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SECURITY ANAL

NATIO

In partial fulfilme

Mast

D

NationaMahat

A Project ReportOn

SIS AND PORTFOLIO MAFor

By

Rajesh Kumar

Under the guidance of:

Ms. Payel Dey

Submitted to:

NAL INSTITUTE OF TECHNOLOG

nt of the requirements for the award o

r of Business Administration (MBA)

Throughepartment of Management Studies

Institute of Technology, Durgapura Gandhi Avenue, Durgapur 713209

West Bengal, India

AGEMENT

the degree of


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DECLARATION

I hereby declare that the project report titled Security Analysis and Portfolio

Management with reference to IIFL is my original work and has not been

published or submitted for any degree, diploma or other similar titles elsewhere. This

has been undertaken for the purpose of partial fulfilment of Master of Business

Administration (MBA) at National Institute of Technology, Durgapur (West Bengal).

Date: 01/ 08/2013 Rajesh Kumar

Place: Kolkata, West Bengal Roll No.: 12/MBA/23


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PREFACE

This project report attempts to bring under one cover the entire hard work

and dedication put in by me in the completion of the project work on

Security Analysis and Portfolio Management with reference to IIFL

I have expressed my experiences in my own simple way. I hope who goes

through it will find it interesting andworthreading. All constructive feedback

is cordially invited.


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ACKNOWLEDGEMENT

It gives me great pleasure in presenting the project report that gives the details

of my project onSecurity Analysis and Portfolio Managementcarried out at

IIFL, Kolkata (West Bengal), dated from 1st June 13 1

st August 13

(2months).

It is impossible to list all the people who have helped me during my project. I

take this opportunity to express my whole hearted thanks to Ms. Payel Dey

(Branch Manager)at IIFL who has treated me as an employee & helped me in

all my queriespersonally.

I would also like to express my deep sense of gratitude towards all managers,

staff, & to all those who directly or indirectly helped me in successfully

execution of my work.

Lastly but most essentially I would like to thank Ms. Saroj Sharma (Trainer)

without his help it wouldnt be possible for me to complete the project at the

stipulated period of time.

Rajesh Kumar

Roll no.: 12/MBA/23

Session: 2012-14


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CONTENTS

Page No.

1. Executive Summary 7-9

2. Stock Exchange 10-17

- Introduction

- Regulation

- National Stock Exchange(NSE)

- Bombay Stock Exchange(BSE)

3. SEBI 18-20

- Objectives

-

Features- Functions

4. Company Profile 21-51

- Overview

- Birds Eye View

- Vision, Values and Strategy

- Brand IIFL

- Corporate Structure

- Credit and Finance

- Wealth Management

-

Financial Products and Distribution

- Capital Market Advisory

- Asset Management

- Investment Banking

- Real Estate Advisory

- Media(Awards)

- Investor Relations

- Corporate Governance

- Board of Directors

-

Corporate Social Responsibility- Scholarships

5. SWOT Analysis 52-53

6. Security Analysis 54-55

- Analysis of Securities

- Approaches

7. Fundamental Analysis 56-59

- GDP

- Industrial Growth Rate

- Agriculture

- Saving and Investment


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- Government Budget and Deficit

- Price Level and Inflation

- Balance of Payment

- Sentiments

8.

Industrial Analysis 60-62- Industrial Life Cycle Analysis

- Structure of an Industry

- Porter Model

9. Company Analysis 62-66

- Financial Analysis

- Comparative Statement

- Trend Analysis

- Common Size Statement

- Fund Flow Analysis

-

Cash Flow Analysis

- Ratio Analysis

10.Technical Analysis 67-71

- Technical Indicators

- Breadth Indicators

- Market Sentiment Indicators

- Random Walk Theory

11.Portfolio Management 71-79

- Characteristics of Investment

-

Investment Categories- Features

- Functions

- Process

- Portfolio Selection

12.Portfolio Analysis 80-90

- Risk Management

- Practical Study

13.Conclusion 91

14.Bibliography 92


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Executive Summary

The activities of large, internationally active financial institutions have grown increasingly

complex and diverse in recent years. This increasing complexity has necessarily been

accompanied by a process of innovation in how these institutions measure and monitor their

exposure to different kinds of risk. One set of risk management techniques that has attracted a

great deal of attention over the past several years, both among practitioners and regulators, is

"stress testing", which can be loosely defined as the examination of the potential effects on a

firms financial condition of a set of specified changes in risk factors, corresponding to

exceptional but plausible events.

A concept of security analysis and portfolio management services has been very famous and

old among various institutions.

This report represents practices application of portfolio management techniques in the

portfolio section. Portfolio management is an integrated and exhaustive of fundamental andtechnical methods which are used for calculation of annul return and earnings per share for

the portfolio.

Modern portfolio theory suggests that the traditional approach to portfolio analysis, selection

and management may yield less than optimum results. Hence a more scientific approach is

required, based on estimates of risk and return of the portfolio and the attitudes of the

investor toward a risk-return trade-off stemming from the analysis of the individual

securities.


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OBJECTIVES:

To study and understand the portfolio management concepts.

To study and understand the security analysis concepts.

To measure the risk and return of portfolio of companies.

To select an optimum portfolio.

RESEARCH METHODOLOGY

SECONDARY DATA:-

Data collected from various Books, Newspapers and Internet.

LIMITATIONS:

The major limitations of the project are:-

Detailed study of the topic was not possible due to the limited size of the project.

There was a constraint with regard to time allocated for the research study.

The availability of information in the form of annual reports and price fluctuations of

the companies was a big constraint of the study.


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HISTORY OF STOCK EXCHANGE:

The only stock exchanges operating in the 19th century were those of Bombay set up in 1875

and Ahmedabad set up in 1894. These were Efficient Market Hypothesis organized as

voluntary non-profit-making association of brokers to regulate and protect their interests.

Before the control on securities trading became a central subject under the constitution in

1950, it was a state subject and the Bombay Securities Contracts (control) Act of 1925 used

to regulate trading in securities. Under this Act, the Bombay Stock Exchange was recognized

in 1927 and Ahmedabad in 1937.

During the war boom, a number of stock exchanges were organized even in Bombay,

Ahmedabad and other centers, but they were not recognized. Soon after it became a central

subject, central legislation was proposed and a committee headed by A.D.Gorwala went into

the bill for securities regulation. On the basis of the committee's recommendations and public

discussion, the securities contracts (regulation) Act became law in 1956.

DEFINITION OF STOCK EXCHANGE:

"Stock exchange means anybody or individuals whether incorporated or not, constituted for

the purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities."

It is an association of member brokers for the purpose of self-regulation and protecting the

interests of its members.

It can operate only, if it is recognized by the Government under the Securities Contracts

(regulation) Act, 1956. The recognition is granted under section 3 of the Act by the central

government, Ministry of Finance.

NATURE AND FUNCTIONS OF STOCK EXCHANGE

There is an extraordinary amount of ignorance and of prejudice born out of ignorance with

regard to nature and functions of Stock Exchange. As economic development proceeds, the

scope for acquisition and ownership of capital by private individuals also grow. Along with

it, the opportunity for Stock Exchange to render the service of stimulating private savings and

challenging such savings into productive investment exists on a vastly great scale. These are

services, which the Stock Exchange alone can render efficiently.

The Stock Exchanges in India have an important role to play in the building of a real

shareholders democracy. To protect the interest of the investing public, the authorities of the

Stock Exchanges have been increasingly subjecting not only its members to a high degree of

discipline, but also those who use its facilities-Joint Stock Companies and other bodies in

whose stocks and shares it deals.


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The activities of the Stock Exchange are governed by a recognized code of conduct apart

from statutory regulations. Investors both actual and potential are provided, through the daily

Stock Exchange quotations. The job of the Stock Exchange and its members is to satisfy the

need of market for investments to bring the buyers and sellers of investments together, and to

make the 'Exchange' of Stock between them as simple and fair as possible.

