Last & Final Copy Of Summar

A Summer Project Report On “Stock Market: Equity research investment & portfolio Management” At

Submitted To:

Prof. Bhavin Pandya Head of the Department S.V. Institute of Management, Kadi Hemchandracharya North Gujarat University In the partial fulfillment of The requirement of Master of Business Administration (MBA) Batch: 2008-10 Submitted By: Dashrthbhai Devda(Roll-no 13 B)

S.V INSTITUE OF MANAGEMENT,KADI

PREFACE The summer program offered by the SVIM College is an enlightening course for those who are wishing to master their Business administration skills, with their knowledge. This is a unique course which is the collaboration of MBA. It not only develops our management talent but also develop our technical skill. It imparts the necessary theoretical knowledge about the field but also provides an opportunity to practically experience the application of the business administration fundamentals in the corporate as well as the non-corporate sector. The Summer Training at the end of second semesters is an ideal opportunity for the student to have a first hand experience with the different functions of the Industrial/ Corporate sector. This facilitates the understanding and related learning to the students, which might be critical to learn the subject better. I have undergone my summer training at Angel Broking Limited. Here I got to the practical knowledge of Equity Markets and Derivatives Market. I enjoyed the learning of the subject and its functions and mainly the excitement of sitting in a dealing room and practically viewing the trades taking place on the share market screen. I was unaware about the role of exchanges and depositories in the secondary market. Here I really got practical knowledge about the role of SEBI, NSE, and BSE etc. in the secondary market. Now I am aware about the buying and selling system in the secondary market through broking firm or sub-broker. I am very much thankful to Mr. Sunil khstri Brsnch manager of angel Broking ltd. Deesa Braanch 67/68 aditya complex,new bus stand deesa I therefore have pleasure to present my training report, which, I hope as per the curriculum requirements.

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ACKNOWLEDGEMENT I would like to express my profound to Mr. Sunil Khtri ,Branch Manager, Angel Broking ltd. Without whose permission this project would not have been undertaken. I would also like to thanks to Mr. Haresh chaudhary, Marketing Manager of angel broking at deesa branch. Also I would like to thanks delining team Purav Radhod, Mr Manav Parjapati, Mr.Amit trivedi, community dealer Mr Ashish thakker & Alpa chaudhary without them help and guidance this project could not have visualized. I would like to express our since thanks to Hemchandrashaya north Gujarat Uni and S.V. Institute of management, Kadi for providing opportunity to get practical exposure about company analysis. I would also like to give a vote of thanks to Mr Bhavin Patel H.O.D S.V institute of Management for his constant support encouragement. I hereby pay my gratitude to Prof. Nikunj Patel for his guidance and precious adivice in the completion of my project. Without his support this project could not have been visualized. I take this opportunity to express our since thanks to Prof. Priti Salvi for having a extended her valuable time and co-operation to assist me in this project without her support this project could not have been completed. I would also like to thanks all other professors of the same institute for there kind support for the completion my project. My special thank to all the staff member of Angel Broking Ltd. Who answer to the queries with patience and spent there valuable during the dissertation. Who answer to the queries with patience and spent there valuable during the dissertation. Finally, I thanks my family and special thanks to Kirit Parjapati & all other my friends for there direct or indirect support, without whome my project would not have taken shape.

Dashrath Devda

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Executive Summary

As a partial fulfillment of my MBA curriculum I have undergone six weeks summer training at “ANGEL BROKING.” I have done my summer training project at Deesa branch from 21st of jun to 30th of july. The Angel Group has emerged as one of the top 5 retail stock broking houses in India, having memberships on BSE, NSE and the two leading commodity exchanges in the country i.e. NCDEX and MCX. Angel Broking Ltd is also registered as a depository participant with CDSL. Angel has exceeded customer’s expectations by providing worldclass service. I was placed under the marketing and sales department and I have learned a lot in carrying out marketing task for Angel Broking. I have done marketing in retail client segment. I have also carried out a project during summer training. The title of my project is “Stock Market: Equity research investment & portfolio management” To full my project I do a sector wise find secoter wise fundamental strong company and script wise portfolio calculation for that I use sharpe’ model and find optimal portfolio modal.

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Research Methodology Primary objective The primary objective of our study is micro level analysis related share market to investors point of view

Secondary objectives -

To know about Indian financial system as well as Indian financial market To know about Indian stock market Understand about angel broking ltd Analyse the broking and stock market trading industry’s postion Study the online trading aspects of the industry

Collection of data For our comprehensive study , all data from secondary source the main data collection source were -Angel broking ltd’s secondary data -web-side -Related book

Project team I make this project individual

Limitations -Our analyses based on secondary data -There exist time constant -Lake of information

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CONTENTS Ch.No

Sub-ch .no

1

Topics

Pg.no

Preface

2

Acknowledgement

3

Executive Summary

4

Research Methodology

5

Overview of Indian Financial System 8 1.1

2

Financial market

8

Securities market regulation in India-An ovrview

10

2.1

Introduction

10

2.2

Equity market

11

2.3

Equity market reforms since 1992

12

2.4

Debt market

13

2.5

Reforms since early 1990

13

2.6

Market infrastructure

15

2.7

Primary issues and transparency

18

2.8

Principal of market intermediaries

18

Overview of BSE

22

3.1

BSE services

24

3.2

Vision

25

3.3

Logo

25

Overview of NSE

26

3

4 4.1

The organization

26

4.2

Mission

26

4.3

Logo

27

4.4

Our technology

27

Angel broking ltd

29

5.1

Company’s profile

31

5.2

Organizational structure

32

5.3

Management team

33

5.4

Angel logo, vision

37

5

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5.5 6

39

Fundamental Analyses of various company

40

6.1

Why use ratio?

40

6.2

Calculating Return on Equity Components of Return on Equity Liquidity Ratios Asset Management Ratios Profitability Ratios Leverage Ratios Market Value Ratio

40

6.3 6.4 6.5 6.6 6.7 6.8 6.9 7

9

The journey so far

41 44 47 50 52 54

VARISIOUS COMPANY PERFOTMANSE MAJOR THROUTH 57 RATIO Portfolio management-Sharpe’s model

81

7.1

Script return calculation

81

7.2

Script expected return calculation

87

7.3

Market ,return, expected return, variance

93

7.4

Script’s residual variance

95

7.5

Script ranking calculation

7.6

Calculation of determining the cut-off rate

97

7.7

Interpretation

98

7.8

Optimal portfolio

99

7.9

Formula sheet

100

Biblography

101

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7

Ch.no-1 Overview of Indian Financial System The Indian financial system comprises a set of financial institutions, financial markets and financial infrastructure. The financial institutions mainly consist of commercial and co-operative banks, regional rural banks (RRBs), allIndia financial institutions (AIFIs) and non-banking financial companies (NBFCs). The banking sector which forms the bedrock of the Indian financial system, falls under the regulatory ambit of the Reserve Bank of India under the provisions of the Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934. The Reserve Bank also regulates select AIFIs. Consequent upon amendments to the Reserve Bank of India (Amendment) Act in 1997, a comprehensive regulatory framework in respect of NBFCs was put in place in January 1997. The financial market in India comprises the money market, the Government securities market, the foreign exchange market and the capital market. A holistic approach has been adopted in India towards designing and development of a modern, robust, efficient, secure and integrated payment and settlement system. The Reserve Bank set up the Institute for Development and Research in Banking Technology (IDRBT) in 1996, which is an autonomous centre for technology capacity building for banks and providing core IT services 1.1 Financial Markets A major objective of reforms in the financial sector was to develop various segments of the financial market as also eliminate segmentation across various markets in order to smoothen the process of transmission of impulses across markets, easing the liquidity management process and making resource allocation process more efficient across the economy. The strategy adopted for meeting these objectives involved removal of restrictions on pricing

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of assets, building the institutional structure and technological infrastructure, introduction of new instruments, and fine-tuning of the market microstructure. The 1990s saw the significant development of various segments of the financial market. At the short end of the spectrum, the money market saw the emergence of a number of new instruments such as CP and CDs and derivative products including FRAs and IRS. Repo operations, which were introduced in the early 1990s and later refined into a Liquidity Adjustment Facility, allow the Reserve Bank to modulate liquidity and transmit interest rate signals to the market on a daily basis. The process of financial market development was buttressed by the evolution of an active government securities market after the Government borrowing programme was put through the auction process in 1992-93. The development of a market for Government paper enabled the Reserve Bank to modulate the monetisation of the fiscal deficit. The foreign exchange market deepened with the opening up of the economy and the institution of a market-based exchange rate regime in the early 1990s. Although there were occasional10 episodes of volatility in the foreign exchange market, these were swiftly controlled by appropriate policy measures. The capital market also underwent some metamorphic changes during the 1990s. The development of the financial markets was well supported by deregulation of balance sheet restrictions in respect of financial institutions, allowing them to operate across markets.

