robustness of the economy and finance. It was the –

 First in India to introduce Equity Derivatives

 First in India to launch a Free Float Index
 First in India to launch US$ version of BSE Sensex
 First in India to launch Exchange Enabled Internet Trading Platform
 First in India to obtain ISO certification for Surveillance, Clearing & Settlement
 'BSE On-Line Trading System’ (BOLT) has been awarded the globally
recognized the Information Security Management System standard
BS7799-2:2002.
 First to have an exclusive facility for financial training
 Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared to continue its contributions to
further the growth of the securities markets of the country, thus helping India increases its sphere of
influence in international financial markets.

NATIONAL STOCK EXCHANGE OF INDIA LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High Powered
Study Group on Establishment of New Stock Exchanges, which recommended promotion of a
National Stock Exchange by financial institutions (FI’s) to provide access to investors from all across the
country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial
Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-
paying company unlike other stock Exchange in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993,
NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital

34
Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment
commenced in June 2000.

NSE GROUP

National Securities Clearing Corporation Ltd. (NSCCL)

It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced clearing operations
in April 1996. It was formed to build confidence in clearing and settlement of securities, to promote and
maintain the short and consistent settlement cycles, to provide a counter-party risk guarantee and to operate a
tight risk containment system.

NSE.IT Ltd.
It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is uniquely positioned to
provide products, services and solutions for the securities industry. NSE.IT primarily focuses on in the area
of trading, broker front-end and back-office, clearing and settlement, web-based, insurance, etc. Along with
this, it also provides consultancy and implementation services in Data Warehousing, Business Continuity
Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real Time Market Analysis
& Financial News.

India Index Services & Products Ltd. (IISL)

It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and index related services
and products for the Indian Capital markets. It was set up in May 1998. IISL has a consulting and licensing
agreement with the Standard and Poor's (S&P), world's leading provider of investible equity indices, for co-
branding equity indices.

National Securities Depository Ltd. (NSDL)

NSE joined hands with IDBI and UTI to promote dematerialization of securities. This step was taken to
solve problems related to trading in physical securities. It commenced operations in November 1996.

NSE Facts

 It uses satellite communication technology to energize participation from around 400 cities in India.
 NSE can handle up to 1 million trades per day.
 It is one of the largest interactive VSAT based stock exchanges in the world.
 The NSE- network is the largest private wide area network in India and the first extended C- Band
VSAT network in the world.

35
  Presently more than 9000 users are trading on the real time-online NSE application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE, we are constantly
working towards creating a more transparent, vibrant and innovative capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956 and is recognized
as a stock exchange under section 4 of the securities Contracts Regulation Act, 1956. The exchange was set
up to aid enterprising promotes in raising finance for new projects in a cost effective manner and to provide
investors with a transparent and efficient mode of trading Modeled along the lines of the NASDAQ market
of USA, OTCEI introduced many novel concepts to the Indian capital markets such as screen-based
nationwide trading, sponsorship of companies, market making and scrip less trading. As a measure of
success of these efforts, the Exchange today has 115 listings and has assisted in providing capital for
enterprises that have gone on to build successful brands for themselves like VIP Advanta, Sonora Tiles &
Brilliant mineral water, etc.

Need for OTCEI:

Studies by NASSCOM, software technology parks of India, the venture capitals funds and the government’s
IT tasks Force, as well as rising interest in IT, Pharmaceutical, Biotechnology and Media shares have
repeatedly emphasized the need for a national stock market for innovation and high growth companies.

Innovative companies are critical to developing economics like India, which is undergoing a major
technological revolution. With their abilities to generate employment opportunities and contribute to the
economy, it is essential that these companies not only expand existing operations but also set up new units.
The key issue for these companies is raising timely, cost effective and long term capital to sustain their
operations and enhance growth. Such companies, particularly those that have been in operation for a short
time, are unable to raise funds through the traditional financing methods, because they have not yet been
evaluated by the financial world.

ANALYSIS OF AUTOMOBILE INDUSTRY

Over a period of more than two decades the Indian Automobile industry has been driving its own growth
through phases. With comparatively higher rate of economic growth rate index against that of great global

36
powers, India has become a hub of domestic and exports business. The automobile sector has been
contributing its share to the shining economic performance of India in the recent years.

To understand this industry for the purpose of investment we need to analyze it by the following approach:
Fundamental Analysis (E.I.C Approach)
a. Economy analysis
b. Industry analysis
c. Company analysis

Fundamental Analysis

Fundamental analysis is the study of economic, industry and company conditions in an effort to determine
the value of a company s stock. Fundamental analysis typically focuses on key statistics in company s
financial statements to determine if the stock price is correctly valued.

Most fundamental information focuses on economic, industry and company statistics.

The typical approach to analyzing a company involves three basic steps:
1. Determine the condition of the general economy.
2. Determine the condition of the industry.
3. Determine the condition of the company.

1. ECONOMY ANALYSIS

Economic analysis is the analysis of forces operating the overall economy a country. Economic analysis is a
process whereby strengths and weaknesses of an economy are analyzed. Economic analysis is important in
order to understand exact condition of an economy.
GDP and Automobile Industry
In absolute terms, India is 16th in the world in terms of nominal
factory output. The service sector is growing rapidly in the past
few years. This is the pie- chart showing contributions of
different sectors in Indian economy.

