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SUMMER TRAINING REPORT AT

INDIA INFOLINE PVT.LTD

GUIDED BY: (INTRNAL GUIDE) PROF, ANITHA THOMAS (EXTERNAL GUIDE) DHARMESH CHAUDHRY

BY: KALPESH PATEL GRIMS COLLEGE, VAPI

GIDC RAJJU SHROFF ROFEL INSTITUTE FOR MANAGEMENT STUDIES.

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DECLARATION
I, Mr. KALPESH PATEL, student of GIDC RAJJU SHROFF ROFEL INSTITUTE OF MANAGEMENT STUDIES, VAPI affiliated to Veer Narmad South Gujarat University, Surat hereby declare that this project report is a result of culmination of my sincere efforts. I declare that this submitted work is done solely by me and to the best of my knowledge; any other person for the award of degree or diploma has submitted no such work. It is a record of original work done and training undergone by me under the guidance and supervision of Mr. DHARMESH CHAUDHARY (Relationship Manager).

I also declare that all the information collected from various secondary sources has been duly acknowledged in this project report.
Every accomplishment starts with the decision to try

Signature of Guide -----------------------(Prof.Anitha Thomas)

Signature of the Student, ----------------------(Kalpesh patel)

Place: - Vapi
Date: -

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PREFACE
I have really enjoyed working on this project. In the starting phase, I found this work difficult, but with true guidance of all staff members of the India Infoline Ltd, I am able to complete my work successfully. It is the responsibility of the Management of an organization to guide each newly joined individual to remove his anxiety for an organization environment and help him in settling down himself in an organization. In this project I have covered the aspect relating to training followed by the management of an organization. Under this study I have put in my best efforts to make this project successful. While working on this project I got exposure to the training practice use by the organization.

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ACKNOWLEDGEMENT
Mans quest for knowledge never ends. Theory and practice are essential and complementary to each other I am thankful for the assistance received from various individuals in making this project successfully. I find no words to express my gratitude towards those who are constantly involved with us throughout my project in GRIMS, VAPI. I would like to give my special thanks and regards to Mr.Hitesh Modi (Branch Manager, Surat Main). Who has helped me to carry out this project as my project in charge under his guidance and blessing I am able to fulfill the requirements of my university. I would also like to thanks Mr.Dharmesh Chaudhary & Mr. Kalpesh Chopra (Relationship Manager) for their most precious contribution and their help in my project. I am very much thankful to other staff members of India Infoline Ltd. Without their help I am not able to finish this project. I am highly obliged to the management of GRIMS, VAPI. For allocating me a very interesting and challenging project. I am sincerely thankful to MR.Himen zaveri for providing the resources for the project. Their guidance and support was a constant source of inspiration for me.

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Executive summery
The study of Indian capital market is begins with the introduction of the capital market what is capital market & this study shows that the capital market is the backbone of the Indian economy. What is the problem in capital market in past times is reveled in the problem statement, what type of problem in the automobile industry is also described in the problem statement then after how the study is done is described in research methodology. The scenario of Indian capital market, in which how the reform of capital market is take place, is shown in that what are the different player, participants & how the capital market is works is also the part of the study, this is not technically shown. In this part what is the position of capital market of India is shown by describing the Indian economy and comparing the Indian economy with the world. How GDP, working age population & the producing age group all these are affects the Indian capital market is shown The global scenario is shown the investment of foreign institutional investor done in Indian capital market. What is the position of the listed companies; market capitalization and turn over ratio in Indian stock market are shown. The study also shows the companies, which are listed in ADR & GDR. The efficient market hypothesis shown the importance of the information in the stock market and how market over react or under react when any information comes to the market. This shown because of the effect of the any news whether it is true or it is wrong news, this is shown by using the examples The Indian automobile industry is the study part of this report and in this the bajaj auto & mahindra & mahindra is the scope of the study. But before the study of the companies the automobile industry is shown so the investor gets an idea of the growing automobile industry. After studying the automobile industry, the role of the bajaj auto and the mahindra & mahindra is shown.

