AMRITA VISHWA VIDYAPEETHAM

AMRITA SCHOOL OF ARTS & SCIENCES, MYSURU

Department of Management and Commerce

PROJECT REPORT ON
A Study on Indicators of Investment Opportunities in Stock Market

Submitted
By
Shyam Krishna V
MY.BU.U3COM18154
B.COM Taxation and Finance

During the academic year

2020- 2021
In fulfilment of the Requirement
For the Degree of
Bachelor of Commerce (T&F)
Under the Guidance of
Raghunandan M.V
Assistant Professor
Department of Management and Commerce
Amrita Vishwa Vidyapeetham,
Amrita School of Arts &Sciences, Mysuru Campus

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Raghunandan M.V
Assistant Professor
Department of Management and Commerce
Amrita VishwaVidyapeetham
Amrita School of Arts &Sciences
Mysuru Campus – 570 026

GUIDE CERTIFICATE
This is to certify that this project “A Study on Indicators of Investment

Opportunities in Stock Market” is carried out by Shyam Krishna.V bearing the

Register No MY.BU.U3COM18154 in partial fulfilment of Under Graduate Degree

in B. Com (T & F) under my guidance during the academic year 2020-21

This report is original work submitted by Shyam Krishna.V to Amrita Vishwa

Vidyapeetham, Mysuru and not submitted to any other university or institution for

any degree/ diploma certification in any year to the best of my knowledge and belief.

Date: Signature of the Guide

Place: Mysuru Raghunandan M.V

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 Department of Management and Commerce
AMRITA VISHWA VIDYAPEETHAM
AMRITA SCHOOL OF ARTS & SCIENCES
MYSURU CAMPUS

CERTIFICATE

This is to certify that Shyam Krishna.V student of VIth Semester B. Com (T&F)

bearing the Register No. MY.BU.U3COM18154 has successfully completed the

project.

Work entitled “A Study on Indicators of Investment Opportunities in Stock

Market” in partial fulfilment for the award of Under Graduate Degree in Commerce

from Amrita Vishwa Vidyapeetham, Mysuru during the Academic Year 2020-21

Date: Signature of Chairperson

Place: Mysuru

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 DECLARATION

I hereby declare that the Project work entitled “A Study on Indicators of

Investment Opportunities in Stock Market” is bonafide work done by me under

the supervision and guidance of Raghunandan M.V, Assistant Professor,

Department of Management and Commerce, Amrita Vishwa Vidyapeetham, Mysuru.

This report is submitted by me in partial fulfilment of B.Com (F& IT) / B. Com

(T&F) BBM/ M.Com in Amrita VishwaVidyapeetham, Mysuru and not submitted

to any other university or institution for award of any degree/ diploma certification in

any year.

Place: Mysuru Shyam Krishna.V

MY.BU.U3COM18154
Date:

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 ACKNOWLEDGEMENT

While presenting the report project, I have great pleasure in acknowledging the guidance given to

me by various persons. My heart is filled with gratitude for the persons who helped me. I take this

opportunity to express my thanks and gratitude to each and every one of them.

I take this opportunity to express my deep sense of appreciation towards Dr.G.Ravindranath, the

Principal of AmritaVishwa Vidyapeetham, Mysuru for giving me the opportunity to do the project.

I would like to thank Dr.Ravikumar, Chairperson Department of Management and Commerce,

who has facilitated and permitted conduct of my research work.

I would like to express my sincere thanks and gratitude towards Raghunandan M.V, Assistant

Professor, Department of Management and Commerce, for his/ her guidance, constant inspiration

and vigilant supervision which helped me in the completion of this project successfully.

I express my gratitude to all the faculty members of Department of Management and Commerce,

AmritaVishwa Vidyapeetham, Mysuru, for helping me in all possible ways.

Above all, I thank God, my Parents and Friends for their grace and support in successfully

completion of my Project to the best of my ability.

Shyam Krishna.V

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Table of Contents
INTRODUCTION......................................................................................................................................... 7
Investment .................................................................................................................................................. 8
Indicators .................................................................................................................................................... 8
Stock market............................................................................................................................................. 10
REVIEW OF LITERATURE .................................................................................................................... 12
I. Investors or Investment Opportunity .................................................................................................... 13
II. Stock Market ......................................................................................................................................... 14
III. Indicators ............................................................................................................................................. 16
Need for study .......................................................................................................................................... 20
Objective ................................................................................................................................................... 21
Scope of study ........................................................................................................................................... 22
INDUSTRY PROFILE ............................................................................................................................... 23
ANALYSIS AND INTERPRETATION ................................................................................................... 28
Primary data collected – Questionnaire (50 respondents) ....................................................................... 29
Secondary data collected – working of the indicators.............................................................................. 38
FINDINGS, SUGGESTIONS AND CONCLUSION ............................................................................... 47
Findings ..................................................................................................................................................... 48
Suggestions ............................................................................................................................................... 49
Conclusion ................................................................................................................................................. 50
Bibliography ................................................................................................................................................ 51
Appendix ...................................................................................................................................................... 53

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 Chapter-I
INTRODUCTION

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 Investment
An investment is an asset or item acquired with the goal of generating income or appreciation.
Appreciation refers to an increase in the value of an asset over time. When an individual
purchases a good as an investment, the intent is not to consume the good but rather to use it in the
future to create wealth. An investment always concerns the outlay of some asset today—time,
money, or effort—in hopes of a greater payoff in the future than what was originally put in.
The act of investing has the goal of generating income and increasing value over time. An
investment can refer to any mechanism used for generating future income. This includes the
purchase of bonds, stocks, or real estate property, among other examples. Additionally,
purchasing a property that can be used to produce goods can be considered an investment.
In general, any action that is taken in the hopes of raising future revenue can also be considered an
investment. Investing is oriented toward the potential for future growth or income, there is always
a certain level of risk associated with an investment. An investment may not generate any income,
or may actually lose value over time.

Indicators

Earing per share:

This is the amount each share would get if a company paid out all of its profit to its shareholders.
EPS is calculated by dividing the company’s total profit by the number of shares.

EPS can tell you how companies in the same industry compare. Companies that show steady,
consistent earnings growth, year after year, will often outperform companies with volatile
earnings over time.

Price to earnings ratio:

This measures the relationship between the earnings of a company and its stock price. It’s
calculated by dividing the current price per share of a company’s stock by the company’s earnings
per share. The P/E ratio can tell you whether a stock’s price is high, or low, compared to its
earnings.

Price to earnings ratio to growth ratio (PEG)

This helps you understand the P/E ratio a little better. It’s calculated by dividing the P/E ratio by
the company’s projected growth in earnings. The PEG can tell you whether a stock may or may
not be a good value. The lower the number, the less you have to pay to get in on the company’s
expected future earnings growth.

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Price to book value ratio (P/B)

This compares the value the market puts on a company with the value the company has stated in
its financial books. It’s calculated by dividing the current price per share by the book value per
share. The book value is the current equity of a company, as listed in the annual report. Most of
the time, the lower the P/B is, the better. That’s because you’re paying less for more book value.

Dividend payout ratio (DPR)

This measures what a company pays out to investors in dividends compared to what the stock is
earning. It’s calculated by dividing the annual dividends per share by the EPS. The DPR can give
you an idea of how well a company’s earnings support the dividend payments. More mature
companies will typically have a higher DPR. They believe that paying more in dividends is the
best use of their profits for the firm and its shareholders. Since growing companies are likely to
have less or no earnings to pay out dividends, their DPR would tend to be low or zero.

Dividend yield

This measures the return on a dividend as a percentage of the stock price. It’s calculated by
dividing the annual dividend per share by the price per share. The dividend yield can tell you how
much cash flow you’re getting for your money, all other things being equal.

Relative Strength Index (RSI)

The relative strength index (RSI) is a momentum oscillator that measures the magnitude of price
movements to determine whether a market is overbought or oversold. A market is seen to be
oversold when the RSI is below 30 and is overbought when the RSI is above 70. These are key
levels could indicate a potential reversal, classifying the RSI as a leading indicator.

Simple Moving Average (SMA)

A simple moving average (SMA) is a lagging indicator which represents the average price of a
security over a specified period of time. In a trending market, the moving average modulates
short-term price fluctuations and allows stock traders to identify the trend in a simplistic way.