Today, automobile sector in India is one of the key sectors of the economy in terms of the employment.
Directly and indirectly it employs more than 10 million people and if we add the number of people
employed in the auto-component and auto ancillary industry then the number goes even higher.
37
As the world economy slipped into recession hitting the demand hard and the banking sector takes
conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7.1 per
cent for 2008-09 and it has increased to 8.6% in 2010 by overcoming the setbacks of recession.

Recession

Auto industry in India had been hit hard by ongoing global financial recession. But it is in a good shape now.
Much of this optimism resulted from renewed interest being shown in India auto industry by reputed
overseas car makers. Nissan Motors which is a well known Japanese car making company regarded India
automobile market as a global car manufacturing hub for future and invested huge amount in our market.
There are some other automobile companies of world who have shown interest in India auto market. Major
names among these are General Motors, Skoda Auto and Mercedes-Benz. These companies have major
plans lined up for India auto industry. These are few signs of the revolutionized auto industry after recession.

Inflation

The rise in inflation will have adverse impact on the industry that will not only see interest rates getting
further hardened but also a drop in demand due to the squeeze in purchasing power. The effect of inflation
has affected every sector which is related to car manufacturing and production. The increase in the price of
fuel and the steel due to inflation has led to a slower growth rate of the car industry in India.

Foreign Direct Investment

The automobile sector in the Indian industry is one of the high performing sectors of the Indian economy.
This has contributed largely in making India a prime destination for many international players in the
automobile industry who wish to set up their businesses in India. Automatic approval for foreign equity
investment up to 100 per cent of manufacture of automobiles and component is permitted.

Exports

Despite recession, the Indian automobile market continues to perform better than most of the other industries
in the economy in coming future; more and more MNC’s coming in India to setup their ventures which
clearly shows the scope of expansion. During April-January 2010, overall automobile exports registered a
growth rate of 13.24 percent.

38
2. INDUSTRY ANALYSIS (AUTOMOBILE)
The automobile industry in India is the ninth largest in the world with an annual production of over 2.3
million units in 2008. In 2009, India emerged as Asia's fourth largest exporter of automobiles, behind Japan,
South Korea and Thailand. The Automobile Industry is one of the fastest growing sectors in India. The
increase in the demand for cars, and other vehicles, powered by the increase in the income is the primary
growth driver of the automobile industry in India. In 2009, estimated rate of growth of India Auto industry is
going to be 9% .The Indian automobile sector is far from being saturated, leaving ample opportunity for
volume growth.

Segmentation of Automobile Industry

The automobile industry comprises of Heavy vehicles (trucks,
buses, tempos, tractors); passenger cars; Two- wheelers;
Commercial Vehicles; and Three-wheelers. Following is the
segmentation that how much each sector comprises of
whole Indian Automobile Industry.

Industry life cycle

The industrial life cycle is a term used for classifying industry life over time. Industry life cycle
classification generally groups industries into one of four stages: pioneer, growth, maturity and decline. In
the pioneer phase, the product has not been widely accepted or adopted. Business strategies are developing,
and there is high risk of failure. However, successful companies can grow at extraordinary rates. The Indian
automobile sector has passed this stage quite successfully. The industry is growing rapidly, often at an
accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with a growth rate of
around 15 % annually. The growth rate of the automobile industry in India is greater than the GDP growth
rate of the economy, so the automobile sector can be very well be said to be in the growth phase.

Swot analysis:

A scan of the internal and external environment is an important part of the strategic planning process.
Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W), and
those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the
strategic environment is referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector
gives the following points:

1. Strengths
 Large domestic market

39
  Sustainable labor cost advantage
 Competitive auto component vendor base
 Government incentives for manufacturing plants
 Strong engineering skills in design etc
2. Weaknesses
 Low labor productivity

 High interest costs and high overheads make the production uncompetitive

 Various forms of taxes push up the cost of production

 Low investment in Research and Development

 Infrastructure bottleneck

3. Opportunities
 Increasing challenges in consumer demands, technology development, and globalization.
 Heavy thrust on mining and construction activity
 Increase in the income level
 Cut in excise duties
4. Threats
 Ignorance of Research & development

 Rising interest rates

 Cut throat competition

3. COMPANY ANALYSIS

The company analysis shows the long-term strenght of the company that what is the financial position of the
company in the market, where it stands among its competitors and who are the key drivers of the company,
what are the future plans of the company, what are the policies of government towards the company and how
the stake of the company divested among different groups of people.

40
Here, I have taken two companies namely TATA Motors and Mahindra and Mahindra for the purpose of
fundamental analysis

Tata Motors Limited is India's largest automobile company, with consolidated revenues of Rs. 92,519
crores (USD 20 billion) in 2009-10. It is the leader in commercial vehicles in each segment, and among the
top three in passenger vehicles with winning products in the compact, midsize car and utility vehicle
segments. The company is the world's fourth largest truck manufacturer, and the world's second largest bus
manufacturer.

The Mahindra Group’s Automotive Sector is in the business of manufacturing and marketing utility vehicles
and light commercial vehicles, including three-wheelers. It is the market leader in utility vehicles in India
since inception, and currently accounts for about half of India’s market for utility vehicles. The Automotive
Sector continues to be a leader in the utility vehicle segment with a diverse portfolio that includes mass
transport as well as new generation vehicles like Scorpio, Bolero and the recently launched Xylo.