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Sr.no

Particulars Introduction 1. About INDIA INFOLINE SECURITIES PVT. LTD 2. About CAPITAL MARKET

Page no

5 23 26 29 33 44 55 66
71 75

2 3 4 5 6 7 8 9 10 11

Problem statement Research methodology Indian capital market scenario Global scenario Efficient market hypothesis Automobile industry Bajaj auto Mahindra & Mahindra Recommendation Conclusion Bibliography glossary

82 87 88 89

CONTENTS

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PROFILE OF INDIA INFOLINE:

In 1995, Nirmal Jain founded his own independent financial research company, now known as India Infoline Ltd. India Infoline Ltd Launched on 11 May 1999, www.indiainfoline.com is Indias leading and most comprehensive business and financial information website. www.5paisa.com is subsidiary company of India Infoline Ltd. launched for online trading in mid-2000. The 5paisa trading interface is one of the most advanced platforms available to retail investor in India. The site made available quality information and analysis - earlier restricted to a few people - to the common man absolutely free. The India Infoline group, comprising the holding company, India Infoline Ltd and its wholly owned subsidiaries offers the entire gamut of investment products ranging from Equities and derivatives trading, Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI bonds and other small savings instruments. India Infoline also owns and manages the websites, www.indiainfoline.com and www.5paisa.com. India Infoline Ltd is a company listed on both the leading stock exchanges in India namely the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE). The India Infoline group has a significant presence across the country owing to its 125 offices across 45 cities across India. All these offices are networked and are connected with the Corporate office in Mumbai. Post deregulation of the insurance sector, India Infoline Ltd became one of the first corporate agents to be licensed by IRDA and have tied up with ICICI Prudential Life Insurance Company. ICICI Prudential Life Insurance Company Ltd. is the leading private sector insurance player, and India Infoline ltd. Are their leading corporate agent.

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MANAGEMENT
INDIA INFOLINE is well known for its financial research. Below is a list of the team that drives INDIA INFOLINE LTD.

Board of Directors

Directors Mr. Nirmal Jain Mr. R. Venkataraman Mr. Sat Pal Khattar Mr. Sanjiv Ahuja Mr. Kranti Sinha Mr. Nilesh Vikamsev Chairman and Managing Director Executive Director Non Executive Director Independent Director Independent Director Independent Director

MEMBERS
Nirmal Jain is the founder and Chairman of India Info line Ltd. He holds an MBA degree from IIM Ahmedabad, and is a Chartered Accountant (All India Rank 2) and a Cost Accountant. He has had an impeccable professional and academic track record. He started his career in 1989 with Hindustan Lever Limited. During his stint with Hindustan Lever, he handled a variety of responsibilities, including exports and trading in agro- commodities with Rs3bn annual turnover. He then joined hands with two local brokers to set up their equity research division Inquire in 1994. Mr. Nirmal

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Capital market_______________________________________________________________ Jain became Chairman and Managing Director In 1995, he founded his own independent financial research company, now known as India Infoline Ltd.

R. Venkataraman is the co-promoter and Executive Director of India Info line Ltd. He holds a B. Tech degree in Electronics and Electrical Communications Engineering from IIT Kharagpur and an MBA degree from IIM Bangalore. He has held senior managerial positions in various divisions of ICICI Limited, including ICICI Securities Limited, their investment banking joint venture with J P Morgan of USA and with BZW and Taib Capital Corporation Limited.

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KEY MILESTONES

Incorporated on October 18, 1995 as Probity Research & Services Launched Internet portal www.indiainfoline.com in May 1999 Commenced distribution of personal financial products like Mutual Funds and RBI Bonds in April 2000 Launched online trading in shares and securities branded as www.5paisa.com in July 2000 Started life insurance agency business in December 2000 as a Corporate Agent Launched stock messaging service in May 2003 Acquired commodities broking license in March 2004 Launched portfolio management services in August 2004 Listed on NSE and BSE on May 17, 2005 Acquired 75% stake holding in Money tree Consultancy services in October 2005 Acquired 100% equity of Marchmont Capital Advisors Pvt Ltd in December 2005

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VISION
Company vision is:

To be the premier provider of investment advisory and financial planning services in India. To be a leading investment intermediary for transactions through both online and offline medium.