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2. Securities Market Regulation in India - An Overview 2.1 Introduction A stable and efficient financial system provides the foundation for implementation of effective stabilization policies, more accurate pricing of risk and more efficient use of capital. Efficiency of the financial system is governed by the role of markets in mobilizing and allocating financial resources, in providing liquidity and payment services and in gathering information on which to base investment decisions. Stability, on the other hand, is concerned with safeguarding the value of liabilities of financial intermediaries that serve as stores of wealth. This also involves questions relating to prudential supervision, financial regulation and good governance. It needs to be added here that as financial systems get increasingly globalized, capital moves not only in response to competing monetary policies, but also to competing financial systems. Inefficient and unstable financial systems are therefore likely to be increasingly penalized. In India, as in other parts of the world, securities regulations have evolved in the face of two apparently diverging trends. One relates to a move toward liberalization of financial markets, which entails elimination of measures of financial repression such as direct controls on interest rates, mandatory investment in government securities, administrative pricing of securities and so on. The other force is toward stronger regulation. The need for stronger regulation comes to the fore since financial markets are characterized by significant asymmetries of information, which contribute to moral hazard and in extreme cases leads to market failure. In sum, an unregulated market can entail high systemic risk. This section briefly discusses the problems faced by the market prior to reforms and outlines the major reform initiatives of the 1990s with what results.

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2.2 .Equity market Nature of market prior to reforms As compared to other developing countries, the Indian stock markets have a fairly long history.1 However, the volume of transactions in these markets remained limited until the late 1970s, but grew rapidly during the 1980s as the corporate sector turned increasingly to the equity market. Although the volume of transactions increased, the market remained primitive, insulated from foreign investment and continued to suffer from several problems. Most importantly, to access capital markets, companies needed to have prior permission from the government, which had to approve the price at which new equity could be raised. The aim was ostensibly to control flow of funds to the private corporate sector in view of the requirements of public finance and also to provide a “fair value” to investors. However, the practice effectively penalized firms raising capital from the market: the Initial Public Offerings (IPOs) of equity were typically under-priced in relation to the price upon listing, and the new issues by listed companies were at a substantial discount to the prevailing price. While the new issue market was overly regulated, there were inadequate regulations of secondary market activities. The domestic capital market had no global link. Information and transparency were limited, reflecting the individual, dealer-based trading system. All these contributed to high transaction costs. In addition, public sector financial institutions such as the Unit Trust of India (UTI), the insurance companies and the Development Finance Institutions (DFIs) were dominant players in the stock market. This had two significant effects. First, the government had major influence on the domestic financial markets.

2

Second, it allowed promoters of public companies to run their

companies with relatively small holdings of their own, because public sector financial institutions generally supported the status quo ownership and management position, unless something drastic happened.

1

2

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2.3 Equity market reforms since 1992 As part of a broad set of reforms, the Securities and Exchange Board of India (SEBI) was given the legal powers in 1992 to regulate and reform the capital market, including new issues. The equity market reforms since then can be divided into two broad categories: one that increases the level of competition in the market and the other that deals with problems of information and transaction cost. The most important initiative to enhance competition was the free pricing of IPO and formulation of guidelines concerning new issues. The new regulatory framework sought to strengthen investor protection by ensuring disclosure and transparency rather than through direct control. Secondly, the National Stock Exchange (NSE) was set up, which competed with the Bombay Stock Exchange (BSE). The NSE introduced an automated screen-based trading system, known as the National Exchange for Automated Trading (NEAT) system, which allowed members from across the country to trade simultaneously with enormous ease and efficiency. Faced with stiff competition, the BSE adopted similar technology. Competition was also enhanced through an increased number of participants—foreign institutional investors (FIIs) were permitted to trade and private sector mutual funds came on the scene. To deal with market imperfection such as information asymmetry and high transaction costs, a number of measures were taken. At the trading level, transparency was facilitated by the new technology (NEAT system), which operated on a strict price/time priority. 3 At the investor level, transparency was augmented by the regulation that required listed companies to increase the frequency of their account announcements. To ensure transferability of securities with speed, accuracy and security, the Depositories Act was passed in 1996, which provided for the establishment of securities depositories and allowed securities to be dematerialized. Following the legislation, National Securities Depository Limited —India’s first depository--was launched. Other measures to reduce transaction costs included: a) a movement toward electronic trading and settlement, and b) streamlining of procedures with respect to clearance of new issues.

3

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2.4 .Debt Market The Indian debt market can be classified into three segments: (i) the government securities market; (ii) the public sector units (PSU) bond market; and (iii) the corporate bond market. Each segment has its own distinctive practices, procedures, institutional framework and regulatory structure. The focus of debt market reforms has been on government securities market, because not only does it dominate the debt market, 4 but also plays an important role in establishing benchmarks for the rest of the market. Nature of market prior to reforms Until the early 1990s, the debt market received very little attention. The government securities market, which constituted the bulk of the debt market, remained dormant. The reason for this was simple. Since the government could borrow at pre-announced coupon rates at below market rates from a set of captive institutions, there was no need for the government to directly place its securities on the market. The captive institutions largely held on to government paper until maturity; whatever little trading existed, was aimed at adjusting the maturity structure of the portfolio, rather than at profit making. As a result, the market did not develop. 2.5 Reforms since early 1990s Debt market reforms began with the establishment of a primary market for government securities. It was followed by the strengthening of the legal, regulatory and payments infrastructure which contributed to the development of a secondary market. Some of the important reform initiatives undertaken since the early 1990s are given below. •

There have been progressive restrictions on on-demand government borrowing from the RBI. The earlier system of issuing ad hoc treasury bills has been replaced by a system of ways and means advances, which are being made increasingly restrictive.

4

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•

Auction for treasury bills of varying maturity—14-day, 91-day, 182-day and 364-day—have been introduced. To encourage aggressive bidding, uniform price auctions have been introduced for 91-day treasury bills. Also, to foster competition, non-competitive bids are now kept outside the notified amount.

•

To widen the investor base, foreign institutional investors have been allowed to invest in government securities including treasury bills in both primary and secondary markets.

•

The RBI has introduced a Delivery versus Payments (DVP) system, which ensures settlement by synchronizing transfer of securities with cash payments, thereby accelerating settlement, enhancing transparency and eliminating settlement risk. (Earlier, settlements in securities transactions between any two parties were recorded without any direct link with cash settlement between buyers and sellers, which entailed delays in settlement and counterparty risk.)

•

A primary dealer system has been developed to channel securities from primary auctions to ultimate investors. Primary dealers facilitate debt trading through committed participation in primary market auctions and by creating an active secondary market in securities by giving twoway quotes.

•

The RBI is actively promoting retailing of government securities by providing liquidity support to satellite dealers and dedicated gilt funds to help them sustain their retail activities. Gilt funds also benefit from special tax incentives.

•

An active interbank repo market has been developed, which has helped to boost liquidity in government securities. To provide depth to the interbank repo market, a number of measures have been taken, including permission for all government securities to be eligible for interbank repos.

• Market issues It is important to recognize the trade-off between over-regulation and high cost of compliance. Over-regulation may minimize market friction, but can potentially kill a market. To dilute this tradeoff, it is important to modernize the microstructure. (Microstructure relates to the manner in which a market is organized and the trading and post-trading technology the market adopts.) As regulations become more and more complex, certain regulatory objectives can be more easily attained through changes in microstructure rather than further addition to regulatory law.