NEED FOR A STOCK EXCHANGE

As the business and industry expanded and economy became more complex in nature, a need

for permanent finance arose. Entrepreneurs require money for long term needs, whereas

investors demand liquidity. The solution to this problem gave way for the origin of 'stock

exchange', which is a ready market for investment and liquidity.

As per the Securities Contract Act, 1956, "STOCK EXCHANGE" means anybody ofindividuals whether incorporated or not constituted for the purpose of regulating or

controlling the business of buying, selling or dealing in securities".

BY-LAWS

Besides the above act, the securities contracts (regulation) rules were also made in 1957 to

regulate certain matters of trading on the stock exchanges. There are also by-laws of

exchanges, which are concerned with the following subjects.

Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers,

carryover business, control of the settlement and other activities of the stock exchange,

fixation of margins, fixation of market prices or making up prices, regulation of taravani

business (jobbing), etc., regulation of brokers trading, Brokerage charges, trading rules on the

exchange, arbitration and settlement of disputes, Settlement and clearing of the trading etc.


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REGULATION OF STOCK EXCHANGE:

The Securities Contracts (regulation) Act, 1956 is the basis for operations of the stock

exchanges in India. No exchange can operate legally without the government permission or

recognition. Stock exchanges are given monopoly in certain areas under section 19 of the

above Act to ensure that the control and regulation are facilitated. Recognition can be granted

to a stock exchange provided certain conditions are satisfied and the necessary information is

supplied to the government. Recognitions can also be withdrawn, if necessary. Where there

are no stock exchanges, the government can license some of the brokers to perform the

functions of a stock exchange in its absence.

Securities Contracts (Regulation) Act, 1956:

SC(R) A aims at preventing undesirable transactions in securities by regulating the business

of dealing therein by providing for certain other matters connected therewith. This is the

principal Act, which governs the trading of securities in India.

The term "securities" has been defined In the SC(R) A. As per Section 2(h), the 'Securities'

include:

1. Shares, scripts, stocks, bonds, debentures, debenture stock or other marketable securities

of a like nature in or of any incorporated company or other body corporate.

2. Derivative.

3. Units or any other instrument issued by any collective investment scheme to the

investors in such schemes.

4.

Government securities.5. Such other instruments as may be declared by the Central Government to be securities.

6. Rights or interests in securities.


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NATIONAL STOCK EXCHANGE

The NSE was incorporated in November 1992 with an equity capital of Rs.25crs. The

International Securities Consultancy (ISC) of Hong Kong helped in setting up NSE. ISC

prepared the detailed business plans and installation of hardware and software systems. The

promotions for NSE were Financial Institutions, Insurances Companies, Banks and SEBI

Capital Market Ltd., Infrastructure Leasing and Financial Services Ltd. and Stock Holding

Corporation Ltd.

It has been set up to strengthen the move towards professionalization of the capital market as

well as provide nationwide securities trading facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage the exchange.

A two tier administrative setup involving a company board and a governing board of the

exchange is envisaged.

NSE is a national market for shares of Public Sector Units, Bonds, Debentures and

Government securities, since infrastructure and trading facilities are provided.

NSE-NIFTY:

The NSE on April 22, 1996 launched a new equity Index. The NSE-50. The new Index which

replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new

segment of futures and options.

"Nifty" means National Index for Fifty Stocks.

The NSE-50 comprises 50 companies that represent 20 broad Industry groups with an

aggregate market capitalization of around Rs.1,70,000 crs. All companies included in the

Index have a market capitalization in excess of Rs.500 crs each and should have traded for

85% of trading days at an impact cost of less than 1.5%.

The base period for the index is the close of prices on Nov3, 1995 which makes one year of

completion of operation of NSE's capital market segment. The base value of the Index has

been set at 1000.


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NSE-MIDCAP INDEX:

The NSE midcap Index or the Junior Nifty comprises 50 stocks that represents 21 board

Industry groups and will provide proper representation of the midcap segment of the Indian

capital Market. All stocks in the Index should have market capitalization of greater than

Rs.200 crs and should have traded 85% of the trading days at an impact cost of less 2.5%.

The base period for the index is Nov 4, 1996 which signifies two years for completion of

operations of the capital market segment of the operation. The base value of the Index has

been set at 1000.

Average daily turnover of the present scenario 2,58,212 (Lacs) and number of average daily

trades 2,160 (Lacs).

At present, there are 24 stock exchanges recognized under the Securities Contract

(Regulation) Act, 1956. They are:

BOMBAY STOCK EXCHANGE

This Stock Exchange, Mumbai, popularly known as "BOMBAY STOCK EXCHANGE

(BSE)" was established in 1875 as ''The Native Share and Stock Brokers Association", as a

voluntary non-profit making association. It has evolved over the years into its present status

as the premiere Stock Exchange in the country. It may be noted that the Stock Exchange is

the oldest one in Asia, even older than the Tokyo Stock Exchange, which was founded in

1878.

The exchange, while providing an efficient and transparent market for trading in securities,

upholds the interests of the investors and ensures redressed of their grievances, whether

against the companies or its own member brokers. It also strives to educate and enlighten the

investors by making available necessary informative inputs and conducting investor

education programmes.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public

representatives and an executive director is the apex body, which decides the policies and

regulates the affairs of the exchange.

The Executive director as the chief executive officer is responsible for the day to day

administration of the exchange.


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BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups and downs in

the Indian stock market, the Exchange introduced in 1986 an equity stock index called BSE-

SENSEX that subsequently became the barometer of the moments of the share prices in the

Indian stock market. It is a "Market capitalization-weighted" index of 30 component stocks

representing a sample of large, well established and leading companies. The base year of

SENSEX is 1978-79. The SENSEX is widely reported in both domestic and international

markets through print as well as electronic media.

SENSEX is calculated using a market capitalization weighted method. As per this

methodology, the level of the index reflects the total market value of all 30 component stocks

from different industries related to particular base period. The total market value of a

company is determined by multiplying the price of its stock by the number of shares

outstanding. Statisticians call an index of a set of combined variables (such as price and

number of shares) a composite Index. An Indexed number is used to represent the results of

this calculation in order to make the value easier to work with and track over a time. It is

much easier to graph a chart based on Indexed values than one based on actual values world

over majority of the well known Indices are constructed using "Market capitalization

weighted method".

In practice, the daily calculation of SENSEX is done by dividing the aggregate market value

of the 30 companies in the Index by a number called the Index Divisor. The Divisor is the

only link to the original base period value of the SENSEX. The Divisor keeps the Index

comparable over a period of time and it is the reference point for the entire Indexmaintenance adjustments. SENSEX is widely used 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 market value/old market value)


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STOCK EXCHANGES IN INDIA

S.No NAME OF THE STOCK EXCHANGE YEAR

1 Bombay Stock Exchange 1875

2 Hyderabad Stock Exchange 1943

3 Ahmedabad Share and Stock Brokers Association 1957

4 Calcutta Stock Exchange Association Limited 1957

5 Delhi Stock Exchange Association Limited. 1957

6 Madras Stock Exchange Association Limited. 1957

7 Indoor Stock Brokers Association. 1958

8 Bangalore Stock Exchange. 1963

9 Cochin Stock Exchange. 1978

10 Pune Stock Exchange Limited. 1982

11 U.P Stock Exchange Association Limited. 1982

12 Ludhiana Stock Exchange Association Limited. 1983

13 Jaipur Stock Exchange Limited. 1984

14 Guwahati Stock Exchange Limited. 1984

15 Mangalore Stock Exchange Limited 1985

16 Maghad Stock Exchange Limited, Patna 1986

17 Bhuvaneshwar Stock Exchange Association Limited 1989

18 Over the Stock Exchange Limited. 1989

19 Saurasthra Kutch Stock Exchange Limited. 1990

20 Vadodara Stock Exchange Limited. 1991

21 Coimbatore Stock Exchange Limited. 1991

22 Meerut Stock Exchange Limited. 1991

23 National Stock Exchange Limited 1992

24 Integrated Stock Exchange. 1999


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SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

Securities and Exchange Board of India (SEBI) setup as an autonomous regulatory authority

by the Government of India in 1988 "to protect the interests of investors in securities and to

promote the development of, and to regulate the securities market and for matters connected

therewith or incidental thereto". It is empowered by two acts namely the SEBI Act, 1992 and

the Securities Contract (regulation) Act, 1956 to perform the function of protecting investor's

rights and regulating the capital markets.