PUNCH LINE: ITS ALL ABOUT MONEY, HONEY!

Corporate Office
India Infoline Ltd

Building No 75, Nirlon Complex, Off Western Express Highway, Goregaon (East), Mumbai - 400063 Tel: +91-22-56489000 Fax: +91-22-26850451 E Mail: apply@indiainfoline.com Website: www.indiainfoline.com

AWARDS
The company also won the Golden Mouse Award in India Internet World 2000 for the Best Finance site. In May 2001, our website was included in the Top 200 Best of the Web list by Forbes Global under the Asia Investing category.

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Differentiating factors of the company

Unlike any other service industry, their people need to keep themselves up-todate With business & economic environment. Their state of art technology compliments this charecteristic perfectly and helps them deliver best to their customers in most cost effective manner.

Knowledge Technology Service

Element of strategy
At India infoline ,strategy & planning is a dynamic function keeping in mind the dynamic environment we operate in . our core strategy is to capture a large slice of the india opportunity by leveraging people & technology more effectively.

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Human resource
They are in service industry their raw material is people; their plant & machinery is people. At the risk of sounding clinched, we would like to reiterate, that their most valuable asset is their HUMAN RESOURCE.

It is mandatory for all India infoline employee to carefully read & understand the human resource manual which is given to all employees at the time of joining.

Communication @India infoline

E-mails Message board (IWIN) Telephone Sms Verbal

HR HELPDESK

For queries related to Hr or any complaints client can write to hr@indiainfoline.com For queries related to salary, reimbursement or incentive credits, one can write to hrcpu@indiainfoline.com

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HR policies & procedures

Conduct ;office time The official timing are 9:30a.m to 6:oo p.m. Reporting even one minute after 9:30a.m shall be a late mark system. 3 such late marks in the month after be considered as 1days leave. Like wise employee attending office after 11:30a.m or leaving office before 3:30p.m will be marked absent for half day. If any HOD decides on different work timing for his team, then timing has to be followed accordingly & the late coming will be as per the approval of the HOD Conduct - grooming

Performance appraisal
India infoline believe in meritocracy. Therefore, promotion, increment, job movement ,incentives, bonus reward and recognition all are based on performance appraisal of the employee .performance appraisal take place on quarterly basis & a detailed review is undertaken on an annual basis , there can be performance appraisal and monitoring on a monthly basis as well. There employee can be broadly classified in two categories namely, sales and support. for staff the core job is to achieve their target and get volume of business which exeeds expectation. For support staff, the core job is to ensure completion of relevant activities with 100% accuracy and with no delays. Besides this all the employee are expected to demonstrate their behavior which shoud be in line with the following 4 key behavioral expectations from the employee.

DISCIPLINE INTEGRITY INITIATIVE TEAM WORK

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FINACIAL INFORMATION OF LAST QUARTER

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Quarterly Results ------------------- In Rs. Cr. ------------------Jun '06 Sep '06 Dec '06 Mar '07 Jun '07

Sales Turnover Other Income Total Income Total Expenses Operating Profit Profit On Sale Of Assets Profit On Sale Of Investments Gain/Loss On Foreign Exchange VRS Adjustment Other Extraordinary Income/Expenses Total Extraordinary Income/Expenses Tax On Extraordinary Items Net Extra Ordinary Income/Expenses Gross Profit Interest PBDT Depreciation Depreciation On Revaluation Of Assets PBT Tax Net Profit Prior Years Income/Expenses Depreciation for Previous Years Written Back/ Provided Dividend Dividend Tax Dividend (%) Earnings Per Share Book Value Equity Reserves

9.11

16.50 24.71 238.09 73.66 2.33 3.52 --------0.31 -5.52

11.70 1.97 1.43 7.68 --------0.88 18.5 0 0.43 -6.36 -----2.58 --0.92 -4.32 -----2.18 --2.25 --------0.58