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2.6 Market Infrastructure Screen-Based Trading System As enunciated in Chapter II, the equities market has witnessed a quantum improvement in trading technology during the 1990s as it moved away from the open-outcry system of trading to a computer screen-based trading. The new technology has not only increased transparency in trading, but also facilitated the integration of different trading centers into a single trading platform. Permitting of internet trading has enabled investors across the globe to route orders through the internet for execution on the Indian stock exchanges. In contrast to the equities market, the government securities market and the market for money market instruments are largely negotiated markets. Although the NSE established a wholesale debt market segment for exchange trading, members generally use this segment only for reporting trades undertaken by them in the negotiated market, rather than trading on the exchange. Rolling Settlement The stock exchanges in India have traditionally followed account period settlement system, which tends to distort the price discovery process since it combines the features of cash as well as futures markets. In contrast, the current international practice is predominantly rolling settlement on a T+3 basis, which introduces certainty of trades and reduces risk and delay in settlement. Beginning last year, compulsory rolling settlement has been introduced in a limited number of scrips on a T+5 basis. The slow progress toward the introduction of rolling settlement is on account of (a) lack of availability of electronic funds transfer across the country and (b) a general apprehension that such a move will reduce liquidity in the market. Even though a more effective payment and clearing system through a wider availability of EFT is important for switch-over to rolling settlement 5, the Group is of the view that even the current payment infrastructure can support a faster phasing-in. Further, the view that rolling settlement per se will drain liquidity from the market is not borne out by international experience. The Group also suggests that RBI and SEBI 5

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expedite their scrutiny of the recent recommendations made by the joint task force of IOSCO and BIS on securities settlement systems, for early implementation. Depositories and dematerialization To ensure transferability of securities with speed, accuracy and security, the Depositories Act was passed in 1996, which provided for the establishment of securities depositories and allowed securities to be dematerialized. Following the legislation, two depositories (NSDL and CDSL) have so far been established. Further, the compulsory dematerialization of shares for trading purpose has been introduced in a phased manner with the aim of synchronizing the settlement of trade and transfer of securities irrespective of geographical locations, and eliminating the ills associated with paper-based securities system such as delay in transfer, bad delivery, theft and forgery. Although the process of compulsory dematerialization is nearing completion, its full benefits have not been reaped because of slow progress in introduction of rolling settlement. With the appropriate infrastructure in place, there is now scope for taking further advantage of depositories to promote retailing of government securities. The RBI has taken a step in the right direction by allowing NSDL and CDSL to have a second SGL account for depository participants who in turn can hold in custody government securities on behalf of the final investors. This will facilitate holding of government securities in demat form.

Clearing Corporations The stock exchanges supervise the buying and selling activities of brokers, but financial settlements are guaranteed by a clearing corporation, which creates a settlement guarantee fund to ensure settlement of trades irrespective of default by trading members. This arrangement, by nearly eliminating counterparty risk, has given a tremendous boost to investor confidence in India.

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Further, in contrast to the current Indian system of each stock exchange having its own clearing corporation or clearing bank, it may be appropriate to have perhaps only two clearing corporations in line with international practice, which would support many stock exchanges. Such an arrangement would allow the clearing agency to have an overall view of gross exposures of traders across the stock exchanges and would be much better geared to manage risks. Delivery vs. Payment In the government securities market, DvP was introduced in 1994 for transactions put through the SGL accounts maintained in RBI’s Public Debt Office (PDO), which has greatly helped in reducing the principal risk. The Special Fund Facility introduced last year has to a certain extent reduced risk of non-settlement due to gridlock. The Advisory Group on Payments and Settlement Systems (Headed by Shri M.G. Bhide) has made some suggestions for improving the payments and settlement systems and this Group would concur with these suggestions. In the equity market there is currently no DvP. The Group notes that SEBI and RBI are jointly trying to evolve a mechanism, which would seamlessly link the depositories with the payment system through the clearing corporation/ clearing agency to ensure DvP. The Group recommends that establishment of such a mechanism is expedited. Straight-through Processing: Straight-through Processing (STP) involves verification through Internet of (i) the selling client's DP account for security balances following a sell order; and (ii) the buying clients' bank accounts for cash balances following a buy order. This system can eliminate nearly all settlement and payment risk. The significant changes taking place in technological and trading environment worldwide are driving the global securities industry towards STP. However, at present, all the prerequisites for STP are not yet available in India. While automated trading and dematerialization have been largely achieved, the limited availability of EFT and absence of RTGS have constrained the introduction of STP. These constraints are likely to be eliminated in the near future.

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2.7 Primary Issues and Transparency Private Placement Market High costs of regulatory compliance associated with public issues of debt have made issuers prefer the private placement market. The private placement market has registered tremendous growth in the last few years. In 1999/2000, private placements accounted for 84 percent of total resources mobilized by the corporate sector. Preponderance of private placement can potentially strip the market of its ability to discipline issuers and thereby enhance systemic risk. Once investors have used the private placement route, they cannot signal their changing evaluation of the business prospects of the issuers, because there is no market in which they can sell. The dominance of private placement in primary issue market possibly reflects an absence of regulatory level playing field in the sense that public issues may be over-regulated while private placements could be under-regulated. Some recent initiatives such as the amendment to the Companies Act, making it mandatory for companies issuing debentures through private placement route to set up debenture redemption reserves as in the case of public issues, can partially restore the balance.

6

These

initiatives need to be complemented by simultaneous efforts to ease some of the regulations governing public issues. Corporate disclosure With a view to enabling investors to take informed decisions as well as to promote transparency, regulations have over the years become more stringent by requiring disclosure to be more frequent and wider in scope. Currently, disclosure in India extends to material having a bearing on the price of a security, and entities who either have significant interest in a company or seek management control. A company offering securities is required to make a public disclosure of all relevant information through its offer documents. After a security is issued to the public and subsequently listed on a stock exchange, the issuing company is required to make continuous disclosures, including through publication of yearly audited balance sheets and quarterly un-audited financial 6

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results. Moreover, the disclosure of material information, which could have a bearing on the performance of the company, has to be made available to the public immediately. Among the drawbacks, the ‘timing’ and ‘contents’ of disclosure of material events that impact prices are not unambiguously specified and followed. Recently, it has been decided that companies would be required to make decisions regarding dividend bonus and rights announcements or any other material event within 15 minutes of the conclusion of the board meeting where the decisions are taken. In terms of contents of disclosure, the following initiatives are necessary: (i) group company disclosures may be limited to top 5 companies by market capitalization or turnover, to avoid cumbersome exercise of gathering information from all companies falling under the definition of promoter group; and (ii) risk factors need to be given in greater detail as per international practices, although management perceptions of risks need not be given.

Transparency in the debt market As regards transparency in trading, the debt market is lagging behind the equity market. The cash market in debt securities throughout the world prefers to operate through negotiated deals either through telephone or an electronic dealing system like Bloomberg. This is because unlike the equity market, the bond market participants are generally wholesale institutional investors who put in large deals at a time, which may not always be possible through the screen based order driven system. It is only in the futures market that the principles of anonymity, price time priority, nationwide market and settlement guarantee are known to work. As stated earlier, wholesale institutional investors have yet to show adequate inclination to use the anonymous order matching system for executing their debt securities transactions. Under the circumstances, SEBI has taken initiatives to foster transparency through regulatory fiat by prohibiting negotiated deals on the exchanges in respect of listed corporate debt securities and prescribing that all such trades would be executed on the basis of price and order matching mechanism of stock exchanges as in the case of equities. However, negotiated deals are still continuing, albeit outside the exchange, and there is no market dissemination of information on such transactions.

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Since almost all deals in the government securities market are settled through the Subsidiary General Ledger (SGL), the daily dissemination of such information (albeit with a one day lag) has proved to be important in the price discovery process.) This, together with the data available from the NSE's Wholesale Debt Market (WDM) segment has contributed to greater transparency in the secondary market for government securities. Transparency will be further boosted by the current initiative to put in place an electronic negotiated dealing system for the SGL participants, which will disseminate information on a near real time basis. 2.8 A. Principles for Market Intermediaries 1

Regulation should provide for minimum entry standards for market intermediaries.