Securities and Exchange Board of India (SEBI) regulatory reach has been extended to more

areas and there is a considerable change in the capital market. SEBI's annual report for 1997-

98 has stated that throughout its six-year existence as a statutory body, it has sought to

balance the twin objectives of investor protection and market development. It has formulated

new rules and crafted regulations to foster development. Monitoring and surveillance was put

in place in the Stock Exchanges in 1996-97 and strengthened in 1997-98.

OBJECTIVES OF SEBI:

The promulgation of the SEBI ordinance in the parliament gave statutory status to, SEBI in

1992. According to the preamble of the SEBI, the three main objectives are:-

To protect the interests of the investors in securities.

To promote the development of securities market.

To regulate the securities market.

SALIENT FEATURES OF SEBI:

The SEBI shall be a body corporate by the name having perpetual succession and a

common seal with power to acquire, hold and dispose of property, both movable and

immovable, and to contract, and shall, by the said name, sue or by sued. The Head Office of the Board shall be at Bombay, now Mumbai. The Board may

establish offices at other places in India. In Mumbai, the Board is situated at Mittal

Court, B- Wing, 224, Nariman Point, Mumbai-400 021.

The chairman and the Members of the Board are appointed by the Central

Government.

The general superintendence, direction and management of the affairs of the Board

are in a Board of Members, which may exercise all powers and do all acts and things

which may be exercised or done by that Board.


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The Government can prescribe terms of office and other conditions of service of the

Chairman and Members of the Board. The members can be removed under section 6

of the SEBI Act under specified circumstances.

It is primary duty of the Board to protect the interest of the investor in securities and

to promote the development of and to regulate the securities market by such measures,as it thinks fit.

FUNCTIONS OF SEBI

Regulating the business in Stock Exchange and any other securities market.

Registering and regulating the working of Stock Brokers, Sub-Brokers, Share

Transfer Agents, Bankers to the issue, Trustees to trust deeds, Registrars to an issue,

Merchant Bankers, Underwriters.

Portfolio Managers, Investment Advisers and such other Intermediaries who may beassociated with securities market in any manner.

Registering and regulating the working of collective investment schemes including

Mutual Funds.

Promoting and regulating self-regulatory organizations.

Prohibiting fraudulent and unfair trade practices in the securities market. Promoting

investor's education and training of intermediaries in securities market. Prohibiting

Insiders Trading in securities.

Regulating substantial acquisition of shares and take-over of companies.

Calling for information, understanding inspection, conducting enquiries and audits ofthe Stock Exchanges, Intermediaries and Self-Regulatory organizations in the

securities market.


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Overview

The IIFL Group is a leading financial services company in India, promoted by first

generation entrepreneurs. We have a diversified business model that includes credit and

finance, wealth management, financial product distribution, asset management, capital

market advisory and investment banking.

We have a largely retail focussed model, servicing over 2 million customers, including

several lakh first-time customers for mutual funds, insurance and consumer credit. This has

been achieved due to our extensive distribution reach of close to 4,000 business locations and

also innovative methods like seminar sales and use of mobile vans for marketing in smaller

areas.

Our evolution from an entrepreneurial start-up to a market leadership position is a story of

steady growth by adapting to the changing environment, without losing the focus on our core

domain of financial services. Our NBFC and lending business accounts for 68% of our

consolidated income in FY13 and has a diversified product portfolio rather than remaining a

mono-line NBFC. We are a leader in distribution of life insurance and mutual funds among

non-bank entities. Although the share of equity broking in total income was only 13% in

FY13, IIFL continues to remain a leading player in both, retail and institutional space.


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Location Mum

Corporate office IIFL

Registered officeIIFL

Indust

Year ofincorporation

1995

Industry Finan

Key businessesCredit

Distri

Employees 14,00

Business locations Aroun

Global reachSri La

Switz

Listings NSE,

Listing date 17 M

Registrars Link I

Short term debt

ratingCRISI

Long term debt

ratingICRA

Domainswww.

www.

ISIN code INE5

Bloomberg code IIFL I

Reuters code IIFL.

ai

entre, Lower Parel

ouse, Sun Infotech Park, Road No. 16V, Pl

rial Area, Wagle Estate,Thane,Maharashtra

ial Services

& Finance, Wealth Management, Financial

ution, Capital Market Related

+

d 4,000 locations in 900 cities and towns

nka, Singapore, Dubai, New York, Mauritius

rland

BSE

y, 2005

ntime India Pvt. Ltd.

L A1+ & ICRA (A1+)

(AA-) & CRISIL AA-/Stable

indiainfoline.com, www.iiflfinance.com,

ttweb.indiainfoline.com, www.flame.org.in

0B01024

N EQUITY

O

t No. B-23, Thane

00604

roduct

, UK, Hong Kong,


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We have a track record of uninterrupted profits and dividends since listing.

Revenues

EBIDTA

PAT


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Net worth

ROE


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Segmental revenue split


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Vision

To become the most respecte

Values Values are IIFL are summaris

Growth with focused team of

Integrity in all aspects of busi

Fairness in all our dealings

Transparency in what we do

Service orientation is our core

Business strategy Steady growth by adapting to

domain of financial services.

De-risked business through m

Knowledge is the key to pow

Keep costs low and continuou

Customer strategy Remain largely a retail focuse

quality service.

Cater to untapped areas in secompetition.

Target the micro, small and m

cluster approach for lending b

Use wide multi-modal networ

People strategy

Attract the best talent and dri

Ensure conducive merit envir

Liberal ownership-sharing.

company in the financial services space in I

ed in one acronym: GIFTS.

dynamic professionals.

ness no compromise in any situation.

mployees, customers, vendors and sharehol

and in how and why we do it.

value, imbibed by all sales as well as suppo

the changing environment, without losing th

ultiple products and diversified revenue stre

r superior financial decisions.

sly strive for innovation.

d organisation, driving stickiness through kn

i-urban and rural areas, which is relatively s

edium enterprises mushrooming across the c

usiness.

k serving as one-stop shop to customers.

en people.

nment.

ndia.

ers all included.

t teams.

focus on our core

m.

owledge and

afe from cut-throat

ountry through a


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Our logo

The Shree Yantra is regarded in India as the most powerful and

mystically beautiful of all yantras (Sanskrit word for a symbol used to

focus the mind). It predates the Vedas and is supposed to be the

favourite Yantra of Lakshmi, the Goddess of Wealth and Prosperity.

This powerful symbol, said to promote harmony and tranquillity as

well, has endured for many centuries. IIFL is engaged in the business

of creating wealth and the adoption of the Shree Yantra as its logo

was but natural.

PositioningWhen we pioneered online trading in India with the launch of our brand 5 paisa, the tag linewas Its all about money, honey.

We recently realigned our positioning from Knowledge is the Edge to When its about

Money.

The IIFL brand is associated with trust, knowledge and quality service. But more importantly,

the brand stands for timely assistance provided to the countrys under-banked customers.


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Print Media Campaign


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Our Journey

1996

A small group of pro

The company

high quality,

business, indu The company

Services Pvt.L

Infoline Ltd.

1996

1997

1998

1999

2000 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

fessionals formed an Information Service

was formed in October 1995 with a vision

nbiased, independent research on the India

tries and corporates.was originally incorporated as Probity R

td. The name of the company was later chan

Company

to produce

economy,

search and

ed to India


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Our Strengths:

Managerial depth

Our promoters individually are first-generation Indian entrepreneurs with meritorious

academic backgrounds and impeccable professional careers.