MACD

The MACD (moving average convergence/divergence) is a technical indicator that can be used to
measure both momentum and the strength of the trend. The MACD displays a MACD line (blue),
signal line (red) and a histogram (green) which shows the difference between the MACD line and
the signal line.

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The MACD line is the difference between two exponential moving averages (the 12 and 26 period
moving averages using common default settings), whilst the signal line is generally a 9-period
exponentially average of the MACD line. These lines waver in and around the zero line, giving
the MACD the characteristics of an oscillator with overbought and oversold signals occurring
above and below the zero-line respectively.

Trendline

Trendlines are easily recognizable lines that traders draw on charts to connect a series of prices
together. The resulting line is then used to give the trader a good idea of the direction in which an
investment's value might move.

Stock market
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks
(also called shares), which represent ownership claims on businesses; these may include securities
listed on a public stock exchange, as well as stock that is only traded privately, such as shares of
private companies which are sold to investors through equity crowdfunding platforms. Investment
in the stock market is most often done via stockbrokerages and electronic trading platforms.
Investment is usually made with an investment strategy in mind.

The types of stock market are:

1. Primary market
2. Secondary market

Primary market: The primary market is where securities are created. It's in this market that
firms sell (float) new stocks and bonds to the public for the first time. An initial public offering, or
IPO, is an example of a primary market. These trades provide an opportunity for investors to buy
securities from the bank that did the initial underwriting for a particular stock. An IPO occurs
when a private company issues stock to the public for the first time.

Secondary market: or buying equities, the secondary market is commonly referred to as

the "stock market." This includes the New York Stock Exchange (NYSE), NASDAQ, and all
major exchanges around the world. The defining characteristic of the secondary market is that
investors trade among themselves. That is, in the secondary market, investors trade previously
issued securities without the issuing companies' involvement.

National Stock Exchange of India Limited (NSE) is the leading stock exchange of
India, located in Mumbai, Maharashtra. NSE was established in 1992 as the first dematerialized
electronic exchange in the country. NSE was the first exchange in the country to provide a
modern, fully automated screen-based electronic trading system which offered easy trading
facilities to investors spread across the length and breadth of the country.

National Stock Exchange was incorporated in the year 1992 to bring about transparency in the
Indian equity markets. Instead of trading memberships being confined to a group of brokers, NSE

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ensured that anyone who was qualified, experienced and met the minimum financial requirements
was allowed to trade. In this context, NSE was ahead of its time when it separated ownership and
management of the exchange under SEBI's supervision. Stock price information which could
earlier be accessed only by a handful of people could now be seen by a client in a remote location
with the same ease. The paper-based settlement was replaced by electronic depository-based
accounts and settlement of trades was always done on time.

BSE Limited, formerly known as the Bombay Stock Exchange is an Indian stock
exchange located on Dalal Street in Mumbai. Established in 1875, it is Asia's oldest stock
exchange. The BSE is the world's 7th largest stock exchange with an overall market
capitalization of more than US$2.8 trillion on as of February 2021.

The Bombay Stock Exchange (BSE) is the first and largest securities market in India and was
established in 1875 as the Native Share and Stock Brokers' Association. Based in Mumbai, India,
the BSE lists close to 6,000 companies and is one of the largest exchanges in the world, along
with the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange Group, Japan
Exchange Group, and Shanghai Stock Exchange.

The BSE has helped develop India's capital markets, including the retail debt market, and has
helped grow the Indian corporate sector. The BSE is Asia's first stock exchange and also includes
an equities trading platform for small-and-medium enterprises (SME). BSE has diversified into
providing other capital market services including clearing, settlement, and risk management.

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 Chapter-II
REVIEW OF LITERATURE

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 I. Investors or Investment Opportunity
1. An article published by James Chen in Investopedia says “An investor is any individual or other
institution that, with the intention of earning financial returns, invests money. To receive a rate of
return and meet essential financial targets, investors focus on numerous financial instruments.
Usually, an investor is different from a broker. By deploying money as either equity or debt
contributions, investors produce returns. An investor puts money to use for long-term gains, while by
buying and selling shares over and over again, a seller tries to produce short-term profits. A wide
variety of investment vehicles exist to accomplish goals, including stocks, bonds, commodities,
mutual funds, exchange-traded funds and options.”

2. An Article in InvestmentU mentions the following as investment opportunities. ”Stocks are

one of the simplest investment opportunities to understand. When you buy shares of a publicly traded
company, you’re buying a piece of that company’s future success (or failure). You make money as
the stock price rises and lose money as it falls. Slow and steady wins the race. Bonds, fixed income
and money market accounts are far from exciting, but they’re among the most stable investment
opportunities. The downside to most fixed income investments is illiquidity. Investing in bonds and
money market accounts means you can’t access your money without penalty until the maturity date.
Real estate is an ideal opportunity for investment since there is a limited amount of it. Not only that,
but there is tangible value to it. And there are so many ways to make real estate investments.
Although you profit from the equity, you can purchase rental property and let someone else pay
down the mortgage. Or, for a fast profit, you can buy a run-down house, fix it up and flip it. Gold has
value because it is a commodity that can rise or fall regardless of any national currency. Resources
such as gold and other precious metals are related to the stock market but function quite
independently. As conventional stocks decline, the cost of gold and commodities will also increase.
In Mutual fund the money of many people is pooled and the lump sum is invested. You may only
have enough to purchase a few of the shares of a few companies on your own. You're vested in a
large portfolio that is diversified and well-managed as part of a mutual fund.”

3. Kevin Johnston in his article in Zacks says “Anyone can buy stocks on the stock exchange.
Each person has individual reasons for buying a stock, and each person has a trading personality.
And based on these personalities investors can be classified. Active investors stay updated on the
performance of their stocks, do a lot of research and keep up with the daily financial news. They do
not necessarily purchase one day and sell the next, but they pay attention to trend changes and buy
or sell on the basis of those trends. The Passive investor, In exchange for a lower stress level and
more free time will accept reasonable gains. This individual may invest in mutual funds so that the
money managers of the funds can make decisions to buy and sell. Speculators look for a chance to
make money fast. They search the market for stocks that are poised to go up because of an
impending deal. They scour the news for announcements about mergers that could affect a
company positively, and then they pounce on the stocks of those companies. Retirement Investors
tend to change their tactics as they approach retirement age. They may choose an aggressive
approach when they are younger and then move on to less aggressive stocks as they near the
retirement stage.”

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 II. Stock Market
4. An article published in CFI says “The stock market refers to public markets that exist for issuing,
buying, and selling stocks. Stocks, also known as equities, represent fractional ownership in a
company. An efficiently functioning stock market is considered critical to economic development as
it gives companies the ability to quickly access capital from the public.”

5. An article published by James Chen in Investopedia says “The stock market refers to the
collection of markets and exchanges where regular activities of buying, selling, and issuance of shares
of publicly-held companies take place. Such financial activities are conducted through institutionalized
formal exchanges or over-the-counter (OTC) marketplaces. There can be multiple stock trading venues
in a country or a region. While both terms are used interchangeably, the latter term is generally a subset
of the former. If one says that she trades in the stock market, it means she buys and sells shares/equities
on one or more of the stock exchanges that are part of the overall stock market. Though it is called a
stock market or equity market and is primarily known for trading stocks/equities, other financial
securities - like exchange traded funds (ETF), corporate bonds and derivatives based on stocks,
commodities, currencies, and bonds - are also traded in the stock markets.”