2

There should be initial and ongoing capital and other prudential requirements for market intermediaries.

3

Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients and under which management of the intermediary accepts primary responsibility for these matters.

4

There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. B. Principles for the Secondary Market

5

The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

6

There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. 7

Regulation should promote transparency of trading.

8

Regulation should be designed to detect and deter manipulation and other unfair trading practices.

9

Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

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10 The system for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure

3. Overview of BSE (Bombay stock exchange) Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as

"The

Native

Share

&

Stock

Brokers'

Association"

in

1875.

BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) S.V INSTITUE OF MANAGEMENT, KADI

21

from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Börse

and

Singapore

Exchange,

as

its

strategic

partners.

Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced

BSE's

services

in

raising

resources

from

the

capital

market.

Today, BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference,

are

classified

into

A,

B,

S,

T

and

Z

groups.

The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature , and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong

Kong

to

take

an

exposure

to

the

Indian

equity

market.

The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.

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BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 359 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT). BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-cum-screen aptly named 'BSE Broadcast' which enables

information

dissemination

to

the

common

man

on

the

street.

In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements. BSE also has a wide range of services to empower investors and facilitate smooth transactions: 3.1 BSE also has a wide range of services to empower investors and facilitate smooth transactions Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide

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investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities. The BSE On-line Trading (BOLT): BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 359 cities in India. BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform. Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts. BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmesThe World Council of Corporate Governance has awarded the Golden Peacock Global CSR Award for BSE's initiatives in Corporate Social Responsibility (CSR).

Awards •

The Annual Reports and Accounts of BSE for the year ended March 31, 2006 and March 31 2007 have been awarded the ICAI awards for excellence in financial reporting.

•

The Human Resource Management at BSE has won the Asia - Pacific HRM awards for its efforts in employer branding through talent management at work, health management at work and excellence in HR through technology

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Vision "Emerge as the premier Indian stock exchange by establishing global benchmarks"

Logo

The Stock Exchange, Mumbai is now Bombay Stock Exchange Limited (BSE)… a new name, and an entirely new perspective… a perspective born out of corporatisation and demutualisation. As a corporate entity, our new logo reflects our new mission… smoother, seamless, and efficient, whichever way you look at it. BSE is Asia's oldest stock exchange…carrying the depth of knowledge of capital markets acquired since its inception in 1875. Located in Mumbai, the financial capital of India, BSE has been the backbone of the country's capital markets

4. Overview of NSE (National Stock Exchang) 4.1 The Organization 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 (FIs) to provide access to investors from all S.V INSTITUE OF MANAGEMENT, KADI

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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 exchanges 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 Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. 4.2 Our Mission NSE's mission is setting the agenda for change in the securities markets in India. The NSE was setup with the main objectives of: •

establishing a nation-wide trading facility for equities, debt instruments and hybrids,

•

ensuring equal access to investors all over the country through an appropriate communication network,

•

providing a fair, efficient and transparent securities market to investors using electronic trading systems,

•

enabling shorter settlement cycles and book entry settlements systems, and

•

meeting the current international standards of securities markets.

The standards set by NSE in terms of market practices and technology have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities.

4.3 Logo

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The logo of the NSE symbolises a single nationwide securities trading facility ensuring equal and fair access to investors, trading members and issuers all over the country. The initials of the Exchange viz., N, S and E have been etched on the logo and are distinctly visible. The logo symbolises use of state of the art information technology and satellite connectivity to bring about the change within the securities industry. The logo symbolises vibrancy and unleashing of creative energy to constantly bring about change through innovation. 4.4 Our Technology Across the globe, developments in information, communication and network technologies have created paradigm shifts in the securities market operations. Technology has enabled organisations to build new sources of competitive advantage, bring about innovations in products and services, and to provide for new business opportunities. Stock exchanges all over the world have realised the potential of IT and have moved over to electronic trading systems, which are cheaper, have wider reach and provide a better mechanism for trade and post trade execution. NSE believes that technology will continue to provide the necessary impetus for the organisation to retain its competitive edge and ensure timeliness and satisfaction in customer service. In recognition of the fact that technology will continue to redefine the shape of the securities industry, NSE stresses on innovation and sustained investment in technology to remain ahead of competition. NSE's IT set-up is the largest by any company in India. It uses satellite communication technology to energise participation from around 200 cities spread all over the country. In the recent past, capacity enhancement measures were taken up in regard to the trading systems so as to effectively meet the requirements of increased users and associated trading loads. With upgradation of trading hardware, NSE today can handle up to 15 million trades per day in Capital Market segment. In order to capitalise on in-house expertise in technology, NSE set up a separate company, NSE Technology Services Ltd. which is expected to provide a platform for taking up all IT related assignments of NSE. NEAT is a state-of-the-art client server based application. At the server end, all trading information

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is stored in an in-memory database to achieve minimum response time and maximum system availability for users. The trading server software runs on a fault tolerant STRATUS main frame computer while the client software runs under Windows on PCs. The telecommunications network which was using X.25 protocol and is the backbone of the automated trading system is being upgraded to use the more popular and modern IP Protocol. This is a major project involving use of X.25 and IP in parallel and ensuring smooth transition to IP. Each trading member trades on the NSE with other members through a PC located in the trading member's office, anywhere in India. The trading members on the various market segments such as CM / F&O, WDM are linked to the central computer at the NSE through dedicated leased lines and VSAT terminals. The Exchange uses powerful RISC -based UNIX servers, procured from HP for the back office processing. The latest software platforms like ORACLE 10g RDBMS, SQL/ORACLE FORMS Front - Ends, etc. have been used for the Exchange applications. The Exchange currently manages its data centre operations, system and database administration, design and development of in-house systems and design and implementation of telecommunication solutions. NSE is one of the largest interactive VSAT based stock exchanges in the world. Today it supports more than 2000 VSATs and 3000 leased lines across the country. The NSE- network is the largest private wide area network in the country and the first extended C- Band VSAT network in the world. Currently more than 9000 users are trading on the real time-online NSE application. There are over 15 large computer systems which include non-stop fault-tolerant computers and high end UNIX servers, operational under one roof to support the NSE applications. This coupled with the nation wide VSAT network makes NSE the country's largest Information Technology user.

5. ANGEL BROKING LTD In a shot span of 18 years since inception, the Angel Group has emerged as one of the top five retail stock broking houses in India, having membership of BSE, NSE and the two leading Commodity Exchanges in the country i.e. NCDEX & MCX. Angel Broking is also registered as a Depository Participant with CDSL.

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The group is promoted by Mr. Dinesh Thakkar, who started this business as a sub-broker in 1987 with a team of 3. Today the angel group is managed by a team of 1937 direct employees and has a nation wide network comprising of 21 Regional hubs, 98 branches and 2759 sub brokers & business associates. Angel is 100% focused on retail stock broking business unlike any other larger national broking house. The group currently services more than 6,000,00 retail clients. Angel habitually generates value added features without the cost burden being passed on to the clients as they strongly believe that better understanding of client’s needs and wants is their top priority. Their e-broking facility is one such effort, which gives the client a platform to access state of the art trading facility at the click of a button. Angel has always strived for delivering customer delight and developing strong long term bonds with its clients as well as channel partners. Angel thrives on a vision to introduce new and innovative products and services constantly. Moreover, Angel has been among the pioneers to introduce the latest technological innovations and integrate them efficiently within its business.

The mainline Business Activities of Angel are : •

Stock Broking

•

Derivatives Trading

•

Online Trading

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•

Wholesale debt market operations

•

Depository services with CDSL

•

Fundamental Research Services

•

Technical Research Services

•

IPO Distribution and Advisory

•

Mutual Fund Distribution and Advisory

•

Commodities Trading

COMPANY’S PROFILE

NAME OF THE COMPANY:

Angel broking ltd.