Nirmal Jain, Chairman, is a rank holder Chartered Accountant, Cost Accountant and an MBA

from IIM Ahmedabad and Mr. R. Venkataraman, Managing Director, is an Electronics

Engineer from IIT Kharagpur and an MBA from IIM Bangalore.

The Promoters have built the business from scratch, without pedigree of a large family

business or inherited wealth and steered it towards a market leading position by dint of hard

work and enterprise.

We have consistently attracted the best of the talent from across the financial sector private

sector banks, foreign banks, public sector banks and established NBFCs. The senior

management team have years of experience and backgrounds similar to promoters and leadscompetent teams. IIFL has uninterrupted history of profits and dividends since listing. We

have delivered total shareholder returns of 34.3% CAGR from listing till March 31, 2013.

GovernanceThe Promoters have demonstrated an exemplary track record of governance and utmost

integrity. There have been no notable regulatory strictures or oversight ever in the groups

history. This is despite a widespread and broad range of operations governed by multiple

regulators including RBI, SEBI, IRDA, FMC and NHB. In addition, we have eight licensed

subsidiaries in major global financial centres.

Our Board has independent directors, highly respected for their professional integrity as well

as rich financial and banking experience and expertise. We have an advisory board

comprising stalwarts with long and immaculate careers in banks, public service and legal

profession.

None of the promoters family members has held managerial or board position or have

related-party or financial transaction of any significance, since listing. Further, we have not

lent to any related party or associated concerns. The promoters do not have any other

business interests and are committed to the core business of financial services under the IIFL

umbrella.

PeopleOur people form the backbone of our organization and are the foundation of our success. We

have significant ownership by employees with a credo of owners work, workers own, which

has enabled us to maintain a highly motivated staff driven by owner mindset. We create

owners out of our employees not just by offering a financial stake but also through autonomy

to take decisions, make mistakes and grow confidence, competence and career.


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Knowledge

IIFL is a knowledge driven organization and has over the years developed and

institutionalized knowledge about its businesses at all the levels.

Our roots are in original research on economy, sectors, companies, capital markets and globalfinancial trends. Our in-house research capabilities gives us an edge in understanding

industry trends, macro-economic situations, business cycles, inflation and interest rate trends,

technological changes, regulatory and legal updates, environmental factors impacting labour,

raw material supply, pollution norms and for intermediate products- trends in end user sectors

and for consumption products- trends in customers habits.

We have strong origination and KYC processes across our businesses to get deep

understanding of customers needs and profile.

Innovation

We have successfully executed a number of innovative and disruptive ideas in the financial

services industry to rise from a start-up to leadership position in less than two decades. For

instance:

We gave away all our research free on indiainfoline.com and acquired millions of readers.

We pioneered online trading and revolutionized broking at lowest rate of 5 basis points.

We inducted a high profile institutional team from a foreign brokerage house in a first of its

kind deal in India broking industry.

Distribution reach

We are present in around 4,000 business locations across more than 900 cities in India.

Our global footprint covers Colombo, Dubai, New York, Mauritius, London, Geneva and

Singapore.

De-risked business

IIFL has a de-risked and diversified business model across multiple revenue streams.

We offer multiple products across all segments of financial services.


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Risk management

The basis of our risk management and hence our sustainability is our underlying

conservatism. The objective of our risk management process is to insulate the company from

risks associated with the business while simultaneously creating an environment conducive

for growth.

The effectiveness of our risk management practice emanates from our rich experience. It is

derived from a deep understanding of the Indian economy, sectorial trends and corporate

fundamentals.

Our ability to manage organizational risk cascades from our board of directors, comprising

professionals with rich and varied experience. The risk appetite defined by our board is

reflected in our business plans and integrated into our operations.

We identify risks through appropriate systems, indicators and risk surveys reinforced by our

mangers. The companys well-defined organizational structure, documented policies and

standard operating procedures, authority matrix and internal controls ensure efficiency of

operations, compliance with internal and regulatory requirements.

We continuously strengthen our risk measurement tools customized to the nature of each

business segment. Many critical decision levels for investments, major lending and policy

initiatives are institutionalized trough appropriate committees.

Well capitalizedThe Group has net worth of around Rs20 billion. The company has a significantly unutilized

capacity to leverage.

TechnologyRight from inception, IIFL has incubated and developed next generation technology for its

core businesses.

IIFLs front office software is seamlessly integrated to a highly automated proprietary back

office, risk management and MIS software.

IIFL Trader Terminal is an entirely home grown proprietary technology, which allows

trading in Equities Cash & Derivatives, Commodities, Forex, Mutual Funds, NFOs and IPOs

on a single screen.

Customer service

Our existing customer service organization has evolved with the singular goal since inception

that our customer experience should be the best. We offer services through multiple customer

touch-points such as personal interaction at our offices, call centre, email, and online web-

based interface. We have made significant investment in systems, technology, people and

their training, to ensure high service standards. We have also won an award for Best

Customer Service in Financial Services 2013.


34/92


35/92

What we do (Product a

IIFL Group offers credit &

India Infoline Finance Ltd (9

India Infoline Housing Financ

The NBFC has a high quali

portfolio including:

Home loans

SME & Trader l

Healthcare & Eq

Loans secured ag

Commercial Vehi

Loans secured ag

Loans secured ag

We have chosen to be a div

exercise utmost prudence in

evaluation process not only t

the cash-flows of the potent

assessment, effective risk ma

net NPAs are kept well und

accounted for 68% of our con

d Services)?

inance facilities through its subsidiaries:

.87% subsidiary); and

e Ltd (Wholly owned subsidiary).

ty loan book of close to Rs10,000 crores,

ans

ipment financing

ainst Gold

cle financing

ainst Property

ainst Shares

rsified portfolio company rather than a mo

redit selection, monitoring and avoid conce

kes into account the value and quality of the

ial borrower. Backed by a diversified port

agement techniques and an efficient collecti

r control at less than 0.2%. The NBFC an

solidated income in FY13.

with a diversified

no-line NBFC. We

ntration. Our credit

collateral, but also

folio, robust credit

on mechanism, the

d lending business


36/92

Revenues

Loan book


37/92

Loan book break-up

NIM


38/92

Gross NPA

Net NPA

CAR


39/92

IIFL Group offers wealth adv

Ltd (82.44% subsidiary).

There is an increasing need f

disparate services to address

long-term investments. We

Assets under Advice (AuA)

4,000 families.

Our fixed income practice

sovereign, corporate and coll

The business grew revenues

We have managed the five si

and advisory services:

isory services through its subsidiary IIFL

r a comprehensive wealth management sol

omplexity related to treasury, personal portf

re amongst the leading wealth manageme

of more than Rs40,000 crores with a HNI

oupled with a large bond desk facilitate

teralised debt.

from Rs180 million in 2008-09 to Rs2 b

nificant constituents that go into successful

ealth Management

tion as opposed to

olio, cashflows and

nt companies with

client base of over

s direct access to

illion in 2012-13.

ealth management


40/92

We distribute a range of fi

Pension Scheme (NPS), gov

among non-bank promoted

We follow an open architect

out to customers

Our strength in semi-urban

customers. We conductedwww.indiainfoline.com/inclu

IIFLs annual premium mobil

nancial products like life insurance, mutu

rnment and corporate bonds. In fact, we a

entities in distribution of life insurance

re approach and constantly try to innovate

n the most cost effective

and rural areas has helped us reach seve

a survey of our 100 small customers.ion

isation (APE) stood at over Rs320 crores dur

al funds, National

re a market leader

nd mutual funds.

channels that reach

way possible.

ral lakh first time

Watch them on

ing FY13.


41/92

We pioneered internet brokin

in the late nineties to 5 basis

only 13% in FY13, we conti

space.