6. An article published by James Chen in Investopedia says “Stock markets provide a secure and
regulated environment where market participants can transact in shares and other eligible financial
instruments with confidence with zero- to low-operational risk. The stock markets act as primary
markets and as secondary markets. As a primary market, the stock market allows companies to issue
and sell their shares to the common public for the first time through the process of initial public
offerings (IPO) The stock exchange shoulders the responsibility of ensuring price transparency,
liquidity, price discovery and fair dealings in such trading activities. The exchange maintains trading
systems that efficiently manage the buy and sell orders. They perform the price matching function to
facilitate trade execution at a price fair to both buyers and sellers. “

7. An Article published by Chirantan Basu in Zacks says “Stock markets are at the heart of the
global financial system. Businesses need the stock markets to raise capital. Regulators are there to
protect investors from abusive trading practices.” And also mentions few purposes of stock market like
“Business operations: Stock markets provide businesses a venue for raising capital. Companies raise
funds for strategic and operational reasons, such as making acquisitions, establishing a presence in new
markets or building new infrastructure. Financial Planning: Stock markets are central to financial
planning. You can hold stocks directly in your online brokerage accounts and indirectly through
mutual funds. You can choose from hundreds of stocks in different industries and regions of the
world. Economic Efficiencies: Stock markets are at the core of the free market economic system.
They allocate capital effectively to businesses that make products and deliver services that customers
need. The markets reward companies that grow market share and punish companies that do not
innovate or react quickly to competitive threats.”

8. An article published by Hunkar Ozyasar in PocketSense says “The primary purpose of a stock
market is to regulate the exchange of stocks, as well as other financial assets. A healthy, fair and
transparent stock market helps the economy grow” he adds “Matching buyers and sellers: The
primary function of the stock market is to bring sellers and buyers together and ensure easy, quick
and fair transactions between those who wish to buy shares and those who want to sell them. Fair
Trade: Rules and regulations in the stock market have been designed to ensure that both buyers
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and sellers get the best possible deal. Risk Management: Stocks always involve risk, and the shares
of even a highly successful firm can depreciate sharply. However, regulators attempt to minimize
sharp declines in prices, which would jeopardize the life savings of most investors. Access to
Capital: Another purpose of the stock market is to provide easy and quick access to capital for
firms. Companies wishing to sell stocks to the general public can reach millions of investors through
the stock exchange.

9. An article by Manoj Singh in Investopedia says “Most of the trading in the Indian stock market
takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock
Exchange (NSE). The BSE has been in existence since 1875. The NSE, on the other hand, was founded
in 1992 and started trading in 1994. However, both exchanges follow the same trading mechanism,
trading hours, and settlement process. Almost all the significant firms of India are listed on both the
exchanges. Both exchanges compete for the order flow that leads to reduced costs, market efficiency,
and innovation. In terms of market cap, they're both comparable at about $2.3 trillion. Trading at both
exchanges takes place through an open electronic limit order book, in which the trading computer
performs order matching. All trading on stock exchanges takes place between 9:55 a.m. and 3:30 p.m.,
Indian Standard Time Monday through Friday.
Sensex and Nifty are the two prominent Indian market indices. Sensex is the oldest equity market
index; it covers the shares of 30 BSE-listed companies, which account for about 47% of the free-float
market capitalization of the index. The Standard and Poor's CNX Nifty is another index; it covers 50
shares listed on the NSE, representing about 46.9 percent of its free-float market capitalization. The
Securities and Exchange Board of India (SEBI), which was formed as an independent authority in
1992, has overall responsibility for the development, regulation, and supervision of the stock market.
Since then, in line with the best market practices, SEBI has consistently tried to lay down market rules.
It enjoys vast powers, in the event of a violation, to impose penalties on market participants.”

10. An article by Ken Little in The Balance says “Investing comes with risks in general, but
thoughtful investment choices that meet your objectives and risk profile keep individual stock and
bond risks at an acceptable level. Other hazards you have no control over, however, are inherent in
investing. The market or economy is affected by most of these risks and requires investors to adjust
portfolios or ride the storm. Here are four major types of risks that investors face. Economic
Risk: One of the most obvious risks of investing is that the economy can go bad at any given moment.
Any certain event of any significance can bring changes in the market. Inflation Risk: Inflation is
everybody's tax, and if it's too high, value can be destroyed and recessions created. While we believe
that inflation is under our control, the cure for higher interest rates may be as bad as the problem at
some point. It is only a matter of time before inflation returns, with the massive government borrowing
to fund the stimulus packages. Market value risk refers to what happens when your investment is
turned against or ignored by the market. It occurs when the market goes off chasing the "next trendy
thing" and leaves behind many good, but unpleasant businesses. It also happens when the market
collapses because, as investors stampede out of the market, good stocks, as well as bad stocks, suffer.”

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 III. Indicators
11. An Article by Ryan Barness in Investopedia says “Some of the most valuable tools investors
can place in their arsenals are economic indicators. Consistent in their release, broad in their scope and
range, metrics that are free to be inspected and analysed by all investors. Indicators are used to
determine where the economy is going. In its simplest form, any piece of information that can help an
investor decipher what is going on in the economy can be considered an indicator. There are billions
of moving parts, some of which act, some of which react. This simple reality makes predictions
extremely challenging. A large number of assumptions must always involve them. Once an investor
understands how various indicators are calculated and their relative strengths and limitations, several
reports can be used in conjunction to make for more thorough decision making.”

12. An Article published in CFI says “Market indicator is a quantitative tool that is used by traders
to interpret financial data in order to forecast stock market movements. Market indicators are
considered a subset of technical indicators, but fundamental differences are shared between the two.
In order to derive ratios or formulas, market indicators are calculated in the same way as technical
indicators, by applying statistical formulas to a set of data points. There are multiple types of market
indicators. Common indicators include Market breadth indicators compare data of several stocks that
show a similar price movement. It enables traders to ascertain where the trend is headed in the near
future. The number of companies that reach new highs will be compared with the number of stocks
that reach new lows within a given trading period. Market sentiment indicators serve to contrast the
price of a security with its volume of trade. It is done in order to determine if, on the overall market,
investors are bullish or bearish on the overall market. Moving averages are useful in filtering out
irrelevant data points in that they “smooth” out available price data. It is because a moving average is
expressed as a single flowing line that represents the average price of a given security over a period.
The moving average can indicate several properties in the trajectory of a given security. The angle of
the slope can expose the trendline. A horizontal moving average shows that the price of the security
varies while a positively sloped moving average shows that the price is likely to rise. On-Balance
Volume: Trade volume is an important market indicator, and on-balance volume brings together a
great deal of data related to volume into a single flowing line. OBV does not predict price movements,
but trends are confirmed. A rising OBV demonstrates that while a negative OBV accompanies negative
price movements, the price of the security is increasing.”
13. A blog Published in Motilal Oswal says “We need to be able to develop two distinct sets of skills
to become a successful investor: fundamental and technical analysis. Fundamental analysis is
essentially digging into a company's financials. A technical indicator is a mathematical calculation
based on historic price, volume, or open interest information that aims to forecast financial market
direction. Technical indicators are fundamental part of technical analysis and are typically plotted as a
chart pattern to try to predict the market trend. Here is an outline of the most important technical
indicators to know. The accumulation/distribution line (A/D line) seeks to determine if money is
flowing into or out of a security. When the A/D line is sloping upward, it can be assumed that new
money is coming into a security. The opposite is true when the slope is headed lower. In most cases
this indicator runs pretty close to the movement of the stock. The Moving-Average
Convergence/Divergence line (MACD) is probably the most widely used technical indicator. Along
with trends, it also signals the momentum of a stock. The MACD line compares the short-term and
long-term momentum of a stock in order to estimate its future direction. The head and shoulders is a
chart pattern that appears when a stock rises to a peak to form the first “shoulder” and then falls. Then
16
it rises above the previous peak to form the “head” and then falls below the first shoulder before rising
again to the level of the first shoulder and falling, hence creating the second shoulder. Gaps occur
when a stock opens much higher or lower than the previous day’s closing price. This difference could
be the impact of some news that released before the market opened. Double Tops or Bottoms: This
pattern of the chart also forecasts trends that are changing. It is a fairly simple process to spot this chart
pattern. In terms of a double top, a stock tests a particular price level on two occasions, and the stock
hits resistance in both instances. A double bottom, on the other hand, happens when a stock drops to a
certain price level and finds support on both occasions. Future sales are indicated by a double top,
while a double bottom indicates that the stock is getting ready to trade higher. Active traders in the
market use technical indicators most extensively, as they are designed primarily for analysing short-
term price movements. To a long-term investor, most technical indicators are of little value, as they do
nothing to shed light on the underlying business.
14. An article published by Ariba Khaliq in ‘The Economic Times’ says “A number of times,
certain not-so-popular companies show growth in sales and profits quarter by quarter but their stock
prices don't go up. These companies go unnoticed by traders and investors alike and so their stocks are
available at cheaper prices. It is an undervalued stock. The idea is to identify undervalued stocks before
anyone else does because once they gain attention, their prices are bound to go up. Low
Price/Earnings (P/E) ratio: The P/E ratio is calculated as a stock’s current share price divided by its
earnings per share (EPS) for a 12-month period. An undervalued stock will usually have a lower PE
ratio. Lagging relative price-performance: A company’s share price could be lower than that of its
industry peers for several reasons. One of them is when a financial expert shows concern over certain
financial metrics and the whiplash causes investors to sell-off and drive the price down. The price is
sometimes driven so low that the stock becomes undervalued. Low price/earnings growth (PEG)
ratio: Considered more accurate than just a company’s P/E alone, PEG is a valuation metric for
determining the relative trade-off between the price of a stock, the earnings generated per share (EPS)
and the company's expected growth. High dividend yield: Something that most investors choose to
ignore - if a company’s dividend payment rate exceeds that of their competitors, it may indicate that
the share price has dipped to “undervalued” status. Low market-to-book ratio: is a financial valuation
metric used to evaluate a company’s current market value relative to its book value. A company that
has a low market value as a ratio to book value may present an undervaluation situation. The key is
understanding the real value of both tangible assets and Intangible assets”
15. In a research conducted by Amith Vikram Megaravalli & Gabriele Sampagnaro Titled
‘Macroeconomic indicators and their impact on stock markets in ASIAN 3: A pooled mean
group approach’, published in the year 2018 says “Research has made an effort towards the
evaluation of the effect of exchange rate and inflation on stock markets of India, China and Japan. The
PMG estimation indicated that exchange rate has a positive and significant relationship with the stock
market in the long run for all the three countries. But it can be noted that India stock market (Nifty)
and Chinese market (Shanghai stock market) has cointegration with the inflation. This implies that
short-run-run differences between the markets are sufficient for investors to achieve gains by portfolio
diversification, says Pramod Jauhar. The study was to examine the relationships between the ASIAN
stock index and macroeconomic variables (Inflation, measured by consumer price index and exchange
rate) on a monthly data from 2008 to 2016 using Granger causality test, co-integration tests and the
pooled estimated results. The results of VECM showed some interesting result where inflation (CPI)
showed long-run causality between exchange rate.and Nifty and Shanghai stock exchange.