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REGISTERED OFFICE:

G-1, Akruti Trade Centre, Road No. 7, MIDC Marol, Andheri (E), Mumbai – 400 093

BRANCH OFFICE:

Angel Broking ltd. 67,68 Adity complex New bus-stand b/h kotak bank Palnpur-high-way deesa

FORM OF ORGANISATION:

Private Sector

PROMOTER:

Mr. Dinesh Thakkar

ACCOUNTING YEAR:

1ST April to 31st March

MANAGEMENT TEAM Chairman and Managing Director : Mr. Dinesh Thakkar Chief strategy Officer

: Mr. Amit Majudar

Senior Research Analyst

: Mr. Lalit Thakkar

ORGANIZATIONAL STRUCTURE S.V INSTITUE OF MANAGEMENT, KADI

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Table 1 ANGEL GROUP COMPANIES

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Member on the BSE Depository Participant with CDSL Membership on the NSE Cash and Futures & Options Segment

Angel Broking Ltd. Angel Capital & Debt Market Ltd. Angel Commodities Broking Ltd.

Member on the NCDEX & MCX

Angel Securities Ltd.

Member on the BSE

Angel Infin Pvt. Ltd.

NBFC registered with RBI

Mimansa Systems Pvt. Ltd.

For Software Development

REGIONAL OFFICES Ahemdabad

Pune

Rajkot

Surat

Bangalure

Chennai

Hyderabad

Indor

Jaipur

Kolkatta

Mumbai

New Delhi

Cochin

Coimbatore

Hyderabad

kanpur

Lucknow

Mubai (goregone)

Nashik

Nagpur

Visakhapatnam

The Unique Features of Angel : 

Instant Online Fund Transfer with Multiple Banks

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

BSE, NSE, F & O, MCX and NCDEX in a single screen



Efficient uptime and greater stability for high speed

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

Customized solutions as per client’s requirements



Personalized Advisory services for HNI clients



Call and Trade at 98 branches across the country



State of the art Technology and Infrastructure



DP with CDSL with automated pay-in facility



Instant Online technical support for clients

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ANGEL’S LOGO

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ANGEL’S VISION

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ANGEL’S BUSINESS PHILOSOPHY

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5.5 The journey so far………..

May, 2009

Awarded with 'Broking House with Largest Distribution Network' and 'Best Retail Broking House' at Dun & Bredstreet Equity Broking Awards 2009

August, 2008 Crossed 500000 trading accounts November, 2007

‘Major Volume Driver’ for 2007

March, 2007 Crossed 200000 trading accounts December, 2006

Created 2500 business associates

October, 2006

‘Major Volume Driver’ award for 2006

September, 2006

Launched Mutual Fund and IPO business

July, 2006

Launched the PMS function

March, 2006 Crossed 100000 trading accounts October, 2005

‘Major Volume Driver’ award for 2005

September, 2004

Launched Online Trading Platform

April, 2004

Initiated Commodities Broking division

April, 2003

First published research report

November, 2002

Angel’s first investor seminar

March, 2002 Developed web-enabled back office software November, 1998

Angel Capital and Debt Market Ltd. incorporated

December, 1997

Angel Broking Ltd. incorporated

6. Fundamental analyses of various company

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Sector wise which company is good than other that’s why I am here compare them ratio of various company and for this I use for ratio fixed ratio. current ratio, earning per share(EPS), Book value

6.1 Why use ratios? It has been said that you must measure what you expect to manage and accomplish. Without measurement, you have no reference to work with and thus, you tend to operate in the dark. One way of establishing references and managing the financial affairs of an organization is to use ratios. Ratios are simply relationships between two financial balances or financial calculations. These relationships establish our references so we can understand how well we are performing financially. Ratios also extend our traditional way of measuring financial performance; i.e. relying on financial statements. By applying ratios to a set of financial statements, we can better understand financial performance 6.2 Calculating Return on Equity

For publicly traded companies, the relationship of earnings to equity or Return on Equity is of prime importance since management must provide a return for the money invested by shareholders. Return on Equity is a measure of how well management has used the capital invested by shareholders. Return on Equity tells us the percent returned for each dollar (or other monetary unit) invested by shareholders. Return on Equity is calculated by dividing Net Income by Average Shareholders Equity (including Retained Earnings). EXAMPLE — Net Income for the year was $ 60,000, total shareholder equity at the beginning of the year was $ 315,000 and ending shareholder equity for the year

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was $ 285,000. Return on Equity is calculated by dividing $ 60,000 by $ 300,000 (average shareholders equity which is $ 315,000 + $ 285,000 / 2). This gives us a Return on Equity of 20%. For each dollar invested by shareholders, 20% was returned in the form of earnings. SUMMARY — Return on Equity is one of the most widely used ratios for publicly traded companies. It measures how much return management was able to generate for the shareholders. The formula for calculating Return on Equity is: Net Income / Average Shareholders Equity 6.3 Components of Return on Equity Return on Equity has three ratio components. The three ratios that make up Return on Equity are: 1. Profit Margin = Net Income / Sales 2. Asset Turnover = Sales / Assets 3. Financial Leverage = Assets / Equity Profit Margin measures the percent of profits you generate for each dollar of sales. Profit Margin reflects your ability to control costs and make a return on your sales. Profit Margin is calculated by dividing Net Income by Sales. Management is interested in having high profit margins. EXAMPLE — Net Income for the year was $ 60,000 and Sales were $ 480,000. Profit Margin is $ 60,000 / $ 480,000 or 12.5%. For each dollar of sales, we generated $ .125 of profits. Asset Turnover measures the percent of sales you are able to generate from your assets. Asset Turnover reflects the level of capital we have tied-up in assets and how much sales we can squeeze out of our assets. Asset Turnover is calculated by S.V INSTITUE OF MANAGEMENT, KADI

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dividing Sales by Average Assets. A high asset turnover rate implies that we can generate strong sales from a relatively low level of capital. Low turnover would imply a very capital-intensive organization. EXAMPLE — Sales for the year were $ 480,000, beginning total assets was $ 505,000 and year-end total assets are $ 495,000. The Asset Turnover Rate is $ 480,000 / $ 500,000 (average total assets which is $ 505,000 + $ 495,000 / 2) or .96. For every $ 1.00 of assets, we were able to generate $ .96 of sales. Financial Leverage is the third and final component of Return on Equity. Financial Leverage is a measure of how much we use equity and debt to finance our assets. As debt increases, we financial leverage increases. Generally, management tends to prefer equity financing over debt since it carries less risk. The Financial Leverage Ratio is calculated by dividing Assets by Shareholder Equity. EXAMPLE — Average assets are $ 500,000 and average shareholder equity is $ 320,000. Financial Leverage Ratio is $ 500,000 / $ 320,000 or 1.56. For each $ 1.56 in assets, we are using $ 1.00 in equity financing. Now let us compare our Return on Equity to a combination of the three component ratios: From our example, Return on Equity = $ 60,000 / $ 320,000 or 18.75% or we can combine the three components of Return on Equity from our examples: Profit Margin x Asset Turnover x Financial Leverage = Return on Equity or .125 x .96 x 1.56 = 18.75%. Now that we understand the basic ratio structure, we can move down to a more detail analysis with ratios. Four common groups of detail ratios are: Liquidity, Asset Management, Profitability and Leverage. We will also look at market value ratios. S.V INSTITUE OF MANAGEMENT, KADI

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6.4 Liquidity Ratios

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Liquidity Ratios help us understand if we can meet our obligations over the shortrun. Higher liquidity levels indicate that we can easily meet our current obligations. We can use several types of ratios to monitor liquidity. Current Ratio Current Ratio is simply current assets divided by current liabilities. Current assets include cash, accounts receivable, marketable securities, inventories, and prepaid items. Current liabilities include accounts payable, notes payable, salaries payable, taxes payable, current maturity's of long-term obligations and other current accruals. EXAMPLE — Current Assets are $ 200,000 and Current Liabilities are $ 80,000. The Current Ratio is $ 200,000 / $ 80,000 or 2.5. We have 2.5 times more current assets than current liabilities. A low current ratio would imply possible insolvency problems. A very high current ratio might imply that management is not investing idle assets productively. Generally, we want to have a current ratio that is proportional to our operating cycle. We will look at the Operating Cycle as part of asset management ratios.