Our extension into commoditi

a one-stop-shop financial in

advisory and financial planni

further.

IIFL Capital, the institutional

most leading foreign institu

unmatched block placement c

integrity and client confidenti

Revenues increased 2.3% to

Market share in equity

in India and rationalised brokerage rates fr

oints. Although the share of equity broking

nue to remain a leading player in both, ret

es and currency advisory reconciles with its

termediary. We are in the process of bui

g to move away from pure execution and d

equities division of the IIFL Group, is the

tional investors and mutual funds that in

apability is renowned and is underpinned b

lity.

s552.53 cr in 2012-13.

Market share in c

m 150 basis points

n total income was

il and institutional

vision to emerge as

lding a culture of

e-risk our business

irst port of call for

est in India. Our

our reputation for

mmodity


42/92

We launched our Mutual Fu

maiden scheme, carries the lo

Our passively managed Div

performer by Value Researc

close-ended debt schemes

management (AUM) sto

Our strength lies in gaugingand operational efficiency, th

The business leverages upon

institutional and retail sales t

skill-set to manage all kinds

investors as well as corporat

requirements.

We possess strong placeme

Some of our marquee transact

d business to offer niche products. The II

est expenses of any equity ETF in India.

idend Opportunities ETF has been ranke

. A total of six schemes have been launc

and two open-ended equity schemes.

d at Rs3,271 million as on Ma

he market pulse and launching niche produreby keeping costs low.

the strength of our research and placement

ams. Our experienced investment banking

f investment banking transactions. Our clo

helps us understand and offer tailor-mad

t capabilities across institutional, HNI an

ions:

FL Nifty ETF, our

the second best

ed, including four

otal assets under

rch 31, 2013.

cts with low churn

capabilities of the

team possesses the

e interactions with

solutions to fulfil

d retail investors.


43/92

We provide end-to-end advis

in decision-making, transacti

is to help clients create and pr

Awards:

Best Wealth Management

No. 1 in Fixed Income PortBest Broking House with

Top Performer, Equity (FI

Best Commodities Investm

Best Customer Service in F

ry services, whether buy, sell, lease or rent

n, documentation and facilitate post deal ac

eserve wealth by providing the best real esta

ouse (India), 2011 & 2012, Triple A

folio Management in India, 2012 Euro Mo lobal Presence, 2011 & 2012 D&B

ategory), 2012 BSE

nt, 2012 Euro Money

inancial Services, 2013 - Retailer Customer

to assist customers

tivity. Our mission

e investment.

ey

ervice Awards


44/92

India Infoline Ltd

BSE: 532636 | NSE: INDIAI

Market

Industry: Finance & Investme

49.651.40 (2.9%)

BSE

Day's High | Low

Day's Volumes

52Wk High | Low

Open Price

Turnover

Deliverable Vol.

6 Mth. Avg. Vol.

49.901.35 (2.8%)

NSE

Day's High | Low

Day's Volumes

52Wk High | Low

Open Price

Turnover

Deliverable Vol.

6 Mth. Avg. Vol.

FO | ISIN: INE530B01024

Cap: [Rs.Cr.] 1,426 |

nts

Jul 31,00:00

50.25 | 47.05

64,802

93.35 | 47.05

48.50

3,136,730.00

15,345

280,636.89

Jul 31,00:00

50.45 | 47.40

384,610

93.30 | 47.40

48.85

18,527,443.10

148,065

662,095.40

Face Value: [Rs.] 2


45/92

Dividend History

DateDividend

(Rs)

Face value Rs)

25-Jan-06 2 10

21-Jul-06 1 10

24-Mar-

073 10

30-Jun-08 6 10

30-Jan-09 2.8 2

18-Aug-

091.2 2

27-Jan-10 1.8 2

8-Mar-11 3 2

21-May-

121.5 2

5-Feb-133

2

Annual dividend (Rs) Dividend % of FV

FY06 3 30

FY07 3 30

FY08 6 60

FY09 2.8 140

FY010 3 150

FY011 3 150

FY012 1.5 75

FY013 3 150


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Shareholding Pattern

Mar-2013 Dec-2012 Sep-2012 Jun-2012 Mar-2012

Promoter and

Promoter Group31.10 % 31.61 % 31.68 % 31.60 % 31.61 %

Indian 31.10 % 31.61 % 31.68 % 31.60 % 31.61 %

Foreign -- -- -- -- --

Public 68.90 % 68.39 % 68.32 % 68.40 % 68.39 %

Institutions 43.68 % 44.19 % 44.70 % 44.86 % 44.16 %

FII 39.34 % 39.92 % 40.08 % 39.63 % 39.84 %

DII 4.34 % 4.27 % 4.62 % 5.23 % 4.32 %

Non Institutions 25.22 % 24.20 % 23.62 % 23.54 % 24.23 %

Bodies Corporate 2.78 % 2.99 % 2.29 % 2.39 % 2.05 %

Custodians -- -- -- -- --

Total 29,52,29,883 28,99,57,953 28,91,16,953 28,90,81,953 28,90,24,203


47/92

Philosophy:

IIFL (India Infoline) is com

increase the efficiency of th

corporate resources in such a

aims at achieving not only the

but also of effective manage

Committees:

Audit Committee

Terms of reference & Comp

comprises Mr Nilesh Vikams

whom are independent Dire

Auditors are invitees to the M

To investigate into any matte

of The Companies Act, 19fixation of the Audit Fees. -

submission of the same to th

and disclosure of its financia

Function.

Compensation/ Remunerati

Terms of reference & Comp

Remuneration Committee co

both of whom are independe

under: - To fix suitable reExecutive Directors, Senior

options, pensions etc. - Det

incentives along with the pe

Contracts, Notice Period, Sev

whether to be issued at disc

which exercisable. - To con

remuneration policies.

itted to placing the Investor First, by conti

operations as well as the systems and p

way so as to maximize the value to the stake

highest possible standards of legal and regu

ent.

sition, Name of members and Chairman: T

ey (Chairman), Mr R Venkataraman, Mr K

ctors. The Chairman along with the Stat

eeting. The Terms of reference of this comm

r that may be prescribed under the provisio

6 - Recommendation and removal of Exeviewing with the management the financi

Board. - Overseeing of Company's financi

l information. - Reviewing the Adequacy o

n Committee

sition, Name of members and Chairman: T

prises Mr Kranti Sinha (Chairman) & Mr

nt Directors. The Terms of reference of thi

uneration package of all the Executivemployees and officers i.e. Salary, perquisi

ermination of the fixed component and

formance criteria to all employees of the

rance Fees of Directors and employees. - St

unt as well as the period over which to b

duct discussions with the HR department

nuously striving to

ocesses for use of

holders. The Group

atory compliances,

e Audit committee

ranti Sinha, two of

utory and Internal

ittee are as under: -

s of Section 292A

ernal Auditor andl statements before

l reporting process

the Internal Audit

he Compensation /

Nilesh Vikamsey,

s committee are as

irectors and Nontes, bonuses, stock

erformance linked

ompany - Service

ock Option details:

accrued and over

and form suitable


48/92

Share Transfer and Investor Grievance Committee

Details of the Members, Compliance Officer, No of Complaints received and pending and

pending transfers as on close of the financial year. The committee functions under the

Chairmanship of Mr Kranti Sinha, a Non-executive independent Director. The other

Members of the committee are Mr. Nirmal Jain and Mr. R Venkataraman. Ms Sunil Lotke,

Company Secretary is the Compliance Officer of the Company.

Board of Directors

Mr. Nirmal Jain (Chairman, India Infoline Ltd).

Mr. R. Venkataraman (Managing Director , India Infoline Ltd).

Mr. Arun Kumar Purwar

(Independent Director of India Infoline Limited since March 2008).

Mr. Chandran Ratnaswami

(Non Executive Director of India Infoline Limited since May 2012).

Mr. Kranti Sinha (Independent Director of India Infoline Limited since January 2005).