17
16. In a research Conducted by Alina Kvietkauskienė & Modestas Plakys Titled ‘Impact
indicators for Stock Market Returns’, Published in the year 2017 says “A detailed analysis has
been conducted of the impact indicators that have an influence on stock market return. The positive
effect of these indicators is observable in the long term and is negative in the short term. A set of impact
criteria will be used for further and more detailed stock market selection. The authors of the present
paper have investigated the indicators, which have positive, negative or both effects on stock Market
returns and suggested the most reasonable set of Impact Indicators for stock Market selection. The
author's goal is to help investors understand the impact of impact indicators on the stock market.”
17. In a research conducted by Ashish Dewan, R Gayatri, Rishi Dewan Titled ‘A Research on
Investment Behaviour of Corporate and Individual Investors from Southern India’, published
on 2019 says “Current study mainly aims to identify the factor which can have a bearing on the
investment behaviour. Corporate investors are more interested in getting knowledge about the market,
external environment, rules of SEBI, and the internal information of the company issuing securities.
Investment behaviour of the individual investors got affected by their personal factors related to the
investors such as; level of knowledge or skills, saving pattern, consumption pattern, financial goals,
and influence of friends or relatives. Apart from this, the investment related factors is almost equally
important for both the corporate and individual investors.”
18. In a research Conducted by Manh Ha Duong and Boriss Siliverstovs Titled ‘The Stock Market and
Investment’, Published in the year 2006 says “Researchers looked at share performance index and total
investment in France, Germany, Italy, the Netherlands, and the United Kingdom. They found the share
index is a good predictor for equipment investment in all five countries. Equipment investment tends
to respond more strongly to share index performance than total investment, they found.”
19. in a research conducted by Mrunal Chetanbhai Joshi titled ‘Factors affecting Investment
Decision in Stock Market’, Published on 2017 says “Investors prefer to invest for long term in stock
market than short term investment. Investors consider financial performance of the company through
P/E Ratio and EPS with company's prestige. They prefer Automobile, IT, FMCG, Pharmaceutical and
Banking sectors more compare to other sectors. Few of the investors are also of the opinion that luck
(fortune) factor also affect their performance in stock Market.”
20. An Article published by Evan Sundermann in ‘Seeking alpha’ says “five things you should
look into and examine during your stock picking process prior to investing. Substantial cash reserves:
The best reason for investing in companies that have substantial cash reserves is that it proves that the
company is primed for growth in one of two ways 1) if the company pays dividends, having cash on
hand will allow it to increase the yield to investors. 2) Substantial cash reserves will allow a company
to pay off debts and other obligations. Healthy Dividends: Make sure the company have long proven
history of paying dividends examine the company’s dividend growth rate over the past five years, or
potentially an even longer period of time and also analyse a company’s payout ratio. The payout ratio
is calculated by dividing Dividends per Share by Earnings per Share. Limited debt: If you want to
invest with a reduced risk of loss of capital, invest in companies that have their financials in order. If
a company has substantial debt and other obligations then it will need to dedicate cash and future
earnings toward paying off debt. Strong cash Flows: The most important indicator of a strong cash
flow statement is the change in cash position under operating activities. When a company is increasing
its cash position through operating activities it is proof that the company has the ability to generate
revenue based on the structure, demand, profit margin, or a combination of factors. Competent
Management: Companies need strong, intelligent, and competent leadership in order to manage their
assets and achieve the best possible return on investment for shareholders.
18
 Statement of problem

“A study on the indicators of investment opportunities in stock market”

There are various number of indicators in the stock market like earnings per share, dividend yield,
dividend per ratio, price to book value ratio, price to earnings to growth ratio, price to earnings ratio.
It will be to help investors understand which areas or opportunities are best for investing in.

19
 Need for study

The study focusses on various indicators which can be put into use for a successful investment in
the stock market. The research paper will identify key market indicators that would ensure
maximum returns on investment to the investor prior to investing.

20
 Objective

1. To understand the working of the indicators of investment in stock market

2. To help investors understand which areas or opportunities are best for investing in

21
 Scope of study

The present study will be helpful in the understanding of the indicators and how it can be used for
finding out a better investment opportunity in Stock Market.

22
 Chapter III
INDUSTRY PROFILE

23
Indian Stock Market
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two stock
exchanges in India that handle the majority of the stock market's trading. Almost all of India's major
corporations are listed on both exchanges. Although the BSE is the older stock exchange, the NSE is
the largest in terms of trading volume.

BOMBAY STOCK EXCHANGES:

The Bombay Stock Exchange (BSE) is Asia's oldest stock exchange, with its headquarters on
Dalal Street in Mumbai. As of February 2021, the share market capitalization of companies listed
on the BSE was US $ 2.8 trillion, making it Asia's fifth largest stock exchange and the world's
tenth largest. The BSE has the world's highest number of publicly held firms. The Bombay Stock
Exchange has a large trading volume, with over 5,112 Indian firms listed on the stock exchange.
The Mumbai Stock Exchange, also known as the "BSE," was founded in 1875 as "The Native
Share and Stock Brokers Association," a non-profit organisation. It has grown over the years to
become the country's most important stock exchange. It should be remembered that the stock
exchange is Asia's oldest, pre dates the Tokyo Stock Exchange, which was founded in 1878.
While offering an effective and open market for exchanging shares, the exchange defends
investors' rights and assures that their issues are resolved, whether against corporations or its own
member brokers. It also seeks to educate and enlighten investors by presenting necessary
information and coordinating investor engagement initiatives.