TATA MOTORS - Balance sheet

Balance Sheet of Tata
Motors  
  Mar '13 Mar '14 Mar '15 Mar '16 Mar '17
Sources of funds        
Total Share Capital 361.79 382.87 385.41 385.54 514.05
Equity Share Capital 361.79 382.87 385.41 385.54 514.05
Share Application Money 0.00 0.00 0.00 0.00 0.00
Reserves 3,749.60 5,127.81 6,458.39 7,428.45 11,855.15
41
Revaluation Reserves 0.00 26.39 25.95 25.51 25.07
Networth 4,111.39 5,537.07 6,869.75 7,839.50 12,394.27
Secured Loans 489.81 822.76 2,022.04 2,461.99 5,251.65
Unsecured Loans 2,005.61 2,114.08 1,987.10 3,818.53 7,913.91
Total Debt 2,495.42 2,936.84 4,009.14 6,280.52 13,165.56
Total Liabilities 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83

Application of funds        
Gross Block 6,611.95 7,971.55 8,775.80 10,830.83 13,905.17
Less: Accum. Depreciation 3,454.28 4,401.51 4,894.54 5,443.52 6,259.90
Net Block 3,157.67 3,570.04 3,881.26 5,387.31 7,645.27
Capital Work in Progress 538.84 951.19 2,513.32 5,064.96 6,954.04

Investments 2,912.06 2,015.15 2,477.00 4,910.27 12,968.13

Inventories 1,601.36 2,012.24 2,500.95 2,421.83 2,229.81

Sundry Debtors 811.32 715.78 782.18 1,130.73 1,555.20

Cash and Bank Balance 345.26 327.66 535.78 750.14 638.17

Total Current Assets 2,757.94 3,055.68 3,818.91 4,302.70 4,423.18

Loans and Advances 2,831.16 5,964.61 6,208.53 4,831.36 5,909.75
Fixed Deposits 1,659.78 791.77 290.98 1,647.17 503.65
Total CA, Loans & Advances 7,248.88 9,812.06 10,318.42 10,781.23 10,836.58
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 6,142.74 6,673.61 6,956.88 10,040.37 10,968.95
Provisions 1,126.06 1,215.04 1,364.32 1,989.43 1,877.26
Total CL & Provisions 7,268.80 7,888.65 8,321.20 12,029.80 12,846.21
Net Current Assets -19.92 1,923.41 1,997.22 -1,248.57 -2,009.63

Total Assets 6,606.81 8,473.91 10,878.89 14,120.02 25,559.83

Contingent Liabilities 1,450.32 2,185.63 5,196.07 5,590.83 5,433.07
Book Value (Rs) 113.65 143.94 177.59 202.70 240.64

TATA MOTORS – Profit & Loss account

Profit & Loss account of Tata

Motors  
  Mar '13 Mar '14 Mar '15 Mar '16 Mar '17
Income        
31,089.6
Sales Turnover 20,262.61 23,490.55 9 33,123.54 28,538.20
Excise Duty 3,063.44 3,401.92 4,425.44 4,355.63 2,877.53
42
 26,664.2
Net Sales 17,199.17 20,088.63 5 28,767.91 25,660.67
Other Income 403.98 852.41 1,114.38 734.17 921.29
Stock Adjustments 144.00 256.91 349.68 -40.48 -238.04
28,128.3
Total Income 17,747.15 21,197.95 1 29,461.60 26,343.92
Expenditure        
19,879.5
Raw Materials 12,245.28 14,633.02 6 20,891.33 18,801.37
Power & Fuel Cost 237.81 258.51 327.41 325.19 304.94
Employee Cost 1,039.34 1,143.13 1,367.83 1,544.57 1,551.39
Other Manufacturing Expenses 592.64 671.31 872.95 904.95 866.65
Selling and Admin Expenses 890.21 1,061.07 1,505.23 2,197.49 1,652.31
Miscellaneous Expenses 620.27 740.99 1,051.49 964.78 1,438.89
Preoperative Exp Capitalised -282.43 -308.85 -577.05 -1,131.40 -916.02
24,427.4
Total Expenses 15,343.12 18,199.18 2 25,696.91 23,699.53
Operating Profit
2,000.05 2,146.36 2,586.51 3,030.52 1,723.10
PBDIT 2,404.03 2,998.77 3,700.89 3,764.69 2,644.39
Interest 234.30 350.24 455.75 471.56 704.92
PBDT 2,169.73 2,648.53 3,245.14 3,293.13 1,939.47
Depreciation 450.16 520.94 586.29 652.31 874.54
Other Written Off 67.12 73.78 85.02 64.35 51.17
Profit Before Tax 1,652.45 2,053.81 2,573.83 2,576.47 1,013.76
Extra-ordinary items -1.54 0.00 -0.07 0.00 15.29
PBT (Post Extra-ord Items) 1,650.91 2,053.81 2,573.76 2,576.47 1,029.05
Tax 415.50 524.93 660.37 547.55 12.50
Reported Net Profit 1,236.95 1,528.88 1,913.46 2,028.92 1,001.26
Total Value Addition 3,097.84 3,566.16 4,547.86 4,805.58 4,898.16
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 452.19 497.94 578.07 578.43 311.61
Corporate Dividend Tax 63.42 69.84 98.25 81.25 34.09
Per share data (annualised)        
Shares in issue (lakhs) 3,617.52 3,828.34 3,853.74 3,855.04 5,140.08
Earning Per Share (Rs) 34.19 39.94 49.65 52.63 19.48
Equity Dividend (%) 125.00 130.00 150.00 150.00 60.00
Book Value (Rs) 113.65 143.94 177.59 202.70 240.64