Mr. Mahesh Narayan Singh

(Independent Director of India Infoline Finance Limited since September 2009).

Mr. Nilesh Vikamsey

(Independent Director of India Infoline Limited & India Infoline Finance Limited since

February 2005).

Dr. Subbaraman Narayan

(Independent Director of India Infoline Limited since July 2012).

Mr. Vijay Kumar Chopra

(Independent Director of India Infoline Finance Limited since June 2012).


49/92

IIFL Foundation

In line with IIFLs vision to

the company recognises t

transformation. The IIFL Fo

for various industries and to

the underprivileged sections o

The IIFL Foundation focuses

The foundation will screen

working in these domains

underprivileged and help the

The IIFL Foundation has initi

colleges in remote areas of

right employment opportuniti

FLAME

FLAME (Financial Literac

initiative to promote financial

part of India's spectacular gr

growth, financial literacy has

tangible benefits of the natio

on the governmental agend

services network across the c

this effort by helping com

awareness and education onloss from unrealistic claims

dedicated site for financial l

e the most respected company in the financ

he importance of contributing to and

ndation has been set up to work in areas o

nsure financial inclusion through the suppo

f society.

on specific areas of need, including health

nd select institutions and developmental

nd will provide necessary aid to improv

in achieving their potential.

ated career guidance to the students of High

aharashtra to enable them to pursue the car

s.

y Agenda for Mass Empowerment)is a

literacy amongst the masses in order to ma

wth story. In an era of accelerating GDP a

become more critical than ever before such

's economic prosperity. Financial inclusion

, given its emphasis on widening the Ba

untry. The FLAME initiative stands commi

on people gain financial growth and sec

he variety of financial products while avoidmade by unscrupulous agents and ponzi

teracy: www.flame.org.in

ial services space,

sustaining social

skill development

t and upliftment of

are and education.

gencies which are

the lives of the

School and Junior

eer which provides

IIFL Foundation

e them an integral

d rising per capita

that we all reap the

as been quite high

nking & Financial

tted to complement

rity though better

ing the lure of andchemes. Visit our


50/92

Camps

Mobile van and seminar sales photos


51/92

Scholarships

H Nemkumar and Nirmal Jain Scholarship (May 2012)India has a large number of gifted

and deserving students who are unable to avail of a high-quality learning experience from

reputed institutions in India or abroad due to financial or other constraints. Young India

Fellows reaches out to such students. The YIF scholarships have been made possible bygenerous donations by a stellar set of individuals including Mr. Nirmal Jain and Mr. H

Nemkumar on behalf of IIFL Foundation.

This year, 57 Young India Fellows of the Founding Class graduated and embarked upon

careers ranging from design technology to rural development, from venture philanthropy to

corporate strategy, and from ethnographic research to institution building. The Founding

Fellows are Fulbright Scholars, INSEAD-Wharton MBA candidates, Prime Ministers, Rural

Development Fellows, legal entrepreneurs, McKinsey and BCG consultants, budding

psychologists, artists, writers and film makers, research scholars at leading think tanks and

inspired entrepreneurs trying and testing new ideas for technology-driven social change.

Expressing gratitude for the support offered by Mr. Nirmal Jain & Mr. Nemkumar, in

launching this program in its founding year, the Young India Fellows awarded a personalized

Valedictory Scroll to graduating Fellows.

Financial literacy for Supporting the Under-privileged

IIFL has also tied up with KJ Somaiya Institute of Management Studies & Research (SIMSR)

to impart basic financial knowledge to underprivileged sections and physically handicapped

sections of the society. The programmes covers lessons on savings, budgeting, banking,

credit management, microfinance and self-help groups (SHGs). The IIFL Foundation underthe FLAME initiative has tied up with Somaiya Institute to impart financial literacy to

National Society for Equal Opportunities for the Handicapped India (NASEOH ) since the

last two years.


52/92

SWOT ANALYSIS OF IIFL

STRENGHTS:

Low brokerage system

Effective after sales services system

Advisory desk operations provided by fuller ton

Well established brand equity

Tele trade also possible

Freedom account with different facilities

Personalize alerts

Consolidated statements-a unique service offering

WEAKNESSES:

Lack of Aggressive advertisements and sales promotion programmed.

The working of the sales force is traditional.

Inventory investments should be more.

Miscommunication and ineffective co-ordination at various level of hierarchy.

OPPORTUNITIES:

Growing capital market in India & other country

Political stability in India & other country

Better governance by SEBI

Decreasing interest rates in India, so people are motivated to earn more returns

through capital market.

THREATS:

Demand & supply

Increasing competition in security market

Lost in faith in share market after big scams in the stock market

Natural calamities

Inability of customers to pay brokerage at the right time

High risk involved in the stock market.


53/92

COMPETITORS OF IIFL:

SHAREKHAN

RELIANCE MONEY

UNICON

KARVY

INDIABULLS

RK GLOBAL SECURITIES

RELIGARE


54/92

SECURITY ANALYSIS

Definition:

For making proper investment involving both risk and return, the investor has to make study

of the alternative avenues of the investment-their risk and return characteristics, and make aproper projection or expectation of the risk and return of the alternative investments under

consideration. He has to tune the expectations to this preference of the risk and return for

making a proper investment choice. The process of analyzing the individual securities and the

market as a whole and estimating the risk and return expected from each of the investments

with a view to identify undervalues securities for buying and overvalues securities for selling

is both an art and a science that is what called security analysis.

Security:

The security has inclusive of shares, scripts, bonds, debenture stock or any other marketablesecurities of like nature in or of any debentures of a company or body corporate, the

government and semi government body etc. In the strict sense of the word, a security is an

instrument of promissory note or a method of borrowing or lending or a source of

contributing to the funds need by a corporate body or non-corporate body, private security for

example is also a security as it is a promissory note of an individual or firm and gives rise to

claim on money. But such private securities of private companies or promissory notes of

individuals, partnership or firm to the intent that their marketability is poor or nil, are not part

of the capital market and do not constitute part of the security analysis.


55/92

Analysis of Securities:

Security analysis in both traditional sense and modern sense involves the projection of future

dividend or ensuring flows, forecast of the share price in the future and estimating the

intrinsic value of a security based on the forecast of earnings or dividend. Security analysis in

traditional sense is essentially on analysis of the fundamental value of shares and its forecast

for the future through the calculation of its intrinsic worth of share. Modern security analysis

relies on the fundamental analysis of the security, leading to its intrinsic worth and also rise-

return analysis depending on the variability of the returns, covariance, safety of funds and the

projection of the future returns.

If the security analysis based on fundamental factors of the company, then the forecast of the

share price has to take into account inevitably the trends and the scenario in the economy, in

the industry to which the company belongs and finally the strengths and weaknesses of the

company itself. Its management, promoters backward, financial results, projection ofexpansion, term planning etc.

Approaches to Security Analysis:

Fundamental Analysis

Technical Analysis

Efficient Market Hypothesis


56/92

FUNDAMENTAL ANALYSIS

It's a logical and systematic approach to estimating the future dividends & share price as

these two constitutes the return from investing in shares. According to this approach, the

share price of a company is determined by the fundamental factors affecting the Economy/

Industry/ Company such as Earnings Per Share, DIP ratio, Competition, Market Share,

Quality of Management etc. it calculates the true worth of the share based on its present and

future earning capacity and compares it with the current market price to identify the

mispriced securities.

Fundamental analysis involves a three-step examination, which calls for:

1. Understanding of the macro-economic environment and developments.

2. Analyzing the prospects of the industry to which the firm belongs.

3. Assessing the projected performance of the company.

MACRO ECONOMIC ANALYSIS:

The macro-economy is the overall economic environment in which all firms operate. The key

variables commonly used to describe the state of the macro-economy are:

Growth Rate of Gross Domestic Product (GDP):

The Gross Domestic Product is measure of the total production of final goods and services in

the economy during a specified period usually a year. The growth rate of GDP is the most

important indicator of the performance of the economy. The higher the growth rate of GDP,

other things being equal, the more favourable it is for the stock market.