Acid Test or Quick Ratio Since certain current assets (such as inventories) may be difficult to convert into cash, we may want to modify the Current Ratio. Also, if we use the LIFO (Last In First Out) Method for inventory accounting, our current ratio will be understated. Therefore, we will remove certain current assets from our previous calculation. This new ratio is called the Acid Test or Quick Ratio; i.e. assets that are quickly converted into cash will be compared to current liabilities. The Acid Test Ratio measures our S.V INSTITUE OF MANAGEMENT, KADI

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ability to meet current obligations based on the most liquid assets. Liquid assets include cash, marketable securities, and accounts receivable. The Acid Test Ratio is calculated by dividing the sum of our liquid assets by current liabilities. EXAMPLE — Cash is $ 5,000, Marketable Securities are $ 15,000, Accounts Receivable are $ 40,000, and Current Liabilities are $ 80,000. The Acid Test Ratio is ($ 5,000 + $ 15,000 + $ 40,000) / $ 80,000 or .75. We have $ .75 in liquid assets for each $ 1.00 in current liabilities. Defensive Interval Defensive Interval is the sum of liquid assets compared to our expected daily cash outflows. The Defensive Interval is calculated as follows: (Cash + Marketable Securities + Receivables) / Daily Operating Cash Outflow EXAMPLE — Referring back to our last example, we have total quick assets of $ 60,000 and we have estimated that our daily operating cash outflow is $ 1,200. This would give us a 50 day defensive interval ($ 60,000 / $ 1,200). We have 50 days of liquid assets to cover our cash outflows. Ratio of Operating Cash Flow to Current Debt Obligations The Ratio of Operating Cash Flow to Current Debt Obligations places emphasis on cash flows to meet fixed debt obligations. Current maturities of long-term debts along with notes payable comprise our current debt obligations. We can refer to the Statement of Cash Flows for operating cash flows. Therefore, the Ratio of Operating Cash Flow to Current Debt Obligations is calculated as follows: Operating Cash Flow / (Current Maturity of Long-Term Debt + Notes Payable) S.V INSTITUE OF MANAGEMENT, KADI

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EXAMPLE — We have operating cash flow of $ 100,000, notes payable of $ 20,000 and we have $ 5,000 in current obligations related to our long-term debt. The Operating Cash Flow to Current Debt Obligations Ratio is $ 100,000 / ($ 20,000 + $ 5,000) or 4.0. We have 4 times the cash flow to cover our current debt obligations.

6.5 Asset Management Ratios

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A second group of detail ratios is asset management ratios. Asset management ratios measure the ability of assets to generate revenues or earnings. They also compliment our liquidity ratios. We looked at one asset management ratio already; namely Total Asset Turnover when we analyzed Return on Equity. We will now look at five more asset management ratios: Accounts Receivable Turnover, Days in Receivables, Inventory Turnover, Days in Inventory, and Capital Turnover. Accounts Receivable Turnover Accounts Receivable Turnover measures the number of times we were able to convert our receivables over into cash. Higher turnover ratios are desirable. Accounts Receivable Turnover is calculated as follows: Net Sales / Average Accounts Receivable EXAMPLE — Sales are $ 480,000, the average receivable balance during the year was $ 40,000 and we have a $ 20,000 allowance for sales returns. Accounts Receivable Turnover is ($ 480,000 - $ 20,000) / $ 40,000 or 11.5. We were able to turn our receivables over 11.5 times during the year. NOTE — We are assuming that all of our sales are credit sales; i.e. we do not have any significant cash sales. Days in Accounts Receivable The Number of Days in Accounts Receivable is the average length of time required to collect our receivables. A low number of days is desirable. Days in Accounts Receivable is calculated as follows: 365 or 360 or 300 / Accounts Receivable Turnover

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EXAMPLE — If we refer to our previous example and we base our calculation on the full calendar year, we would require 32 days on average to collect our receivables. 365 / 11.5 = 32 days. Inventory Turnover Inventory Turnover is similar to accounts receivable turnover. We are measuring how many times did we turn our inventory over during the year. Higher turnover rates are desirable. A high turnover rate implies that management does not hold onto excess inventories and our inventories are highly marketable. Inventory Turnover is calculated as follows: Cost of Sales / Average Inventory EXAMPLE — Cost of Sales were $ 192,000 and the average inventory balance during the year was $ 120,000. The Inventory Turnover Rate is 1.6 or we were able to turn our inventory over 1.6 times during the year. Days in Inventory Days in Inventory is the average number of days we held our inventory before a sale. A low number of inventory days is desirable. A high number of days implies that management is unable to sell existing inventory stocks. Days in Inventory is calculated as follows: 365 or 360 or 300 / Inventory Turnover EXAMPLE — If we refer back to the previous example and we use the entire calendar year for measuring inventory, then on average we are holding our inventories 228 days before a sale. 365 / 1.6 = 228 days. Operating Cycle S.V INSTITUE OF MANAGEMENT, KADI

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Now that we have calculated the number of days for receivables and the number of days for inventory, we can estimate our operating cycle. Operating Cycle = Number of Days in Receivables + Number of Days in Inventory. In our previous examples, this would be 32 + 228 = 260 days. So on average, it takes us 260 days to generate cash from our current assets. If we look back at our Current Ratio, we found that we had 2.5 times more current assets than current liabilities. We now want to compare our Current Ratio to our Operating Cycle. Our turnover within the Operating Cycle is 365 / 260 or 1.40. This is lower than our Current Ratio of 2.5. This indicates that we have additional assets to cover the turnover of current assets into cash. If our current ratio were below that of the Operating Cycle Turnover Rate, this would imply that we do not have sufficient current assets to cover current liabilities within the Operating Cycle. We may have to borrow short-term to pay our expenses. Capital Turnover One final turnover ratio that we can calculate is Capital Turnover. Capital Turnover measures our ability to turn capital over into sales. Remember, we have two sources of capital: Debt and Equity. Capital Turnover is calculated as follows: Net Sales / Interest Bearing Debt + Shareholders Equity EXAMPLE — Net Sales are $ 460,000, we have $ 50,000 in Debt and $ 200,000 of Equity. Capital Turnover is $ 460,000 / ($ 50,000 + $ 200,000) = 1.84. For each $ 1.00 of capital invested (both debt and equity), we are able to generate $ 1.84 in sales. 6.6 Profitability Ratios S.V INSTITUE OF MANAGEMENT, KADI

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A third group of ratios that we can use are profitability ratios. Profitability Ratios measure the level of earnings in comparison to a base, such as assets, sales, or capital. We have already reviewed two profitability ratios: Return on Equity and Profit Margin. Two other ratios we can use to measure profitability are Operating Income to Sales and Return on Assets. Operating Income to Sales Operating Income to Sales compares Earnings Before Interest and Taxes (EBIT) to Sales. By using EBIT, we place more emphasis on operating results and we more closely follow cash flow concepts. Operating Income to Sales is calculated as follows: EBIT / Net Sales EXAMPLE — Net Sales are $ 460,000 and Earnings Before Interest and Taxes is $ 100,000. This gives us a return of 22% on sales, $ 100,000 / $ 460,000 = .22. For every $ 1.00 of sales, we generated $ .22 in Operating Income. Return on Assets Return on Assets measures the net income returned on each dollar of assets. This ratio measures overall profitability from our investment in assets. Higher rates of return are desirable. Return on Assets is calculated as follows: Net Income / Average Total Assets EXAMPLE — Net Income is $ 60,000 and average total assets for the year are $ 500,000. This gives us a 12% return on assets, $ 60,000 / $ 500.000 = .12.

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Return on Assets is often modified to ensure accurate measurement of returns. For example, we may want to deduct out preferred dividends from Net Income or maybe we should include operating assets only and exclude intangibles, investments, and other assets not managed for an overall rate of return.