MAHINDRA & MAHINDRA – Balance Sheet

Balance Sheet of
Mahindra and Mahindra  
  Mar '13 Mar '14 Mar '15 Mar '16 Mar '17
43
Sources Of Funds        
Total Share Capital 116.01 233.40 238.03 239.07 272.62
Equity Share Capital 116.01 233.40 238.03 239.07 272.62
Share Application Money 0.00 0.00 0.00 0.00 0.00
Preference Share Capital 0.00 0.00 0.00 0.00 0.00
Reserves 1,881.93 2,662.14 3,302.01 4,098.53 4,959.26
Revaluation Reserves 14.32 13.33 12.86 12.47 12.09
Networth 2,012.26 2,908.87 3,552.90 4,350.07 5,243.97
Secured Loans 336.82 216.68 106.65 617.26 981.00
Unsecured Loans 715.80 666.71 1,529.35 1,969.80 3,071.76
Total Debt 1,052.62 883.39 1,636.00 2,587.06 4,052.76
Total Liabilities 3,064.88 3,792.26 5,188.90 6,937.13 9,296.73
Application Of Funds        
Gross Block 2,676.51 2,859.25 3,180.57 3,552.64 4,893.89
Less: Accum. Depreciation 1,335.56 1,510.27 1,639.12 1,841.68 2,326.29
Net Block 1,340.95 1,348.98 1,541.45 1,710.96 2,567.60
Capital Work in Progress 133.93 205.46 329.72 649.94 646.73
Investments 1,189.79 1,669.09 2,237.46 4,215.06 5,786.41
Inventories 759.83 878.74 878.48 1,084.11 1,060.67
Sundry Debtors 511.53 637.97 700.89 1,004.88 1,043.65
Cash and Bank Balance 198.07 258.39 415.89 310.58 635.61
Total Current Assets 1,469.43 1,775.10 1,995.26 2,399.57 2,739.93
Loans and Advances 461.07 558.02 1,011.50 866.19 1,402.45
Fixed Deposits 425.91 471.92 910.18 550.65 938.82
Total CA, Loans & Advances 2,356.41 2,805.04 3,916.94 3,816.41 5,081.20
Deffered Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 1,480.87 1,711.23 2,138.77 2,525.31 3,520.20
Provisions 499.71 543.14 715.43 943.46 1,277.56
Total CL & Provisions 1,980.58 2,254.37 2,854.20 3,468.77 4,797.76
Net Current Assets 375.83 550.67 1,062.74 347.64 283.44
Miscellaneous Expenses 24.38 18.05 17.55 13.53 12.55
Total Assets 3,064.88 3,792.25 5,188.92 6,937.13 9,296.73
Contingent Liabilities 758.14 946.36 1,008.27 985.35 1,220.39
Book Value (Rs) 178.95 124.06 148.72 181.43 191.91

44
MAHINDRA & MAHINDRA – Profit & Loss account

Profit & Loss account of

Mahindra and Mahindra  
  Mar '13 Mar '14 Mar '15 Mar '16 Mar '17
Income        
Sales Turnover 7,649.51 9,273.09 11,231.99 12,894.94 14,713.03
Excise Duty 1,054.82 1,136.50 1,310.65 1,584.57 1,587.05
Net Sales 6,594.69 8,136.59 9,921.34 11,310.37 13,125.98
Other Income 209.74 455.20 531.17 575.96 369.85
Stock Adjustments 174.05 103.20 6.41 149.11 -156.29
Total Income 6,978.48 8,694.99 10,458.92 12,035.44 13,339.54
Expenditure        
Raw Materials 4,829.29 5,885.21 6,937.16 7,963.82 9,208.71
Power & Fuel Cost 52.64 57.46 65.19 91.33 98.69
Employee Cost 464.25 551.78 666.15 853.65 1,024.61
Other Manufacturing Expenses 48.01 54.44 68.80 73.35 75.36
Selling and Admin Expenses 545.57 667.99 891.29 1,108.33 954.83
Miscellaneous Expenses 141.95 177.89 210.03 257.84 558.07
Preoperative Exp Capitalized -31.84 -26.53 -47.10 -46.49 -42.83
Total Expenses 6,049.87 7,368.24 8,791.52 10,301.83 11,877.44
Operating Profit 718.87 871.55 1,136.23 1,157.65 1,092.25
PBDIT 928.61 1,326.75 1,667.40 1,733.61 1,462.10
Interest 30.24 26.96 19.80 87.59 134.12
PBDT 898.37 1,299.79 1,647.60 1,646.02 1,327.98
Depreciation 184.05 200.01 209.59 238.66 291.51
Other Written Off 0.15 0.28 0.33 0.59 0.00
Profit Before Tax 714.17 1,099.50 1,437.68 1,406.77 1,036.47
Extra-ordinary items 0.00 0.00 -19.19 0.00 4.07
PBT (Post Extra-ord Items) 714.17 1,099.50 1,418.49 1,406.77 1,040.54
Tax 201.50 242.40 350.10 303.40 199.69
Reported Net Profit 512.67 857.10 1,068.39 1,103.37 836.78
Total Value Addition 1,220.58 1,483.04 1,854.37 2,338.01 2,668.73
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Equity Dividend 150.81 243.97 282.23 282.61 278.83
Corporate Dividend Tax 21.15 34.22 42.50 38.48 33.23
Per share data (annualized)        
Shares in issue (lakhs) 1,116.48 2,334.00 2,380.33 2,390.73 2,726.16
Earning Per Share (Rs) 45.92 36.72 44.88 46.15 30.69
Equity Dividend (%) 130.00 100.00 115.00 115.00 100.00
Book Value (Rs) 178.95 124.06 148.72 181.43 191.91