BSE INDICES:
The Exchange launched the BSE-SENSEX equity stock index in 1986 to allow market investors,
analysts, and others to follow the numerous ups and downs in the Indian stock market. It has since
become the barometer of the moments of share prices in the Indian stock market. It is a 30
component stock “Market capitalization weighted” index that represents a sample of big, well-
established, and leading firms. The Sensex's base year is set at 1978-79. The Sensex is extensively
covered in print and electronic media in both domestic and foreign markets.
The market capitalization weighted formula is used to measure the Sensex. According to this
approach, the index's amount represents the combined market valuation of all 30-
componentstocks from various industries over a specified base span. A company's gross market
value is measured by calculating the price of its stock by the amount of outstanding shares. A
composite Index is a statistical term for a group of cumulative variables (such as price and number
of shares). To make the value simpler to deal with and monitor over time, the results of this
measurement are represented by an Indexed number. The majority of well-known indexes are
built using the "Market capitalization weighted form" since it is much simpler to graph a chart
based on Indexed values than one based on real values. In fact, the SENSEX is calculated
regularly by dividing the total stock value of the 30 stocks in the Index by an amount known as
the Index Divisor. The only way to get back to the SENSEX's original base time value is to use
the Divisor. The Divisor preserves the Index's comparability over time and adjusts the reference
point for the whole Index's maintenance. The SENSEX is a commonly used term to describe the
mood in the Indian Stock Markets. Base year average is changed as per the formula:
New base year average = old base year average*(new marker value/old market value)
24
NATIONAL STOCK EXCHANGE:
NSE was established with the following objectives in mind:
1. Creating a nationwide trading platform for all types of securities.
2. Using an appropriate communication network to ensure equal access to investors across the
country.
3. Providing a fair, efficient and transparent securities market using electronic trading system.
In 1992, the NSE was established with an equity capital of Rs 25 crore. NSE was established with
the assistance of Hong Kong's International Securities Consultancy (ISC). ISE has built
comprehensive business plans as well as hardware and software device implementation. It was
established to support the capital market's professionalization and to provide investors with
nationwide securities trading facilities. The NSE is not a conventional exchange in the sense that
it is owned and managed by brokers. The National Stock Exchange (NSE) is India's largest stock
exchange, with branches in many cities and towns throughout the world. The National Stock
Exchange (NSE) was established by major financial institutions to provide a new, fully integrated
screen-based trading system with national reach.
The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market
integrity. It has set up facilities that serve as a model for the securities industry in terms of
systems, practices and procedures. NSE has played a catalytic role in reforming the Indian
securities market in terms of The Exchange has achieved unprecedented levels of transparency,
pace and efficiency, security, and market integrity. In terms of processes, methods, and
procedures, it has developed facilities that serve as a model for the securities industry. In terms of
microstructure, business practises, and trading volumes, the NSE has been a leader in reforming
the Indian securities market. The market now employs cutting-edge information technology to
provide an effective and transparent trading, clearing, and settlement process, and has seen a
number of product and service developments, including demutualization of stock exchange
governance, screen-based trading, settlement cycle compression, dematerialization and electronic
transfer of shares, securities lending and borrowing, and securities lending and borrowing,
Professionalization of trading participants, fine-tuned risk management programmes, the advent of
clearing companies to assume counterpart risks, the demand for debt and derivative securities, and
extensive use of information technology are all factors.

NSE-NIFTY:
On April 22, 1996, the NSE introduced a new stock index. The NSE-50 is a number that
represents the number of people who have completed the new index, which will replace the
current NSE-100 index, is expected to be a good fit for the new futures market, and “Nifty” stands
for National Index for Fifty Stocks. The NSE-50 is made up of 50 companies that serve 20
different industries and have a market capitalization of over USD2.27 trillion. All companies in
the Index should have traded at an impact expense of less than 1.5 percent for 85 percent of
trading days. The index's base period is the close of prices on November 3, 1995, which is one
year after the NSE's capital market segment began operations. The index's base value has been set
to 1000.

25
 NSE-MIDCAP INDEX:
The NSE Madcap Index, also known as the Junior Nifty, is made up of 50 stocks that serve 21
different industry groups and will accurately reflect the Indian capital market's madcap sector. All
stocks in the index should have a market capitalization of more than Rs.200 crores and have
traded at an impact expense of less than 2.5 percent on 85 percent of trading days. The index's
base date is November 4, 1996, which corresponds to two years before the stock market portion of
the operations was finished. The Index's base value has been adjusted to 1000.

The list of Indian Stock exchanges is bigger than just two names. Following are some other stock
exchanges in India which are registered with SEBI and are currently active.

Calcutta Stock Exchange (CSE):

The CSE is a regional stock exchange (RSE) in Kolkata, situated on the Lyons Range. It is the
second-oldest stock exchange in Southeast Asia.
CSE is India's second-largest stock exchange, having been established in 1908.
Under the applicable provisions of the Securities Contracts (Regulation) Act, 1956, it was given
permanent recognition by the Government of India in 1980.
In the face of SEBI's strict regulations against RSEs, nearly 20 regional stock exchanges have
voluntarily exited, leaving CSE to fight the war alone.

Metropolitan Stock Exchange (MSE):

On December 21, 2012, the Ministry of Corporate Affairs designated the Exchange as a
"Recognized Stock Exchange" under the Companies Act.
MSE provides a high-tech forum for trading in the Indian stock market, futures and options,
currency derivatives, and debt market. It was recognized by SEBI on 16th September 2008 and is
valid till 15th September 2020, as last checked on October 6.
Indian public sector banks, private sector banks, customers, and domestic financial institutions
that are subject to CAG audit are among MSE's shareholders.

It has released a "Manifesto of Transformation," which is a 10-year blueprint of what the stock
exchange hopes to do in terms of business creation and inclusive growth.

26
India International Exchange (India INX):
Opened in January 2017, India INX is India’s first international stock exchange. It is a wholly-
owned affiliate of the Bombay Stock Exchange (BSE) and is based in Gujarat's GIFT City at the
International Financial Services Centre (IFSC).
It is believed to be the world's most innovative technology network, with a 4 microsecond turn-
around period and a 24-hour, six-day-a-week operation. 4.30 a.m. to 5.00 p.m. and 5.01 p.n. to
2.30 a.m. are the two sessions.
The Global Securities Market, an international primary market forum in India that links global
investors with Indian and foreign issuers, was also introduced by India INX.

NSE IFSC Ltd.:

NSE IFSC Limited (NSE International Exchange), founded on November 29, 2016, is a wholly
owned subsidiary of the National Stock Exchange (NSE) and is based in Gujarat's GIFT City at
the International Financial Services Centre (IFSC). The exchange is permitted to offer securities
trading in any currency other than the Indian rupee.
NSE IFSC Limited normally trades for 16 hours a day, split into two sessions. There are currently
two trading hours, one from 8 a.m. to 5 p.m. and the other from 5.30 p.m. to 11.30 p.m.

27
 Chapter IV
ANALYSIS AND INTERPRETATION

28
 Primary data collected – Questionnaire (50 respondents)

1. Which of the following do you invest in/ plan on investing in?

Interpretation: The result that can be interpreted from the above is that 22 (44%) out of the 50
respondents invest or plan on investing in stock market along with other investments mentioned
above like Mutual Funds gathering highest number of 36 votes which makes up to 72% of the
respondents, followed by Bonds gathering 10 votes which makes up to 20%, followed by
Derivatives with 3 votes which makes up 6%. Remaining are other investments which the
respondents undertake other than aforementioned investment fields.

29
2. Are you well educated about stock market investments?

Yes No Partly Total

12 11 27 50

Interpretation: From the above pie chart it is very much visible that among the 50 respondents,
majority of them have part knowledge when it comes to stock market workings which can be taken
as the reason why a number of people don’t invest in stock market. Also it can be noted that both the
option ‘YES’ and ‘NO’ are in the same range with 12 and 11 respondents respectively.
Only few respondents have adequate knowledge regarding stock market. This calls for educating the
ones with less to none knowledge regarding stock market, as stock market is a potential investment
field and can even help in the development of the country.

30
3. Who manages your investments?

Interpretation: From the above bar graph it is visible that out of 50 respondents 36(72%) of them
self manages their investments. Followed by brokers who were opted by 11(22%) respondents.
Followed by Agency who were opted by a small portion of the respondents. Some respondents have
other personnel or sources other than the options provided through which their investment is
managed.