20.81 18.47 27.04 238.09 79.18 198.89 94.22 -20.56 -----44.00 -44.00 --44.00 -15.04 1.25 -16.29 4.50 --20.79 -6.84 -13.95 -------50.76 ---------4.62 14.25 21.19 39.20

19.38 16.22 23.52 39.20

15.13 23.21 34.58 1.47 -7.28 -----3.17 --9.50 -9.02 -----3.47 ---

18.07 14.21 21.74 25.08 11.71 9.89 14.46 16.06

45.47 45.51 45.69 50.17

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Face Value 10.00 10.00 10.00 10.00 10.00

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MARKETING DEPARTMENT Organization structure

Head of the unit

Marketing Manager

Sales executive
The above structure is the central organization structure of India infoline. It is direct control by head of the unit.

Channels of distribution
Distribution Means to distribute, spread cut or disseminate. In the field of marketing, channels of distribution indicates routes or pathways through which goods and services flow from producers to consumers.

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The channel distribution can be classified in two types:

India infoline use both type of channel of distribution direct as well as indirect. In direct channel India infoline directly deal with their customer and in indirect channel India infoline deal with sub broker. Then sub-broker deals with client.

Advertisement
Advertising means, Any paid form of non personal presentation of idea, goods or service by an identify sponsor. INDIA INFOLINE Advertise their service through television and personal informational latter.

Competitor

1. 2. 3. 4.
5.

India bulls Share khan HDFC securities Marwadi group Angel broking

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Services / Product of India Infoline India Infoline Securities Private Limited

Member of BSE and NSE: India infoline is a company listed on both

the leading stock exchanges in India namely the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE).

Equities and Derivative Broking: There are two options while investing
in shares of Companies; subscribing to shares during an IPO (Primary market) and trading in listed shares of Companies in the Secondary market. With the 5paisa Trade Terminal 2005(TT5) customer can trade in BSE,NSE and that too in both segment of the market, Cash as well as Derivatives (F&O).

Small Savings Schemes: India Infoline also providing small saving schemes
for small investors looking for fixed return with high safety. Post Office Monthly Income Scheme, 9% Senior Citizens Scheme, Public Provident Fund, United Linked Insurance Plan (ULIP), National Savings Certificates, and Kisan Vikas Patra can include in Small Savings Schemes.

Portfolio Management Services: For this service investor have to invest

minimum 5,00,000 Rs. No upper limit. Presently India infoline providing two scheme 5paisa Growth Portfolio and 5paisa Momentum Portfolio.

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India Infoline.com Distribution Company Limited

Mutual Funds: A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Instead of investing on your own, for a small fee, sets of experts do it for investor through mutual fund schemes. Investor can choose the risk profile and asset mix. Different mutual funds scheme are determine the risk, return and liquidity. Growth/Equity funds, Income Funds, Balance Funds, Gilt Funds, Equity Linked Saving Scheme, and Fixed Maturity Plan are some different scheme Mutual Funds.

RBI Bonds: RBI bounds for supreme safety with sovereign guarantee. ICICI/ IDBI bounds will save tax if investors are not in high-income bracket. Capital Gains bonds, a cool way to escape long-term capital gain tax on property etc.

Fixed Deposits: Company Fixed Deposits were earlier popular investment options which are now losing their charm owing to taxable interest income coupled with questionable credit worthiness of some companies. In this, Investor has to invest their money for minimum six months. Fixed Deposits (Manufacturing Cos) and Fixed Deposits (NBFCs) can be including in Fixed Deposit scheme.

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India Infoline Insurance Services Limited

Corporate agents for ICICI Prudential Life Insurance Company

Limited: person who is seeking plan for a financially secure future for their
family and get attractive tax breaks along the way. All this is possible with a single class of products, Life Insurance. Get adequate life cover coupled with total peace of mind. Life Guard, Life Time Pension II, Unit Linked Single premium II, Invest Shield Gold, Premier Life and Life Time II are some Life insurance schemes provided by the India Infoline Insurance Services Limited.