6.7 Leverage Ratios S.V INSTITUE OF MANAGEMENT, KADI

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Another important group of detail ratios are Leverage Ratios. Leverage Ratios measure the use of debt and equity for financing of assets. We previously looked at the Financial Leverage Ratio as part of Return on Equity. Three other leverage ratios that we can use are Debt to Equity, Debt Ratio, and Times Interest Earned. Debt to Equity Debt to Equity is the ratio of Total Debt to Total Equity. It compares the funds provided by creditors to the funds provided by shareholders. As more debt is used, the Debt to Equity Ratio will increase. Since we incur more fixed interest obligations with debt, risk increases. On the other hand, the use of debt can help improve earnings since we get to deduct interest expense on the tax return. So we want to balance the use of debt and equity such that we maximize our profits, but at the same time manage our risk. The Debt to Equity Ratio is calculated as follows: Total Liabilities / Shareholders Equity EXAMPLE — We have total liabilities of $ 75,000 and total shareholders equity of $ 200,000. The Debt to Equity Ratio is 37.5%, $ 75,000 / $ 200,000 = .375. When compared to our equity resources, 37.5% of our resources are in the form of debt. KEY POINT — As a general rule, it is advantageous to increase our use of debt (trading on the equity) if earnings from borrowed funds exceeds the costs of borrowing. Debt Ratio

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The Debt Ratio measures the level of debt in relation to our investment in assets. The Debt Ratio tells us the percent of funds provided by creditors and to what extent our assets protect us from creditors. A low Debt Ratio would indicate that we have sufficient assets to cover our debt load. Creditors and management favor a low Debt Ratio. The Debt Ratio is calculated as follows: Total Liabilities / Total Assets EXAMPLE — Total Liabilities are $ 75,000 and Total Assets are $ 500,000. The Debt Ratio is 15%, $ 75,000 / $ 500,000 = .15. 15% of our funds for assets comes from debt. NOTE — We use Total Liabilities to be conservative in our assessment. Times Interest Earned Times Interest Earned is the number of times our earnings (before interest and taxes) covers our interest expense. It represents our margin of safety in making fixed interest payments. A high ratio is desirable from both creditors and management. Times Interest Earned is calculated as follows: Earnings Before Interest and Taxes / Interest Expense EXAMPLE — Earnings Before Interest Taxes is $ 100,000 and we have $ 10,000 in Interest Expense. Times Interest Earned is 10 times, $ 100,000 / $ 10,000. We are able to cover our interest expense 10 times with operating income. 6.8 Market Value Ratios

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One final group of detail ratios that warrants some attention is Market Value Ratios. These ratios attempt to measure the economic status of the organization within the marketplace. Investors use these ratios to evaluate and monitor the progress of their investments. Earnings Per Share Growth in earnings is often monitored with Earnings per Share (EPS). The EPS expresses the earnings of a company on a "per share" basis. A high EPS in comparison to other competing firms is desirable. The EPS is calculated as: Earnings Available to Common Shareholders / Number of Common Shares Outstanding EXAMPLE — Earnings are $ 100,000 and preferred stock dividends of $ 20,000 need to be paid. There are a total of 80,000 common shares outstanding. Earnings per Share (EPS) is ($ 100,000 - $ 20,000) / 80,000 shares outstanding or $ 1.00 per share. P / E Ratio The relationship of the price of the stock in relation to EPS is expressed as the Price to Earnings Ratio or P / E Ratio. Investors often refer to the P / E Ratio as a rough indicator of value for a company. A high P / E Ratio would imply that investors are very optimistic (bullish) about the future of the company since the price (which reflects market value) is selling for well above current earnings. A low P / E Ratio would imply that investors view the company's future as poor and thus, the price the company sells for is relatively low when compared to its earnings. The P / E Ratio is calculated as follows: Price of Stock / Earnings per Share * S.V INSTITUE OF MANAGEMENT, KADI

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* Earnings per Share are fully diluted to reflect the conversion of securities into common stock. EXAMPLE — Earnings per share is $ 3.00 and the stock is selling for $ 36.00 per share. The P / E Ratio is $ 36 / $ 3 or 12. The company is selling for 12 times earnings. Book Value per Share Book Value per Share expresses the total net assets of a business on a per share basis. This allows us to compare the book values of a business to the stock price and gauge differences in valuations. Net Assets available to shareholders can be calculated as Total Equity less Preferred Equity. Book Value per Share is calculated as follows: Net Assets Available to Common Shareholders * / Outstanding Common Shares * Calculated as Total Equity less Preferred Equity. EXAMPLE — Total Equity is $ 5,000,000 including $ 400,000 of preferred equity. The total number of common shares outstanding is 80,000 shares. Book Value per Share is ($ 5,000,000 - $ 400,000) / 80,000 or $ 57.50

Dividend Yield

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The percentage of dividends paid to shareholders in relation to the price of the stock is called the Dividend Yield. For investors interested in a source of income, the dividend yield is important since it gives the investor an indication of how much dividends are paid by the company. Dividend Yield is calculated as follows: Dividends per Share / Price of Stock EXAMPLE — Dividends per share are $ 2.10 and the price of the stock is $ 30.00 per share. The Dividend Yield is $ 2.10 / $ 30.00 or 7%