31
4. How do you choose where to invest in?

I do my own research 25
As per my brokers recommendation 11
By looking at the popularity of the stock 14
Total 50

Interpretation: From the above data it can be interpreted that majority of the respondents do their
own research before making an investments. 11 respondents prefer to invest in stocks which were
recommended to them by their brokers, and 14 of them takes the popularity of the stock into
consideration for investing in it.

32
5. Are you aware of the following stock market indicators?

Yes No Partly Total

9 19 22 50

Interpretation: It is evident from the above the above chart that the stock market indicators like
Trend line, Rate of change, Relative strength indicator, MACD are known to a good percentage of
people but aren’t sure of their working. Followed by those who don’t have any knowledge regarding
the indicators, followed by the 9 respondents who knows the indicators and how they work.

33
6. Which of the following indicators/ stock market ratios are you more familiar with?

Interpretation: From the above it is visible that Earnings per share is the most popular indicator
with 35(70%) votes out of 50. Followed by Price to earnings ratio with 18(36%) votes, followed by
Dividend yield with 16(32%) votes, then Price to book value ratio with 14(28%) votes followed by
Price to earnings to growth ratio and Dividend payout ratio with 12(24%) and 9(18%) votes
respectively. This shows the popularity of each indicators among some of the stock market
indicators.

34
7. If you are aware of the above indicators, how well do you rate their involvement in your
investment? (1 being least involved, 5 being strongly involved)

1 Rating 4
2 Rating 6
3 Rating 19
4 Rating 10
5 Rating 3
0 – Unaware of the indicators 8
Total 50

Interpretation: From the above chart it is visible that the involvement level of these stock
market indicators are mainly moderate to high with highest voting of 19 is given to 3 rating which
means these indicators have average to high involvement level when it comes to the investments
they make. Followed by that 10 respondents have voted for 4 rated involvement levels of the
indicators. 8 respondents were unaware of these indicators resulting in them not considering the
indicators at all for their investment. 1 rating and 2 rating are tied with 5 respondents each voting
for them, conveying their investment are not much influenced by these indicators.

35
8. Do you prefer being recommended an investment opportunity or do you prefer to decide it
on your own?

Yes i prefer being recommended on 31

where to invest by a well knowledgeable
person

I prefer to do my own research and invest 19

accordingly

Total 50

Interpretation: According to the data 62 %( 31 vote) of them would like to be recommended on

where to invest by someone who has successfully been in the field for a while and knows the ups and
downs of the market. The other section, 38 %( 18 vote) opt to invest as per their knowledge and
research which they conducted.

36
9. Which of the following medium helped you in understanding various investment
opportunities?

Social Media 17
Online courses 7
News 23
Others 3

Interpretation: From the above pie chart it can be interpreted that most people prefer News as a
medium of information regarding investment opportunities and where to make their investments.
Followed by 17 respondents who opted social media as the medium through which they acquire
information on where and how much to invest, 7 respondents opted for online courses as their
medium for acquiring knowledge. 3 respondents used other mediums like YouTube, Finance
channels and some gathered information by interacting with others.

37
 Secondary data collected – working of the indicators

1. Earnings per share

Earnings per share refers to the portion of a company's earnings that is assigned to each stock share.
It is often regarded as an important financial metric because it aids in determining a company's
financial fitness. To clarify, higher EPS indicates that the business and its total ventures are more
profitable.
The formula to calculate Earnings per Share is:
EPS = (Net Income − Preferred Dividends)/End-of-Period Common Shares Outstanding
For example, a company, ABC, is left with a net income of Rs. 20 lakh and must also pay Rs. 4 lakh
as preferred dividends and has Rs. 4 lakh common share outstanding (weighted average) at the
current period.
Therefore, the EPS of ABC Company as per earnings per share formula would be –

= Rs. (20,00,000 – 4,00,000)/ 4,00,000

= Rs. 4 per share

In most cases, EPS is calculated using the company's balance sheet and income statement.
Furthermore, since the number of common shares can fluctuate over time, it is always advised to use
the weighted average number of common shares.

(EPS growth chart of MRF ltd for reference)

38
2. Price to earnings ratio
P/E Ratio or Price to Earnings Ratio is the ratio of the current price of a company’s share in relation
to its earnings per share (EPS). For the calculation of this ratio, analysts and investors can use
earnings from various periods; however, the most widely used variable is a company's earnings from
the previous 12 months or one year.
The formula to calculate Price to Earnings Ratio is:
P/E Ratio = (Current Market Price of a Share / Earnings per Share)
For example, company A has one equity share priced at Rs.100 and it’s EPS for the year 2020 is
Rs.20. Therefore P/E ratio of company A would be-

P/E Ratio = (100 / 20)

=5
This means, investors will have to be invested in the company for 5 years to recover their investment.
Investors sometimes wonder what constitutes a reasonable or healthy ratio when using the P/E ratio
to decide where to invest,
When investors assess different P/E ratios, they should consider how the other companies in the same
industry with similar characteristics and in the same growth phase are performing. That way the
investors will be able to ascertain the safe ratio
For instance, if Company A has a P/E ratio of 40% and Company B with similar characteristics in the
same industry demonstrates a ratio of 10% it essentially means that shareholders of company A have
to pay Rs. 40 for every 1 rupee of their earnings and shareholders of company B have to pay Rs. 10
for every 1 rupee of their earnings. Hence, in this instance, investing in Company B might be more
profitable.
A reason why the P/E ratio cannot be solely used to make an investment decision is that the earnings
of a company are released every quarter, whereas stock prices fluctuate every day. Hence, the P/E
ratio might not agree with a company’s performance for a long time, leaving enough room for error
on investors’ part.
Also, Calculation of P/E ratio does not consider the EPS growth rate of a company, which is why
investors also use PEG ratio or Price to Earnings to Growth ratio to decide which company holds
more promise.
Calculation of P/E ratio does not consider the EPS growth rate of a company, which is why investors
also use PEG ratio or Price to Earnings to Growth ratio to decide which company holds more
promise like the company’s respective industry is facing an economic crisis or experiencing a
cyclical boom, the company’s past records, scale of the company (large-cap, mid-cap, or small-cap),
EPS growth prospects, which industry the company belongs to, average P/E in share market, how
companies of similar scale are performing, demand of the particular industry at present and in the
future, etc.

39
In conclusion, P/E ratio shall only be used as a tool for comparing different companies of the same
industry with similar characteristics rather than as a tool for comparing amongst companies from all
sectors.

3. Price to earnings ratio to growth ratio (PEG)

The PEG ratio, or Price/Earnings-to-Growth ratio, depicts the relationship between a stock's P/E ratio
and its expected earnings growth rate over time.
This metric will give you a much more accurate picture of a stock's earning potential.
In other words, it gives investors a sense of a stock's current value while still taking into account its
growth prospects, just as a P/E ratio does. As a result, the PEG ratio is important for more
fundamental research.
The formula to calculate Price to Earnings ratio to Growth ratio is:
PEG ratio = (Market price of stocks per share/EPS) / Earnings per share growth rate
For example, Company A recorded earnings worth of Rs.15 lakh in FY 20 – 21. The market price of
its share at that time was Rs.10, and it had a total of 150,000 outstanding shares. Its EPS witnessed a
2% growth over the last year and is projected to grow by 2.5% for the next year.

Therefore, its EPS, as per the records of FY 20 – 21 is:

EPS= (1500000 / 150000). = Rs 10

Therefore, P/E ratio = 10 / 10 = 1

Hence, PEG ratio = 1/ 2.5 = 0.4

Estimations concerning a company’s growth rate can stretch across different periods. It can be 1-year,
2-year, 3-year, and so forth. However, the higher the number of years, the more there is a chance of
inaccuracy in results.
We first need to understand how to interpret PEG ratio.
The P/E ratio is the sum of rupees a shareholder must pay for a specific stock in order to receive one
rupee of profits. As a result, when comparing stocks solely on the basis of their P/E ratios, a low
value is more profitable than a higher value.
Consider the following scenario: there are two stocks: stock A and stock B. The former had a 20 P/E
ratio, while the latter had a 25 P/E ratio. In that scenario, the former would be a better investment
choice.
However, when the aspect of a projected growth rate is taken into account, the scales can tip.
Consider the example of stock A and stock B from earlier. According to estimates, stock A will grow
at a rate of 16 percent, while stock B will grow at a rate of 33 percent.