India Infoline Commodities Private Limited

Member MCX, NCDEX: Trade in commodities with 5paisa.com, which has membership in both the leading exchanges, Multi-commodity Exchange of India (MCX) and the National Commodity and Derivatives Exchange of India (NCDEX). Commodities Broking: A better alternative to share trading since valuation of share in India is more event-driven making it difficult to anticipate. On the other hand, laws of demand and supply rather than sentiment rule the commodities markets.

India Infoline Investment Services Private Limited Margin funding and financing:
India infoline also providing credit facility to their investor.

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ABOUT INDIA INFOLINE LTD,

The India Infoline Group, comprising the holding company, India Infoline Ltd. And its wholly all subsidiaries offer the entire gamut of investment products ranging from Equities and Derivatives trading, Commodities trading, Portfolio management services, Mutual Funds, Life Insurance, Fixed Deposit, GOI bonds and other small savings instruments. It also owns & manages websites, www.indiainfoline.com & www.5paisa.com India infoline Ltd. is a company listed on both the leading stock exchanges in India Stock Exchange Mumbai (BSE) and National Stock Exchange (NSE) Delhi.

India infoline is forerunner in the field of equity research. India Infolines research is acknowledged by none other than Forbes as Best of the Web a read for investors in ASIA. India Infolines research is available not just over the Internet but also on Inter National wire services like Bloomberg. India Infoline group has significant presence across the country owing to its 77 offices across 36 cities across India. All these offices are networked and connected with the corporate office in Mumbai. The group has invested significantly in technology and research, the result of which are there for everyone to see the 5paisa trading interface is one of the most advanced platform available to retail investor in India. The group has membership on BSE and NSE for equities trading and on MCX and NCDEX for commodities trading. It has a SEBI license for Portfolio Management under which various schemes are offered which has been consistently beating the benchmark indices since inception.

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Strengths That Set Us Apart:

We have been in information services for the last seven years and have assiduously built the data and skill sets necessary for the business.

We have leveraged our content to create the India Infoline brand, which is synonymous with high quality and credible information on business and finance.

Our top management team represents a skill set, which is mutually exclusive but collectively exhaustive.

The

strength

of

the

organization

has

been

to

continuously

innovate and reinvent itself.

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1.0 INTRODUCTION
Every business unit needs money to finance its activities. The money is invested in physical resources, i.e. land and building, machines and equipment, stock of raw material, etc., which are used by the enterprise in production. All these resources together constitute capital. Capital is often defined as wealth used in the production of further wealth. A business enterprise can raise capital from various sources. Long-term funds can be raised either through issue of securities or by borrowing from certain institutions. Short term funds can also be borrowed from various agencies. Thus business units can raise capital from issue of securities and borrowings (long-term and short-term). In addition to business units, public corporations and government are the other major borrowers of funds. The lenders of funds include the individual investors (the household sector), the institutional investors, banks, and special industrial financing institutions. The borrowers and lenders brought together through financial markets. The term financial market collectively refers to all those organizations and institutions, which lend funds to business enterprise and public authorities. It is composed of two constituents the money market and the capital market. While the former deals with the provision of short-term credit, the latter deals with the grant of medium-term and long-term credit.

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INTRODUCTION TO CAPITAL MARKET

Capital Market is the backbone of any countrys economy. It facilitates conversion of savings to investment. In India the common investors participating in the equity market is massive. The number of companies offering equity through primary markets increased continuously in the post independence period. The capital market is actually reflecting what is happening in the economy and what is expected to happen in the next few years. Capital market facilitates the free trading (buy and sell) in all securities. It has two mutually supporting and indivisible segments: the primary market and the secondary market. In the primary market companies issue new securities to raise funds. Hence, it is also referred to the new issue market. The secondary market deals with the second-hand securities; viz., securities that have already been issued by companies that are listed in stock exchange. Since the securities are listed and traded in the stock exchange, the secondary market is also called the stock market. Investors confidence is necessary to make the securities market more efficient means of converting savings to investment. Economic transition in India is marked by changes in the market mechanism, institutional integration, market regulation, relocation of savings and investment and changes in intersectoral relationships. These changes bring both negative and positive effects and thus investors confidence is shaken either way bringing in the volatility in the capital market. The stock market in India is witnessing high volatility. This volatility has significant impact on the investment management and the rate of return. The inadequacy of the system becomes obvious if the institutions in the system fail to withstand the pressures of market forces such as the volatility. The regulatory measures from SEBI, the main regulator in the Indian Financial System, have lent force to the supervisory norms and improved the standards of disclosure, bringing greater transparency in their wake. _______________________________________________________________________ 29