45
 RATIO ANALYSIS OF TATA MOTORS AND MAHINDRA & MAHINDRA

EARNINGS PER SHARE

EARNINGS PER SHARE

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

TATA 34.19 39.94 49.65 52.63 19.48
MAHINDR
A 45.92 36.72 44.88 46.15 30.69

EARNINGS PER SHARE

70
60
50 TATA
40
Rs

MAHINDRA
30
20
10
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17
YEARS

Interpretations
EPS measures the profit available to the equity shareholders per share, that is, the amount that they can get
on every share held. Till 2016 TATA had a rising EPS but in 2017 it had a fall and the effect is more
because of the slump in domestic and international markets and sharp fall in sales and net profits which
resulted in low EPS. Mahindra is not much affected as its sales have increased from the previous year. But as
trend shows Mahindra motors has potential so a shareholder can expect better in future.

46
 SALES

SALES

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

33,123.5
TATA 20,262.61 23,490.55 31,089.69 4 28,538.20
MAHINDR 12,894.9
A 7,649.51 9,273.09 11,231.99 4 14,713.03

SALES

35,000.00
30,000.00
Rs in Crores

25,000.00 TATA
20,000.00
IMAHINDRA
15,000.00
10,000.00
5,000.00
0.00
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17
YEARS

Interpretations
Mahindra show a positive trend in sales over the past five years. Though slowdown in the economy brought
hurdles but these companies have potential to grow in future as lots of products are still to add in their
portfolio. Moreover increased demand in foreign market also seems to be a positive signal for better future.
TATA has witnessed a decline in sales of each segment. Mahindra is going swiftly.

47
 DIVIDEND PER SHARE

DIVIDEND PER SHARE

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

TATA 12.5 13 15 15 6
MAHINDR
A 13 10 11.5 11.5 10

DIVIDEND PER SHARE

20

15 TATA
MAHINDRA
Rs

10 I

0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17
YEARS

Interpretations
Tata motors showed a positive trend in paying dividends till 2016, but the scenario changed in 2017 as the
company’s dividend per share fell. According to graph Tata’s dividend has fallen drastically. Mahindra has
made a slight reduction from rs.11.5 per share in 2016 to rs.10 per share this year. Therefore Mahindra
would be the best option for an investor.

48
 RETURN ON INVESTMENT (ROI)

Return on Investment

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

TATA 30.09 27.74 27.96 25.98 8.09
MAHINDR
A 25.66 29.6 30.18 25.51 16.03

RETURN ON INVESTMENT

35
30
25
TATA
20
%

MAHINDRA
15
10
5
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17
YEARS

Interpretations
ROI is one of the most important ratios used for measuring the overall efficiency of a firm and determines
whether the investments in the firms are attractive or not. According the graph, ROI of TATA has declined
to a large extent in 2017, making it a quite risky investment. Mahindra’s ROI is showing a higher rate
compared to TATA in 2017. As the investors would like to invest only where the return is higher, Mahindra
would be attractive for investment.

49
 DIVIDEND PAYOUT RATIO

DIVIDEND PAYOUT RATIO

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

TATA 41.68 37.13 35.34 32.51 34.52

MAHINDR
A 33.54 32.45 30.39 29.1 37.29

DIVIDEND PAYOUT RATIO

50
40
TATA
30
M
I AHINDRA
%

20
10
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar’17
YEARS

Interpretations

Dividend payout ratio is the percentage of earnings paid to shareholders in dividends. It provides an idea to
an investor of how well earnings support the dividend payments. Both TATA and Mahindra have increased
their payout ratio in which Mahindra shows a higher payout ratio.

50
 PRICE-EARNINGS RATIO (P/E RATIO)

PRICE-EARNINGS RATIO

YEARS Mar'13 Mar'14 Mar'15 Mar'16 Mar'17

TATA 19.09 22.5 14.9 3.02 40.6
MAHINDR
A 11.1 24.6 19.1 5.9 35.2

PRICE EARNINGS RATIO

50
40
TATA
30
IMAHINDRA
%

20
10
0
Mar'13 Mar'14 Mar'15 Mar'16 Mar'17
YEARS

Interpretations

This ratio is widely used by investors to decide whether or not to buy shares in a particular company. As per
the graph, in 2016, the P/E ratio of the two companies was the lowest compared to the previous years. TATA
has the highest P/E ratio in 2017 which indicates that it is overvalued, so the investors can benefit by selling
the shares. An investor can go for Mahindra as its P/E ratio is the low in 2019 which indicates that it is
undervalued and there is a scope for growth in the future.

51
FINDINGS

From the data analysis and interpretations of the ratios of two companies’ viz. Tata Motors and Mahindra
and Mahindra, the following findings have been given:

 The two companies were performing well till 2016 with a positive trend in the earnings per share.
But there was a downward trend in 2017. Especially, TATA has witnessed a steep fall in the year
2017.

 The sales trend has been upward and positive in case of both the companies. The sales growth looks
positive but in the year 2017, TATA’s sales have declined whereas Mahindra have maintained the
same upward positive trend.

 In case of dividend per share, there were fluctuations during the period 2013-2017. Due to recession,
the dividends per share have declined in both the companies. Tata’s dividend has fallen drastically.
Mahindra has made a slight reduction from rs.11.5 per share in 2016 to rs.10 per share in 2017 this
year.