40
In that case,

PEG ratio stock A = 20/16 = 1.25

PEG ratio stock B = 25/33 = 0.76

These figures show that, despite having a lower P/E ratio, the market nevertheless overestimated
stock A's earnings potential. Stock B, despite having a higher P/E ratio, is also trading at a discount
when projected income forecasts are taken into account.
However, to what extent a stock is undervalued and overvalued, as per PEG value, varies from one
industry to another. Therefore, inferences should always be in the context of industry, company type,
etc.
According to Peter Lynch, an eminent financial and value investor, a PEG ratio of 1 denotes
equilibrium. This equilibrium exists between a stock's perceived value and its earning capacity.
A PEG ratio above and below 1 would imply that the market has overestimated such stock’s value.
For example, let’s assume that stock A has a P/E ratio of 12 and an EPS growth rate of 10%.
Therefore, its PEG ratio would be 12/10 = 1.2. It says that the market is currently overestimating such
company’s projected earning potential by 20%
At the same time, if PEG ratio of any stock is below 1, it means that the market has underestimated
its value in relation to its projected earning potential
There are other inferences to PEG ratios that are above and below 1. A PEG ratio above 1 could mean
that investors consider its EPS growth rate inaccurate or the stock might have heightened demand due
to other related factors and vice-versa.

4. Price to book value ratio (P/B)

Price to book value ratio represents the relationship between the total value of an organisation’s
outstanding shares and the book value of its equity.
In essence, the P/B ratio draws a relationship between the market capitalisation of an organisation and
the value of assets it possesses.
Value investors typically use the P/B ratio, amongst other metrics, to determine whether a company’s
stocks are overvalued or undervalued.
To find out price to book value ratio, firstly the investors must calculate the market capitalisation of a
company by multiplying the current market price of its stocks by the total number of outstanding
shares.
Market price per share = Market value of a stock x Number of outstanding shares
Secondly, investors must figure out how much an organization's assets are worth. They must sum up
the book values of all assets in a company's balance sheet and subtract the total value of all debts and
liabilities to do so.
41
 Book value of assets = Total assets – total liabilities
Then the price to book value formula is expressed below –
P/B ratio = Market price per share / Book value of assets per share
For example, the stocks of Company D trades at a market value of Rs.95/share. The number of
outstanding shares is 1000. Its total asset and total liabilities are ascertained as Rs.520000 and
Rs.410000 respectively.
Here;
Net value of assets = Rs. (520,000 – 410,000) = Rs. 90,000
Since the number of outstanding shares of this company is 1000, the price per book value will be:

Book value of assets per share = Rs. (90000/1000) = Rs. 90

Therefore, P/B ratio = 95/90 = 1.05

Typically the market value of a company is higher than its book value and therefore, results in a ratio
higher than 1. However, the converse can also be true. However, a P/B ratio of 3 is widely regarded
as a standard for undervalued stocks.

5. Dividend payout ratio (DPR)

A dividend refers to payments that a company makes out to its shareholders as a reward for investing
in the company’s equity. Dividend payout ratio defines the relationship between the dividends paid
by a company and its net earnings across a specific period. The ratio is represented in terms of a
percentage.
If a company’s payout ratio is 30%, then it indicates that the company has channelled 30% of the
earnings made to be paid as dividends. Thereby, the remaining 70% of net income the company keeps
with itself.
The dividend payout ratio formula is expressed as:
DPR = Dividends paid / Net earnings
For example, Company C has paid out Rs.10 lakh as dividend to its common shareholders on 1st
April 2020, according to its cash flow statement. Furthermore, according to its Profit & Loss
Statement, Company C has realised a net income of Rs.1 crore in FY 20 – 21.
Therefore, DPR of Company CBA = (1000000 / 10000000) = 0.1 or 10%
DPR is also computed on the basis of per-share. In that case, both the dividend paid out and net
earnings would need to be divided by the number of outstanding shares.
DPR = DPS / EPS

42
Again for example, Company X, for the Financial Year 20 – 21 paid out Rs.4 per share as dividend
and recorded net earnings of Rs.20 lakh. The number of its outstanding shares amounts to 200,000.

Here, since the number of outstanding shares is 2 lakh and its net earnings stand at Rs.20 lakh, its
earnings per share would be Rs.10.

Therefore, DPR of XYZ = 4 / 10 = 0.4 or 40%

The dividend payout ratio is a crucial metric to understand a company’s priorities.

6. Dividend yield
Dividend yield is a financial ratio that shows how much a company pays out in dividends each year
relative to its share price. Dividend yield is a method used to measure the amount of cash flow you're
getting back for each rupee you invest in an equity position.
Dividend yield formula goes like-
Dividend Yield = Annual dividend per share/ Current share price
For example, company d's stock is trading at Rs 1000 and pays yearly dividends of Rs 100 per share
to its shareholders. Also, suppose that company Y stock is trading at Rs 1500 and also pays annual
dividends of Rs 120 per share.
Company Ds dividend yield = 100 / 1000 = 0.1 or 10%
While Y’s dividend yield = 1500 / 120 = 0.08 or 8%
Assuming all other factors are equivalent, an investor looking to use their portfolio to supplement
their income would likely prefer Company D's stock over that of Company Y, as it provides better
dividend yield.
A good dividend yield can be a good measure when evaluating stocks for investment purposes. But it
doesn't always mean a strong company. Look beyond the number at just one moment in time and be
sure to look at the industry and the company's dividend yield over an extended period.

7. Relative Strength Index (RSI)

The relative strength index (RSI) is a momentum indicator that calculates the magnitude of recent
market shifts to determine if a share or other asset is overbought or oversold.
The index ranges from 0 to 100, and when it rises above 70, it is considered overbought, and when it
falls below 30, it is considered oversold. If necessary, these conventional levels can be modified to
better suit the defence.
A useful reversal measure is the divergence between the Relative Strength Index and price. In order
to function properly, the Relative Strength Index requires a certain amount of lead time. It aids in the
detection of movements that may not be visible on a bar map.

43
The 14-day RSI is the most widely used Relative Strength Index but other duration RSI may also be
used.
Also, it shows when it was last in the overbought or oversold region and the movement can be used
along with other indicators like Candle Stick to determine price movements.

(RSI indicator used along with Candle stick indicator on equity of ITC ltd as on 14th May 2021 for reference)

8. Simple Moving Average (SMA)

Moving averages are one of the most important metrics in technical analysis, and they come in a
variety of time ranges, including 20 days, 50 days, and 200 days Simple Moving Averages (SMA).
In this, the daily average is taken for a given number of days. This tool is used by analysts to make
buying or selling decisions.
The tool is commonly used to smooth price data and technical indicators. The better the outcome, the
longer the moving average's time, but the more lag between the Simple Moving Average and the
source.
Crossing of prices Trading signals are often enabled using a Simple Moving Average. An analyst
may want to go long or cover short when prices cross above the Simple Moving Average, and short
or exit long when prices cross below the moving average.
SMAs are often used to get trend direction. If the SMA is moving up, the trend is up. If the SMA is
moving down, the trend is down.
The formula for calculating the simple moving average of a security is as follows:
SMA = A1+ A2+ …+ A3 / n
Where;
A= Average in period n
n= Number of time periods

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 (Moving Average indicator used along with Candle stick indicator on equity of Tata motors as on 14th May 2021 for
reference)

9. Moving Average Convergence and Divergence (MACD)

This method is used to identify moving averages that have started to demonstrate a new pattern,
whether bullish or bearish. Though this tool is similar to Simple Moving Average in appearance, it is
not the same in terms of calculations.
Overbought and oversold situations are not detected using this instrument. On a graph, the Moving
Average Convergence and Divergence are plotted with zero as the equilibrium point. This graph also
shows the sum of difference between the main line and the trigger line.
The two MACD lines will diverge during a time of heavy trending. They will get closer during
sideways consolidation, which is known as convergence. This can also result in crisscrossing each
other a few times.
MACD crossing above zero is considered bullish while crossing below zero is bearish. Secondly,
when MACD turns up from below zero it is considered bullish. When it turns down from above zero
it is considered bearish. In simple words MACD triggers technical signals when it crosses above (to
buy) or below (to sell) its signal line. MACD helps investors understand whether the bullish or
bearish movement in the price is strengthening or weakening.
The Formula for MACD Is:
MACD = 12 Period EMA – 26 Period EMA
An exponential moving average (EMA) is a type of moving average (MA) that places a greater
weight and significance on the most recent data points.
One of the main problems with divergence is that it can often signal a possible reversal but then no
actual reversal actually happens—it produces a false positive. The other problem is that divergence
doesn't forecast all reversals. In other words, it predicts too many reversals that don't occur and not
enough real price reversals.
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 (MACD indicator used along with Candle stick indicator on equity of Infosys ltd as on 14th May 2021 for reference)

These are few of the indicators which are popular and are used by many active investors in the stock
market. Usually investors combine one or more indicators on a particular security to better understand
its performance and come up with a suitable prediction.