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2.0 PROBLEM STATEMENT

In earlier times the investors are not so aware of the market in other way say that the investors are not too much knowledgeable. As they are not too much knowledgeable they invested in market without using any concept and skills. This study is also for enhancing the knowledge of various investors. Study also suggested that how genuine investors should react before and after investing in market. The Indian capital market is faced many problems and this study is firstly defined what is the problem in Indian capital market as of 1992. 1. As of 1992, the Bombay Stock Exchange (BSE) was a monopoly. It was an association of brokers, and imposed entry barriers, which led to elevated costs of intermediation. Membership was limited to individuals; limited liability firms could not become brokerage firms. 2. Trading took place by open outcry on the trading floor, which was inaccessible to users. It was routine for brokers to charge the investor a price that was different from that actually transacted at. In fact, the normal market practice involved brokers charging users one single consolidated price, instead of unbundling the trade price and the brokerage fee. 3. As with all trading floors, there was no pricetime priority, so users of the market were not assured that a trade was executed at the best possible price. 4. A variety of manipulative practices abounded, so that external users of a market often found themselves at the losing end of price movements. The BSE is run by brokers, which limits the quality of enforcement which can be undertaken against errant brokers.

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Capital market_______________________________________________________________ 5. Floorbased trading, the inefficiencies in clearing and settlement (described ahead), entry barriers into brokerage, and the low standards of technology and organizational complexity that accompanied the ban upon corporate membership of the BSE led to an environment where order execution was unreliable and costly. It was typical for below 50% of orders to obtain execution on a given day. 6. Retail investors and particularly users of the market outside Bombay, accessed market liquidity through a chain of intermediaries called subbrokers. Each sub broker in the chain introduced a mark-up in the price, in the absence of the unbundling of professional fees from the trade price. It was not uncommon for investors in small towns to face four intermediaries before their order reached the BSE floor, and to face mark-ups in excess of 10% as compared with the actual trade price. 8. A peculiar market practice called badla allowed brokers to carry positions across settlement periods. In other words, even open positions at the end of the fortnight did not always have to be settled. Above, all are the problems in the Indian capital market as of 1992 but time change and mostly these problems are solved.

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3.1 Title of the Study 3.2 Objectives of the Study 3.3 Rationale for the Study 3.4 Scope of the Study 3.5 Benefit of the Study 3.6 Limitation to this Study 3.7 Method of Analysis 3.8 Study Design

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3.0 RESEARCH METHODOLOGY

3.1 TITLE OF THE STUDY
Indian Capital Market- What Lies Ahead? A study on automobile sector in India.

3.2 OBJECTIVES OF STUDY

1. To enhance the knowledge of the investors. 2. To devised investment strategies to investors this allows them to apply concepts & skills using equities. 3. To provide the information to the prospective investors about the auto companies of auto segment. 4. To understand the relation between stock market and Indian economy in comparison with the worlds countries.

3.3 RATIONALE FOR THE STUDY

The things are change very rapidly in India as well as in World so, it is very important to know the economy of the India. So, this study helps to know the capital market growth in India. The goal of the study is to analyze the scenario of the capital market of India. This study also helps in to know the Indian economy and as well as the current position of the India compare to the world economy. This study helps to analyze the future growth of the automobile sector.

3.4 SCOPE OF THE STUDY

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Geographically, the two major registered stock Exchanges of India, The Bombay Stock Exchange and National Stock Exchange are covered in the scope. The study restricted to up-and-coming market. The study covers those stocks that are currently traded in above-mentioned stock exchanges.