 The return on investment has been fluctuating since 2013 and the year 2017 witnessed low returns in
case of both the companies amongst which TATA has the least rate of return. Compared to the two
companies, Mahindra has the highest ROI in 2017.

 TATA and Mahindra have increased their payout ratio in which Mahindra shows a higher payout
ratio.
 The two companies have witnessed a low price earnings ratio in 2016 compared to the previous
years. But the ratio increased in 2017 in two companies. TATA has the highest P/E ratio in 2017
which indicates that it is overvalued and Mahindra’s P/E ratio is the lowest in 2017 which indicates
that it is undervalued and there is a scope for growth in the future.

By analyzing the current trend of Indian Economy and Automobile Industry I have found that being a
developing economy there is lot of scope for growth and this industry still has to cross many levels so there
are huge opportunities to invest in and this is being proved as more and more foreign companies are setting
up there ventures in India.

Increase in income level, increase in consumer demand, technology development, globalization, foreign
investments are few of the opportunities which the industry has to explore for developing the economy.
52
53
SURVEY ANALYSIS

After balance sheet analysis, we took a survey on common people to know their thought process on
investing in equity shares, analyzing before investing, etc. We created two sets of questionnaire, one which
was related to people who invest in equity shares and second for people who don’t.

The survey was conducted on 100 people and their responses are showed in the form of charts.

The questionnaire was as follows:

EQUITY ANALYSIS

The objective of this survey is to know about the behaviour of a common person towards the investment in
equity shares.
1. Name:

2. Gender:
o Male
o Female
o Others

3. Age:
o 18-25
o 26-30
o 31-45
o 46 & above

4. Email ID:

5. Do you invest in shares?

o Yes
o No

54
IF YES

1. Do you research before investing?

o Yes
o No
o Maybe

2. Do you think it is necessary to analyze the company before investing in shares?

o Yes
o No
o Maybe

3. What do you see in a company before investing?

 Sales
 Return on investment
 Complete balance sheet
 Goodwill of the company
 Market price
 None of the above

4. Do you think investing in shares can be profitable?

o Yes
o No
o Maybe

5. If given option will you go with investing in equity shares or investing in mutual funds?
o Equity shares
o Mutual funds

6. Is investing in equity shares risky?

o Strongly disagree
o Disagree
o Neutral
o Agree
55
o Strongly agree

7. According to you, which age group invests more in shares?

o 18-25
o 26-35
o 36-45
o 46 & above

8. Do you think experts are required to guide one about how, when, in which company to invest?
o Yes
o No
o Maybe

9. If it is said to invest in one company from Tata Motors and Mahindra & Mahindra, in which
company will you invest?
o Tata Motors
o Mahindra & Mahindra
o None

56
IF NO
1. Why you don’t invest in shares?
o Risky in nature
o Lack of knowledge
o Less desire to invest
o Others

2. If given a chance, will you invest in shares?

o Yes
o No
o Maybe

3. Before investing will you analyze the company?

o Yes
o No
o Maybe

4. Do you think analyzing a company is important before investing in its shares?

o Yes
o No
o Maybe

5. What will you consider before investing in a company?

 Return on investment
 Sales
 Company’s balance sheet
 Company’s goodwill in market
 Market price of the shares
 None of the above

6. Is investing in equity shares risky?

o Strongly disagree
57
o Disagree
o Neutral
o Agree
o Strongly agree

7. Do you think experts are required to guide one about how, when, in which company to invest?
o Yes
o No
o Maybe

8. Do you think investing in shares can be profitable?

o Yes
o No
o Maybe

9. If given option will you go with investing in equity shares or investing in mutual funds?
o Equity shares
o Mutual funds

10. According to you, which age group invests more in shares?

o 18-25
o 26-35
o 36-45
o 46 & above

11. If it is said to invest in one company from Tata Motors and Mahindra & Mahindra, in which
company will you invest?
o Tata Motors
o Mahindra & Mahindra
o None

58
The result of the above survey is as follows:

Interpretation:
Out of 100 responses 55% were male as one can see in the given pie chart and 45% were female.

Interpretation:
As one can see that most of the responses are from the age group 18-25, which belongs to the age group
where people study about investment as well as wish to invest more. With that the next highest age group is
above 45 who might have the idea about investing and then 31-45 age groups and 26-30 age group.

59
Interpretation:
After analyzing the result of the above mentioned question one can say that even today people don’t tend to
invest in equity shares more. As its been seen in the above diagram, that out of 100 people 76% of people
still don’t invest in shares whereas only 24% of people have the habit of investing in the equity shares.

IF YES

The next set of questions was for the people who tend to invest in the equity shares.
So the results of the given questions are as follows:

Interpretation:
Most of the people nowadays make sure that before investing in any company they analyze the company
thoroughly so that they know that they are investing in a company which can actually give them good
returns. In the above chart, one can see clearly that most of the people i.e. 79.2% people do research before
investing and only 4.1% don’t undertake any research whereas 16.7% may or may not research.

60
Interpretation:
From the above chart, it is easy to know that 100% of all the 24 people think that analyzing a company is
really important part of research before investing in any company. Analyzing makes it’s easy to know that is
the company capable of giving proper returns to its shareholders. So, it’s better to analyze and do some
research before investing in any company.