(RSI, SMA, MACD indicator used along with Candle stick indicator on equity of Reliance Industries ltd as on 14th May
2021 for reference)

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 Chapter V
FINDINGS, SUGGESTIONS AND CONCLUSION

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 Findings
Following are the findings that I had come up with regards to the primary data that I had collected in
the form of Questionnaire.
1) The one finding which I consider the most important is that a good proportion of people have little
to none knowledge when it comes to investing in stock. Which explains why many people opt other
investment options.
2) Many people preferred investing in Mutual Funds over stock market because unlike stock market,
mutual funds doesn’t require active participation of the investor.
3) A good proportion of people opted safer investment options like Bonds and Bank deposits.
4) Many opted to manage their instruments by self, followed by a small population who managed
their investments through Agencies, Brokers and others.
5) Again, a good proportion of people said they chose their investment based on their own research.
Also, there were many of those who opted to invest based on its popularity.
6) Many respondents have little to none knowledge when it came to various stock market indicators.
It is expected considering many of them opted that they have less knowledge when it comes to stock
market investment.
7) Earnings per share is the most popular ratio as a majority of respondents chose that over other
ratios.
8) A good proportion of people said that some of the indicators and ratios only had moderate
involvement or influence on their investments. Again, a good proportion of people said that the
indicators and ratios mentioned had no influence or involvement on their investments.
9) News and Social Media remains being the top informatics of investment opportunities and
investment knowledge.
10) From the secondary data which was collected, it was found that many indicators and ratios exist
which under adequate knowledge and if used properly could take us a long way in stock market.
11) Another interesting would be that most of the millionaires and billionaires make a good
proportion of their money from stock market. Which implies that stock market is an investment
option with high potential, it has the potential to turn rags to riches and the other way as well.

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 Suggestions
My suggestions based on my research would be-
1) Lack of knowledge when it comes to stock market is one main thing I noticed during my research
work. Stock market is a highly potential investment option where many people have made
themselves. Also stock market contributes a lot towards a country’s economy, so if more people are
educated in this regard then we will definitely see more people participating in stock market
investments and help build themselves and the economy.
2) As per reports from the year 2020, roughly only 2% of the country participates in stock market
trading which is way less when compared to superpowers like USA, whose almost 50% of the
population owns stock. If the government or the regulating authorities like SEBI come up with any
initiative to make more people participate in Stock market trading then that would greatly help our
economy moving.
My suggestion to those who is wishes to do a follow up of this project or to those who wishes to do
their project which is somewhat related to this topic would be:
1) Choose your respondents appropriately. If your project is somewhat related to how the public
make use of the indicators or ratios in their stock market investment, then choose those people as
your respondents who are active in stock market and have enough knowledge of indicators and ratios.
2) Add more examples relating to the working of ratios and indicators under several other situations
so as to make people understand more the working of these ratios and indicators in a much better
way.
3) Try including other terms like Support, Resistance, and how to use them to help decide on a
whether to invest in the company based on the analysis.
4) If possible use the data of any company and do a prediction on its future performance with the help
of the indicators.

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 Conclusion
A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also
called shares), which represent ownership claims on businesses. An investment is an asset or item
acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the
value of an asset over time. When an individual purchases a good as an investment, the intent is not to
consume the good but rather to use it in the future to create wealth. So basically stock market
investment is investing in shares and enjoy benefits as your share performs well. This thesis was
undertaken to have a better understanding of the investment opportunity that the stock market
presents before us and also on the indicators and ratios which we can take help of in order to make a
better investment call. As per the objectives of this project, working of the indicators and ratios were
looked at along with some examples with which another objective was fulfilled, that is to help
investors understand which areas are best for investing in, by looking at the indicators. Primary data
collected was also helpful in fulfilling another objective which is to know the involvement level of
these indicators on the investors. Sadly the involvement level or awareness of these indicators were
not as expected. But on the positive side this thesis helped gather a lot of knowledge which everyone
must possess as stock market is a high potential investment option and can do wonders if we know
what has to be done.
Stock market investment can be fun and interesting but all good things come at a price. The price
you have to pay here is just a bit of research into yourself, understand how much risk you can take
and answer some more questions like what kind of an investor you are, which kind of stocks are
available in the market and which suits you more. Invest now and enjoy the benefits of it later!

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 Bibliography

1) https://investmentu.com/investment-opportunities/

2) https://finance.zacks.com/types-investors-stock-market-4572.html

3) https://finance.zacks.com/purpose-stock-market-2365.html

4) https://www.investopedia.com/articles/stocks/09/indian-stock-market.asp

5) https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/market-
indicator/#:~:text=A%20market%20indicator%20can%20use,on%20separate%20charts%20and%
20graphs.

6) https://www.motilaloswal.com/blog-details/The-most-important-Technical-Indicator-tools-every-
trader-should-know/1042

7) https://economictimes.indiatimes.com/tdmc/your-money/undervalued-stock-indicators-how-to-
find-them-and-turn-a-large-profit/articleshow/73321361.cms

8) https://groww.in/dashboard/explore/stocks

9) https://www.investopedia.com/

10) https://www.thebalance.com/major-types-of-risk-for-stock-investors-3141315

11) https://en.wikipedia.org/wiki/Stock_market

12) https://rpseawright.wordpress.com/2011/10/20/leading-investment-indicators/

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13) https://corporatefinanceinstitute.com/resources/knowledge/trading-
investing/investor/#:~:text=An%20investor%20is%20an%20individual,of%20getting%20a%20hig
her%20profit.

14) https://seekingalpha.com/article/287349-5-indicators-of-a-great-investment-opportunity

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 Appendix
The questions which were asked in the questionnaire were as follows-
1) Name
2) Age
3) Gender
4) Are you an Investor?
 Yes
 No
5) Which of the following do you invest in/plan on investing in?
 Mutual Funds
 Equity
 Bonds
 Derivatives
 Other
6) Are you well educated about stock market investment?
 Yes
 No
 Partly
7) Who manages your investments?
 Self
 Agency
 Brokers
 Others
8) How do you choose where to invest in?
 I do my own research before investing
 As per my brokers recommendation
 By looking at the popularity of the stock
9) Are you aware of any of the following stock market indicators?
A) Trendline
B) Rate of Change
C) Relative strength indicator (RSI)
D) Moving Averages Convergence Divergence (MACD)
 Yes
 No
 Partly

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10) Which of the following indicators/ stock market ratios are you more familiar with?
 Earnings per Share
 Price to Earnings ratio
 Price to Earnings ratio to Growth ratio
 Price to Book value ratio
 Dividend payout ratio
 Dividend yield
11) If you are aware of the above indicators, how well do you rate their involvement in your
investment? (1 being least involved, 5 being strongly involved)
 1
 2
 3
 4
 5
 0 – unaware of the indicators
12) Do you prefer being recommended an investment opportunity or do you prefer to decide it on
your own?
 Yes i prefer being recommended on where to invest by a well knowledgeable person
 I prefer to do my own research and invest accordingly

13) Which of the following medium helped you in understanding various investment
opportunities?
 Social Media
 Online Courses
 News
 Other

***

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