57/92

Industrial Growth Rate:

The stock market analysts focus more on the industrial sector. They look at the overall

industrial growth rate as well as the growth rates of different industries. The higher the

growth rate of the industrial sector, other things being equal, the more favorable it is for the

stock market.

Agriculture and Monsoons:

Agriculture accounts for about a quarter of the Indian economy and has important linkages,

direct and indirect, with industry. Hence, the increase or decrease of agricultural production

has a significant bearing on industrial production and corporate performance. A spell of good

monsoons imparts dynamism to the industrial sector and buoyancy to the stock market.

Likewise, a streak of bad monsoons casts its shadow over the industrial sector and the stock

market.

Savings and Investments:

The demand for corporate securities has an important bearing on stock price movements. So

investment analysts should know what the level of investment in the economy is and what

proportion of that investment is directed toward the capital market. The analysts should also

know what the savings are and how the same are allocated over various instruments like

equities, bonds, bank deposits, small savings schemes, and bullion. Other things being equal,

the higher the level of savings and investments and the greater the allocation of the same over

equities, the more favourable it is for the stock market.

Government Budget and Deficit:

Government plays an important role in most economies. The excess of government

expenditures over governmental revenues represents the deficit. While there are several

measures for deficit, the most popular measure is the fiscal deficit. The fiscal deficit has to be

financed with government borrowings, which is done in three ways:

1. The government can borrow from the reserve bank of India.

2. The government can resort to borrowing in domestic capital market.

3. The government may borrow from abroad.

Investment analysts examine the government budget to assess how it is likely to impact on

the stock market.


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Price Level and Inflation:

The price level measures the degree to which the nominal rate of growth in GDP is

attributable to the factor of inflation. The effect of inflation on the corporate sector tends to

be uneven. While certain industries may benefit, others tend to suffer. Industries that enjoy a

strong market for these products and which do not come under the purview of price control

may benefit. On the other hand, industries that have a weak market and which come under the

purview of price control tend to lose. On the whole, it appears that a mild level of inflation is

good for the stock market.

Interest Rate:

Interest rates vary with maturity, default risk, inflation rate, productivity of capital, special

features, and so on. A rise in interest rates depresses corporate profitability and also leads to

an increase in the discount rate applied by equity investors, both of which have an adverse

impact on stock prices. On the other hand, a fall in interest rates improves corporate

profitability and also leads to a decline in the discount rate applied by equity investors, both

of which have a favourable impact on stock prices.

Balance of Payments, Forex Reserves, and Exchange Rates:

The balance of payments deficit depletes the forex reserves of the country and has an adverse

impact on the exchange rate; on the other hand a balance of payments surplus augments the

forex reserves of the country and has a favorable impact on the exchange rate.

Infrastructural Facilities and Arrangements:

Infrastructural facilities and arrangements significantly influence industrial performance.

More specifically, the following are important:

Adequate and regular supply of electric power at a reasonable tariff.

A well developed transportation and communication system (railway transportation,

road network, inland waterways, port facilities, air links, and telecommunications

system).

An assured supply of basic industrial raw materials like steel, coal, petroleum

products, and cement. Responsive financial support for fixed assets and working capital.


59/92

Sentiments:

The sentiments of consumers and businessmen can have an important bearing on economic

performance. Higher consumer confidence leads to higher expenditure on big ticket items.

Higher business confidence gets translated into greater business investment that has a

stimulating effect on the economy. Thus, sentiments influence consumption and investment

decisions and have a bearing on the aggregate demand for goods and services.


60/92

INDUSTRY ANALYSIS:

The objective of this analysis is to assess the prospects of various industrial groupings.

Admittedly, it is almost impossible to forecast exactly which industrial groupings will

appreciate the most. Yet careful analysis can suggest which industries have a brighter future

than others and which industries are plagued with problems that are likely to persist for while.

Concerned with the basics of industry analysis, this section is divided into three parts:

Industry life cycle analysis

Study of the structure and characteristics of an industry

Profit potential of industries: Porter model.

INDUSTRY LIFE CYCLE ANALYSIS:

Many industries economists believe that the development of almost every industry may be

analyzed in terms of a life cycle with four well-defined stages:

Pioneering stage:

During this stage, the technology and or the product are relatively new. Lured by promising

prospects, many entrepreneurs enter the field. As a result, there is keen, and often chaotic,

competition. Only a few entrants may survive this stage.

Rapid Growth Stage:

In this stage firms, which survive the intense competition of the pioneering stage, witness

significant expansion in their sales and profits?

Maturity and Stabilization Stage:

During the stage, when the industry is more or less fully developed, its growth rate is

comparable to that of the economy as a whole. With the satiation of demand, encroachment

of new products, and changes in consumer preferences, the industry eventually enters the

decline stage, relative to the economy as a whole. In this stage, which may continue

indefinitely, the industry may grow slightly during prosperous periods, stagnate duringnormal periods, and decline during recessionary periods.


61/92

STUDY THE STRUCTURE & CHARACTERISTICS OF AN INDUSTRY:

Since each industry is unique, a systematic study of its specific features and characteristics

must be an integral part of the investment decision process. Industry analysis should focus on

the following:

I. Structure of the Industry and nature of Competition:

The number of firms in the industry and the market share of the top few (four to five)

firms in the industry

Licensing policy of the government

Entry barriers, if any

Pricing policies of the firm

Degree of homogeneity or differentiation among products

Competition from foreign firms

Comparison of the products of the industry with substitutes in terms of quality, price,

appeal, and functional performance

II. Nature and Prospect of Demand:

Major customer and their requirements

Key determinants of demand

Degree of cyclicality in demand

Expected rate of growth in the foreseeable future

III. Cost, Efficiency, and Profitability:

Proportions of the key cost elements, viz. raw materials, labour, utilities, & fuel

Productivity of labour

Turnover of inventory, receivables, and fixed assets

Control over prices of outputs and inputs

Behaviour of prices of inputs and outputs in response to inflationary pressures

Gross profit, operating profit, and net profit margins Return on assets, earning power, and return on equity

IV. Technology and Research:

Degree of technological stability

Important technological changes on the horizon and their implications

Research and development outlays as a percentage of industry sales

Proportion of sales growth attributable to new products


62/92

PROFIT POTENTIAL AND INDUSTRIES: PORTER MODEL

Michael Porter has argued that the profit potential of an industry depends on the combined

strength of the following five basic competitive forces:

Threat of new entrants Rivalry among the existing firms

Pressure from substitute products

Bargaining power of buyers

Bargaining power of sellers

COMPANY ANALYSIS

Company analysis is the final stage of the fundamental analysis, which is to be done to decidethe company in which the investor should invest. The Economy Analysis provides the

investor a broad outline of the prospects of growth in the economy. The Industry Analysis

helps the investor to select the industry in which the investment would be rewarding.

Company Analysis deals with estimation of the Risks and Returns associated with individual

shares.

The stock price has been found on depend on the intrinsic value of the company's share to the

extent of about 50% as per many research studies. Graharm and Dodd in their book on '

security analysis' have defined the intrinsic value as "that value which is justified by the fact

of assets, earning and dividends". These facts are reflected in the earning potential if thecompany. The analyst has to project the expected future earnings per share and discount them

to the present time, which gives the intrinsic value of share. Another method to use is taking

the expected earnings per share and multiplying it by the industry average price earning

multiple.

By this method, the analyst estimates the intrinsic value or fair value of share and compares it

with the market price to know whether the stock is overvalued or undervalued. The

investment decision is to buy undervalued stock and sell overvalued stock.

A.