Interpretation:
Analyzing consist of studying the balance sheet of the company, to check the turnover of the company, to
see how much return on investment the company is giving, etc. Basically from the above chart we can see
that people give more importance to return on investment followed by goodwill of the company and market
price of its shares in the market and them to balance sheet and turnover.
But the important thing which should be analyzed first is the complete balance sheet of the company and
then the return on investment, goodwill, market price and sales or turnover of the company.

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Interpretation:
Yes, as we can see that from the given chart even common people think that they can earn profits from
equity shares. 83.3% people agree to this thing whereas only 16.7% people think that they may or may not
be able to earn profits from investing in shares.
If a person invests in any company after doing research then they will definitely earn positive profits because
one only invests in a profit making company. And if one invests without doing any kind of research so there
are higher chances of earning negative profits which is also called as loss.

Interpretation:
People always tend to play safe that is the main reason why people invests more in mutual funds rather than
investing in equity shares. No doubt mutual funds are comparably safer than equity shares.
From the above chart we can see that if given chance people would definitely invest in mutual funds, only
29.2% of people feel to invest in the equity shares.

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Interpretation:
Half of the people are unaware about the riskiness of investing in shares. Yes, at times it is risky as it totally
depends upon the market trends and the working of the company. If the company is working efficiently then
the risk is little less as compared to that company’s whose working is not that much efficient. Investing in a
company whose trends don’t change so often, in the company where there are less fluctuations is
comparably safer.

Interpretation:
The people who belongs to the age group of 36-45 and the 26-35 do invest in equity more because they have
the knowledge about how to invest, when to invest and in which company to invest and at the same time
they are working and earning, so they have the money to invest as compared to the age group of 18-25.
The age group which is above 45 always tends to play safe and invest their money in some fixed deposit
rather than investing in equity.

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Interpretation:
An expert of financial market has knowledge about everything which is going on in the financial markets.
It’s better to get advice from an expert before investing so that one doesn’t have to suffer with so much of
loss. An expert can also guide you about when to buy the shares and when to sell it. So it’s right that you
should get advice from the person who has knowledge about it.

Interpretation:
As we can see from the given chart that people desire to invest in Tata Motors more as compare to Mahindra
& Mahindra. If they had analyzed the company before they would have invested in Mahindra & Mahindra as
it is a company which would give them comparatively better returns as it is a stable company. If we talk
about Tata Motors, no doubt that it has goodwill in market, but the company faces too much of fluctuations
which indirectly affects its return on investment.
So, it is better to invest in Mahindra & Mahindra rather than investing in Tata Motors.

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IF NO

The next set of questions was for the people who don’t invest in equity shares or are uninterested to invest in
equity shares.

The results of the given questionnaire are as follows:

Interpretation:
People don’t intend to invest in shares because firstly they don’t have that much knowledge about investing
in shares followed by they think that it is risky in nature and they have less desire to invest and there can be
other reasons too.
From the above diagram, we can understand that the main reason of not investing in equity shares is lack of
knowledge. So, to overcome this it is important to educate the people about how investing in equity shares
work.

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Interpretation:
If the people who don’t invest in shares are given chance to invest, from the above chart we can say that they
would definitely invest. There are 49.4% that they would definitely invest, 36.4% that they may invest in it
and 14.3% that they won’t invest. Basically right now they don’t invest because they lack knowledge about
it but once they get to know about it’s working they would definitely invest.

Interpretation:
From the above chart we can say that people even if they are not investing in share but once they would get a
chance to invest they would surely research before investing in any company. This shows that even if they
lack knowledge yet they know that it is important to do research about the company before investing in it.
In the above diagram, we can see that 90.9% of people will do a research definitely before investing whereas
5.4% won’t do any research and 3.7% may or may not do any research about the company they are investing
in.

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Interpretation:
The people, who don’t invest in shares think that if they would be investing in shares then they would
definitely do a proper research about the company, analyze it properly and then invest. From the above chart
we can see that 97.4% thinks that they should undertake proper research before investing in any company.

Interpretation:
Here, when we are talking about the analyzing or research, from the above chart we can see that people will
consider the return on investment the most, followed by the goodwill of the company, market price of the
company’s shares, then the balance sheet and lastly the sales of the company.
Basically the company’s balance sheet play an important role after the return on investment but as the people
lack the knowledge they don’t know about this thing.

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Interpretation:
People mostly had a neutral approach towards this question. But we can say that no doubt equity shares can
turn out to be risky if not researched or analyzed properly before investing. 58.4% people here have neutral
approach, followed by 32.5% people who agrees that investing in equity shares is a bit risky whereas there
are people too who strongly believe that equity shares are risky and very less people think that there is no
risk in investing in equity shares.

Inte
rpretation:
Large number of people (67.5%) thinks that experts are needed to guide about how, when, in which
company to invest. Whereas 29.9% of people think that there might be need of any guidance and there are
also some people who think that there is no need for expert guidance for investing in shares.
An expert helps to understand the market trend and helps to invest in the company which would definitely
give higher returns if invested.
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Interpretation:
Investing in shares can be profitable if before investing the person has taken up proper research because after
doing a research it is an obvious thing that one will invest in a company which is profitable, which has good
return on investment rate and at the same time has goodwill in the market.
Here we can see that 50.6% believes that investing in equity is profitable and 46.8% thinks that it may be or
may not be profitable. There are also some people who thinks it’s not profitable at all which is definitely not
true.