6.9 VARISIOUS COMPANY PERFOTMANSE MAJOR THROUTH RATIO S.V INSTITUE OF MANAGEMENT, KADI

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INFOSYS

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CHART- 1

CHART-2

2. MARUTI SUZUKI

CHART-3

CHART-4

3. SUNPHARMA

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CHART-5

CHART-6

4. TATA STEEL

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CHART-7

CHART-8

(5) ACC LTD

CHART-9

CHART-10

6. NTPC

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CHART-11

CHART-12

(7) RELIANCE INFRA

chart-13

chart-14

(8) RELIANCE INDUSTRY

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chart-15 chart-16

(9) ONGC

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ratio

25 20

Mar-08

15

Mar-07 Mar-06

10

Mar-05

5

Mar-04

0 DebtEquity Ratio

Long Term DebtEquity Ratio

Current Ratio

Fixed Assets

Inventory

Debtors

ratio name

chart-17

chart-18

(10) BHEL

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chart-19

chart-20

(11) SBI BANK

chart-21

chart-22 (12) BHARTI AIRTAL

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chart-23

chart-24

Portfolio management-Sharpe’s model

Script return calculation (1) INFOSYS

No

Year

End year closing price 1498.38

Difference

Return

Jan-dec-05

BEG.year Close Price 1033.63

1

464.75

44.96%

2

Jan-dec-06

1439.95

2240.05

800.1

55.56%

3

Jan-dec-07

2244.45

1768.4

-476.05

-21.21%

4

Jan-dec-08

1499.05

1117.85

-381.2

-25.43%

5

Jan-may-09

1305.5

1602

296.5

22.71%

(2) MARUTI SUZUKI

(3) SUNPHARMA S.V INSTITUE OF MANAGEMENT, KADI

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No

Year

End year closing price 682.15

Difference

Return

jan-dec-05

BEG.year Close Price 495.9

1

186.25

37.56%

2

jan-dec-06

695.7

997

301.3

43.31%

3

jan-dec-07

1027.75

1222.05

194.3

18.91%

4

jan-dec-08

1138.45

1064.95

-73.5

-6.46%

5

jan-may-09

1073.45

1209.7

136.25

12.69%

(4) TATA STEEL

No

Year

End year closing price 336.11

Difference

Return

jan-dec-05

BEG.year Close Price 341.15

1

-5.04

-1.48%

2

jan-dec-06

357.28

426.26

68.98

19.31%

3

jan-dec-07

410.04

934.8

524.76

127.98%

4

jan-dec-08

733.5

216.85

-516.65

-70.44%

5

jan-may-09

184.65

406.3

221.65

120.04%

(5) ACC LTD

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(6) NTPC

No

Year

BEG.year Close Price

Difference

Return

86.4

End year closing price 112.1

1

jan-dec-05

25.7

29.75

2

jan-dec-06

114.55

136.4

21.85

19.07

3

jan-dec-07

141.95

250.05

108.1

76.15

4

jan-dec-08

197.9

181

-16.9

-8.54

5

jan-may-09

189.5

195.05

5.55

2.93

(7) RELIANCE INFRA

No

Year

End year closing price 604.05

Difference

Return

jan-dec-05

BEG.year Close Price 550.55

1

53.5

9.72%

2

jan-dec-06

636.3

519.75

-116.55

-18.32%

3

jan-dec-07

513.6

2134.6

1621

315.62%

4

jan-dec-08

1984.1

579.6

-1404.5

-70.79%

5

jan-may-09

582.3

1276.85

694.55

119.28%

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(8) RELIANCE INDUSTRY

No

Year

End year closing price 723.29

Difference

Return

jan-dec-05

BEG.year Close Price 433.05

1

290.24

67.02%

2

jan-dec-06

713.7

1270.35

556.65

77.99%

3

jan-dec-07

1314.6

2881.05

1566.45

119.16%

4

jan-dec-08

2479.5

1230.25

-1249.25

-50.38%

5

jan-may-09

1325.2

2277.5

952.3

71.86%

(9) ONGC

No

Year

BEG.year Close Price

End year closing price

Difference

Return

1

jan-dec-05

545.94

783.3

237.36

43.48%

2

jan-dec-06

825.2

870.05

44.85

5.44%

3

jan-dec-07

903.4

1236.5

333.1

36.87%

4

jan-dec-08

988.4

667.65

-320.75

-32.45%

5

jan-may-09

658.2

1175.9

517.7

78.65%

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(10) BHEL No

Year

BEG.year Close Price

End year closing price

Difference

Return

1

jan-dec-05

375.35

693.13

317.78

84.66%

2

jan-dec-06

898.75

1149.08

250.33

27.85%

3

jan-dec-07

1258.63

2584.25

1325.62

105.32%

4

jan-dec-08

2064.1

1362.4

-701.7

-34.00%

5

jan-may-09

1320.45

2174.9

854.45

64.71%

(11) SBI BANK

No

Year

BEG.year Close Price

End year closing price

Difference

Return

1

jan-dec-05

606.49

856.2

249.71

41.17%

2

jan-dec-06

836.71

1175.53

338.82

40.49%

3

jan-dec-07

1073.77

2237.09

1163.32

108.34%

4

jan-dec-08

2162.25

1288.25

-874

-40.42%

5

jan-may-09

1152.2

1869.1

716.9

62.22%

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(12) BHARTI AIRTAL

No

Year

End year closing price 345.7

Difference

Return

jan-dec-05

BEG.year Close Price 230.35

1

115.35

50.08%

2

jan-dec-06

355.6

628.85

273.25

76.84%

3

jan-dec-07

707.5

994.55

287.05

40.57%

4

jan-dec-08

864.45

715.1

-149.35

-17.28%

5

jan-may-09

633.85

819.65

185.8

29.31%

SCRIP’S EXPECTED RETURN CALCULATION

(1) INFOSYS

(2) MARUTI SUZUKI

(3) SUNPHARMA

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No

Year

Return

Probability

probabiliyt*return

1

jan-dec-05

37.5579754

0.3

11.26739262

2

jan-dec-06

43.30889751

0.3

12.99266925

3

jan-dec-07

18.90537582

0.2

3.781075164

4

jan-dec-08

-6.456146515

0

0

5

jan-may-09

12.69271974

0.2

2.538543947

Ri=

30.57968098

(4) TATA STEEL

No

year

Return

Probability

probabiliyt*return

1

jandec-05 jandec-06 jandec-07 jandec-08 janmay-09

-1.477356002

0.2

-0.2954712

19.30698612

0.4

7.722794447

127.9777583

0.2

25.59555165

-70.43626449

0

0

120.0379096

0.2

24.00758191

Ri=

57.03045681

2 3 4 5

(5) ULTRATECH CEMENT

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(6) NTPC

(7) RELIANCE INFRA

(8) RELIANCE INDUSTRY

(9) ONGC

No

Year

Return

Probability

probabiliyt*return

1

jan-dec-05

43.4773052

0.2

8.69546104

2

jan-dec-06

5.435046049

0.1

0.543504605

3

jan-dec-07

36.87181758

0.3

11.06154527

4

jan-dec-08

-32.45143667

0.1

-3.245143667

5

jan-may09

78.65390459

0.3

23.59617138

RI=

40.65153863

(10)BHEL

No

Year

Return

Probability

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probabiliyt*return

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1

jan-dec-05

84.66231517

0.2

16.93246303

2

jan-dec-06

27.85312935

0.4

11.14125174

3

jan-dec-07

105.3224538

0.1

10.53224538

4

jan-dec-08

-33.995446

0

0

5

jan-may-09

64.70900072

0.3

19.41270022

RI=

58.01866037

(11)SBI BANK

(12)BHARTI AIRTAL

MARKET RETURN

MARKET EXPECTED RETURN

MARKET VARIANCE

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Variance= Mean = x =

2

σ m

∑x n

= =N ∑X² - (∑X)²/ N²

=5*26.10944304-(26.10944304)²/5²

σ 2m

= SCRIP’S RESIDUAL VARIANCE

Note: 1. Here R² i.e coefficient of determination is taken after (1R²). Here R² is directly taken from the www.bseindia.com site of S&P CNX BSE-30 Index dated from july 2008 to june 2009 0ne year period

SCRIPT RANKING CALUATION Note:

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1. Here Beta Value (β) has been directly taken from the

www.bseindia.com site. 2.

The ranking is given on the basis increasing order Calculation of determining the cut-off rate

Note: σ 2m is 654.4348953

Interpretation In this study we found that C* is at the 6th scrip that is the Maruti Suzuki and value of C is 74.26 So here the cut-off rate is 46.79 On the basis on C* it is to be decided that which scrip’s are to be selected. As per Sharpe’s Model, the Optimum Portfolio consists of all investing in all stocks for which (R i –R f)/β is greater than a particular cut-off point C*. In this study we found that only five scrip’s goes beyond C* that is (R i –R f)/β > C* is only seen in 1. Sunpharma Where, (R i –R f)/β= 98.38 i.e. greater than 46.79 2. Acc ltd Where, (R i –R f)/β= 81.06 i.e. greater than 46.79 3. BHEL

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Where, (R i –R f)/β= 53.55 i.e. greater than 46.79 4. Reliance industry Where, (R i –R f)/β= 50.11 i.e. greater than 46.79 5. NTPC Where, (R i –R f)/β= 49.78 i.e. greater than 46.79 6. Maruti Suzuki Where, (R i –R f)/β= 47.57 i.e. greater than 46.79 . Rest all the scrip’s fall below the cut off rate and are not considered in making the optimal portfolio.

Optimal Portfolio Now we create an Optimal Portfolio with these seven scrip’s: Here it should find out how much should be invested in each security. The percentage of funds to be invested in each security can be estimated as follows:

Calculation for Zi and Xi: The total of an Optimal Portfolio should come to 100%. i.e.6.62+31.88+18.88+18.09+18.89+5.64=100 Thus, the above seven scrip should be invested in the above proportion to make a optimal portfolio.

Formula Sheet S.V INSTITUE OF MANAGEMENT, KADI

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1. Ci formula:

2. Return of Scrip: Closing Price of End of month – Beg. Month close Price ____________________________________

_______*100

Beginning month closing price

3. Unsystematic Risk = ei²= variance * (1-R²)

4. Mean = x = 5. σ 2m

∑x n

=N ∑X² - (∑X)²/ N²

6. Variance of Security = σ 2 =(R-R) ² * Probability

7. Sharpe’s Model = (R i –R f)/β 8. Xi and Zi formula:

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BIBLIOGRAPHY

Books → Prasanna Chandra pp 430- 432, 82,83 → Frank k. reilly keith c brown → Donald E. Fischer, Ronald j. Jordan security analysis and portfolio management pp 598-402 Magazine Angel weekly review Dalal Street Kaim journal of management and research- KAIM

Website → www.angelbroking.com → www.bseindia.com → www.nseindia.com → www.indiainfoline.com → www.sharkhan.com → www.google.com (search engine)

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