Financial analysis:Share price depends partly on its intrinsic worth for which financial analysis for a company is

necessary to help the investor to decide whether to buy or not the shares of the company. The

soundness and intrinsic worth of a company is known only such analysis. An investor needs

to know the performance of the company, its intrinsic worth as indicated by some parameters

like book value, EPS, PIE multiple etc. and come to a conclusion whether the share is rightly

priced for purchase or not. This, in short is short importance of financial analysis of a

company to the investor.


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Financial analysis is analysis of financial statement of a company to assess its financial health

and soundness of its management. "Financial statement analysis" involves a study of the

financial statement of the company to ascertain its prevailing state of affairs and the reasons

thereof. Such a study would enable the public and investors to ascertain whether one

company is more profitable than the other and also to state the cause and factors that areprobably responsible for this.

Method or Devices of Financial analysis

The term 'financial statement' as used in modern business refers to the balance sheet, or the

statement of financial position of the company at a point of time and income and expenditure

statement; or the profit and loss statement over a period.

Interpret the financial statement; it is necessary to analyze them with the object of formation

of opinion with respect to the financial condition of the company. The following methods of

analysis are generally used.

1. Comparative statement.

2. Trend analysis

3. Common-size statement

4. Found flow analysis

5. Cash flow analysis

6. Ratio analysis

The salient features of each of the above steps are discussed below:

1. Comparative statement:

The comparative financial statements are statements of the financial position at different

periods of time. Any statements prepared in a comparative from will be covered in

comparative statements. From practical point of view, generally, two financial statements

(balance sheet and income statement) are prepared in comparative from for financial analysis

purpose. Not only the comparison of the figures of two periods but also be relationshipbetween balance sheet and income statement enables on depth study of financial position and

operative results.

The comparative statement may show:

(1) Absolute figures (Rupee amounts).

(2) Changes in absolute figures i.e., increase or decrease in absolute figures.

(3) Absolute data in terms of percentage.

(4) Increase or decrease in terms of percentages.


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2. Trend Analysis:

The financial statement may be analyzed by computing trends of series of information. This

method determines the direction upward or downwards and involves the computation of the

percentage relationship that each statement item bears to the same item in base year. The

information for a number of years is taken up and one year, generally the first year, is taken

as a base year. The figures of the base year are taken as 100 and trend ratios for other years

are calculated on the basis of base year.

These tend in the case of GPM or sales turnover are useful to indicate the extent of

improvement or deterioration over a period of time in the aspects considered. The trends in

dividends, EPS, asset growth, or sales growth are some examples of the trends used to study

the operational performance of the companies.

Procedure for calculating trends:

(I) One year is taken as a base year generally; the first or the last is taken as base

year.

(II) The figures of base year are taken as 100.

(III)Trend percentages are calculated in relation to base year. If a figure in other

year is less than the figure in base year the trend percentage will be less than 100 and it

will be more than the 100 it figure is more than the base year figures. Each year's figure is

divided by the base years figure.

3. Common-size statement:

The common-size statements, balance sheet and income statement are shown in analytical

percentage. The figures are shown as percentages of total assets, total liabilities and total

sales. The total assets are taken as 100 and different assets are expressed as a percentage of

the total. Similarly, various liabilities are taken as a part of total liabilities. These statements

are also known as component percentage or 100 percent statements because every individual

item is stated as a percentage of the total 100. The shortcomings in comparative statements

and trend percentages where changes in terms could not be compared with the totals have

been covered up. The analysis is able to assess the figures in relation to total values. The

common size statement may be prepared in the following way.

(i) The total of assets or liabilities are taken as 100

(ii) The individual assets are expressed as a percentage of total assets, i.e., 100 and

different liabilities are calculated in relation to total liabilities. For example, if total

assets are Rs.5 lakhs and inventory value is Rs.50, 000, then it will be 10% of total

assets. (50,000 x 100) / (5,00,000)


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The ratios are conveniently classified as follows:

a) Balance sheet ratios or position statement ratios:

(I) Current ratio

(II) Liquid ratio (Acid test ratio)

(III) Debt to equity ratio

(IV) Asset to equity ratio

(V) Capital gearing ratio

(VI) Ratio of current asses to fixed assets etc.

b) Profit & loss Ale ratios or revenue/income statement ratios:

(I) Gross profit ratio

(II) Operating ratio

(III) Net profit ratio

(IV) Expense ratio

(V) Operating profit ratio

(VI) Interest coverage

c) Composite ratios/ mixed or inter statement ratios:

(I) Return on total resources

(II) Return on equity

(III) Turnover of fixed assets

(IV) Turnover of debtors

(V) Return on shareholders funds

(VI) Return on total resources


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TECHNICAL ANALYSIS

Technical analysis involves a study of market-generated data like prices and volumes to

determine the future direction of price movement. Technical analysis analyses internal market

data with the help of charts and graphs. Subscribing to the 'castles in the air' approach, they

view the investment game as an exercise in anticipating the behaviour of market participants.

They look at charts to understand what the market participants have been doing and believe

that this provides a basis for predicting future behaviour.

Definition:

"The technical approach to investing is essentially a reflection of the idea that prices move in

trends which are determined by the changing attitudes of investors toward a variety of

economic, monetary, political and psychological forces. The art of technical analysis- for it is

an art - is to identify trend changes at an early stage and to maintain an investment posture

until the weight of the evidence indicates that the trend has been reversed."

-Martin J. Pring.

Charting techniques in technical analysis:

Technical analysis uses a variety of charting techniques. The most popular ones are:

The Dow theory;

Bar and line charts;

The point and figure chart;

The moving averages line; and

The relative strength line.

The Dow Theory:

"The market is always considered as having three movements, all going at the same time. The

first is the narrow movement from day to day. The second is the short swing, running from

two weeks to a month or more; the third is the main movement, covering at least four years in

its duration."

- Charles H.DOW

The Dow Theory refers to three movements as:

(a) Daily fluctuations that are random day-to-day wiggles;

(b) Secondary movements or corrections that may last for a few weeks to some months;

(c) Primary trends representing bull and bear phases of the market.


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Bar and line charts

The bar chart is one of the simplest and commonly used tools of technical analysis, depicts

the daily price range along with the closing price. It also shows the daily volume of

transactions. A line chart shows the line connecting successive closing prices.

Point and figure chart:

On a point and figure chart only significant price changes are recorded. It eliminates the time

scale and small changes and condenses the recording of price changes.

Moving average analysis:

A moving average is calculated by taking into account the most recent 'n' observations. To

identify trends technical analysis use moving averages analysis.

Relative strength analysis:

The relative strength analysis is based on the assumption that the prices of some securities

rise rapidly during the bull phase but fall slowly during the bear phase in relation to the

market as a whole. Technical analysts measure relative strength in different ways; a simple

approach calculates rates of return and classifies securities that have superior historical

returns as having relative strength. More commonly, technical analysts look at certain ratios

to judge whether a security or, for that matter, an industry has relative strength.

TECHNICAL INDICATORS:

In addition to charts, which form the mainstay of technical analysis, technicians also use

certain indicators to gauge the overall market situation. They are:

Breadth indicators

Market sentiment indicators

BREADTH INDICATORS:

1. The Advance-Decline line:

The advance decline line is also referred as the breadth of the market. Its measurement

involves two steps:

a. Calculate the number of net advances/ declines on a daily basis.

b. Obtain the breadth of the market by cumulating daily net advances/ declines.


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2. New Highs and Lows:

A supplementary measure to accompany breadth of the market is the high-low differential or

index. The theory is that an expanding number of stocks attaining new highs and a dwindling

number of new lows will generally accompany a raising market. The reverse holds true for a

declining market.

MARKET SENTIMENT INDICATORS:

1. Short-Interest Ratio:

The short interest in a security is simply the number of shares that have been sold short but

yet bought back.

The short interest ratio is defined as follows:

volumetradingdailyAveraggeshortsoldsharesofnumberTotalratiointerestShort =

2. PUT/CALL RATIO:

Another indicator monitored by contrary technical analysis is the put / call ratio. Speculators

buy c

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