Interpretation:
People tend to always play safe or else we can say that they always want to be at the safer path. From the
above diagram we can see that people are willing to invest in mutual funds more rather than investing in
equity shares because initially they don’t invest at all and even if they have given the opportunity they will
definitely play safe and invest in mutual funds as they are comparably less risky than equity shares.

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Interpretation:
The age group that earns and has knowledge about how to invest definitely invests more in shares. From the
above chart we can see that the age group of 26-35 tends to invest more followed by 36-45. The younger
people who falls in the age group 18-25 has limited knowledge as well as limited resources, so hardly people
from this age group invest in equity whereas the age group above 46 tends to play safe and invest in fixed
deposit or something similar to it.

Interpretation:
As we can see from the given chart that people desire to invest in Tata Motors more as compare to Mahindra
& Mahindra. If they had analyzed the company before they would have invested in Mahindra & Mahindra as
it is a company which would give them comparatively better returns as it is a stable company. If we talk
about Tata Motors, no doubt that it has goodwill in market, but the company faces too much of fluctuations
which indirectly affects its return on investment.
So, it is better to invest in Mahindra & Mahindra rather than investing in Tata Motors.

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FINDINGS

From the data analysis and interpretation of the survey undertaken to understand the thinking of the
consumer or the common person related to investing in equity shares we come to know about the following
points:

 Very less amount of people invests in equity shares, and the people who don’t invest are
comparatively high.
 The people who invest in equity shares do undertake research about the company before investing
which shows that they are aware of the importance of survey and analyzing before investing.
 If they are given chance they would definitely go for mutual funds as they find it comparatively
safer, less risky, flexible, etc. whereas they won’t invest in equity shares because it is a bit or we can
say sometimes more riskier than mutual funds.
 People in between the age of 35-45 tend to invest more as they have knowledge as well as resources
to invest.
 Most of the people who don’t invest in the equity shares lack the knowledge about equity shares.
Like what equity shares are, how to invest in them, which are the company worth investing, when to
buy shares and when to sell, etc.
 If the people who don’t invest in shares given chance to invest they would definitely try investing in
shares but they need to be given guidance.
 It is better if one before investing seek guidance from an expert who knows about the market trends,
about the companies; about how financial market work, etc.
 If they seek guidance from expert they would get to know that fluctuations in Tata Motors are
comparably high than Mahindra & Mahindra. So, it is advisable to invest in Mahindra & Mahindra
for better returns because it will definitely give you a proper return as compared to Tata Motors.
 Mutual funds might be less risky but at the same time the returns are less as compared to equity
shares, whereas equity shares are no doubt more risky but the returns are also more as compared to
mutual funds.
 One should know at what time to purchase the equity share, at what time to sell, which company will
give the higher profit, which company is not worth of investing, how one should buy the shares, etc.

By analyzing the behavior of the common people towards investing in shares I have got to know that people
lack knowledge about the equity shares, once properly guided and given information about how equity
shares work it would let many people invest in it.

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SUGGESTIONS

By analyzing the automobile industry with the help of fundamental analysis, it has been revealed that this

industry has a lot of potential to grow. So recommending investing in Automobile industry with no doubt is

going to be a good and smart option because this industry is booming like never before not only in India but

all over the world.

The two giants of Indian Automobile industry viz. TATA Motors and Mahindra and Mahindra have

outperformed in the industry.

 From the company analysis, we can know that Mahindra would be a better option for an investor

compared to TATA. In view of the slump in the domestic and international market, TATA has

recorded a slowdown in sales and income level. Its Earnings per share has also declined drastically. It

has reduced its dividend per share from rs.15 in the previous year to rs.6 in 2017. The return on

investment is also very low. In view of all these, TATA is not a better option for an investor.

 Despite the challenging business environment, Mahindra has maintained its upward sales level. Its

Return on Investment is much higher compared to TATA. The dividend per share is rs.10 which is

higher amongst the two companies. The company has potential to grow. It would be the best option

for the investor.

 Investing in Mahindra for long time could be a good option whereas in TATA motors there is a

chance of getting correction, as it already went on high side in a very short period of time and is

experiencing a downfall from 2016.

 Holding the shares for long time could be a wrong step and at this point of time those who invested

earlier can book their profits. As Mahindra’s shares are undervalued, the investor can buy these

shares. This is because a relatively lower P/E would save investors from paying a very high price that

does not justify the value of an investment.

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Few Suggestions for “Right Stock Selection”

There are three factors which an investor must consider for selecting the right stocks.

 Business: An investor must look into what kind of business the company is doing, visibility of the

business, its past track record, capital needs of the company for expansion etc.

 Balance Sheet: The investor must focus on its key financial ratios such as earnings per share, price-

earnings ratio; debt-equity ratio, dividends per share etc. and he must also check whether the

company is generating cash flows.

 Bargaining: This is the most important factor which shows the true worth of the company. An

investor needs to choose valuation parameters which suit its business.

Investment rules

 Invest for long term in equity markets

 Align your thought process with the business cycle of the company.

 Set the purpose for investment.

 Long term goals should be the objective of equity investment.

 Disciplined investment during market volatility helps attains profits.

 Planning, Knowledge and Discipline are very crucial for investment.

By analyzing the survey, the suggestions are as follows:

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 Always study the market before investing as it can help one to take the right investment decision and
can help one in getting higher returns.
 Education is required to be given to the common people so that the can avail the opportunity of
investing and see how favorable investing can be.
 Investing can turn out to be profitable if one invests wisely and for that it is necessary for the people
to understand the market and if they are

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