3.5 BENEFITS OF THE STUDY

The Study mainly emphasizes awareness and understanding of simple investment strategies. Various tests and forecasting techniques help a participant in applying various concepts and skills so as to diversify and thus minimize risk and simultaneously earn maximum & stable profits. The Study Helps 1. Understanding the role of the stock market. 2. Understanding the Indias Strength in the World of Capital Market. 3. Facilitating Large Investments

4. Understanding the Importance of Information in the Practical World of Stocks.

3.6 LIMITATIONS TO THIS STUDY

1. COST:
Various field works and visit to training centers, collecting data from various brokerage houses may be costly.

2. TIME:
The scope of study is vast and thus time constraint. The capital market is very vast history and need very deep study this also need more time.

3. LACK OF KNOWLEDGE/EXPERTISE:
In this field the basic knowledge of share market is important so, it need some expertise in this area.

3.7 METHOD OF ANALYSIS

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FUNDAMENTAL ANALYSIS
Fundamental analysis done for studying the how future prices of the company will perform. Fundamental analysis is useful to finding the right value of the company. Fundamental analysis includes the study of Economy, Industry and Company. For estimating any companys share price not only the historical performance data of that company are very useful but also the quantitative analysis of the revenue, assets liquidity, expenditure, etc.

3.8 STUDY DESIGN

PERIOD OF STUDY
The Study is divided in to Four Segments, 1. First 15 Days Review of Literature 2. Next 15 Days Collection of Secondary Data 3. Next 25 Days Observations & Analysis 4. Last 10 Days Preparation of Report

LITERATURE REVIEW
a) Primary Data Observation

b) Secondary Data Industry Reports Internet Library

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4.1 Products participants And functions 4.2 Capital Market and Indian Economy 4.3 Problems in Capital Market

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4.0 INDIAN CAPITAL MARKET SCENARIO

The securities market in India witnessed several policy initiatives since the year 2000, which further refined the market micro-structure, modernized operations and broadened investment choices for the investors. The irregularities in the securities transaction in the last quarter of the previous financial year hastened the introduction and implementation of several reforms. While a Joint Parliamentary Committee was constituted to go into the irregularities and manipulations in all their ramifications in all transactions relating to securities, decisions were taken to complete the process of demutualization and corporatisation of stock exchanges to implement the decision to separate ownership, management and operation of stock exchanges and to effect legislative changes for investor protection, and to enhance the effectiveness of SEBI as the capital market regulator. The mainly event is described with date below: Date Event 1876 Birth of Bombay Stock Exchange (BSE). 27 Jun 1969 Notification issued by government under SC(R)A prohibiting forward Jan 1983 2 Jan 1986 12 Apr 1988 1992 30 Jun 1994 3 Nov 1994 13 Dec 1994 25 Jan 1995 14 Mar 1995 3 Jul 1995 5 Oct 1995 Apr 1996 8 Nov 1996 or futures trading. Regulatory permissions obtained for badla trading, a mechanism to carry forward positions. Computation of BSE sensitive index commenced. SEBI created. Fixed income and equity markets scandal. Start of electronic debt trading at National Stock Exchange (NSE). Start of electronic equity trading at NSE. Ban on badla. SC(R)A amended to lift the ban on options trading. Start of electronic trading on a few stocks at BSE. Electronic trading of all stocks on BSE. Ban on badla reversed. National Securities Clearing Corporation (NSCC) commenced operations. National Securities Depository Ltd (NSDL) commenced operations.

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Capital market_______________________________________________________________ 1999 12 Jun 2000 4 Jun 2001 2 Jul 2001 Securities law modified to enable derivatives trading. Start of equity index futures trading. Start of equity index options trading. Major stocks moved to rolling settlement; start of stock options market. After the above revolution the Rolling settlement on T+5 bases was introduced in respect of most active 251 securities from July 2, 2001. Rolling settlement on T+3 basis commenced for all listed securities from April 1, 2002 and subsequently on T+2 basis from April 1, 2003. Trading in index options commenced in June 2001 and trading in options on individual securities commenced in July 2001. Futures contracts on individual stock were launched in November 2001. Futures and options contracts on 49 individual securities were made available from August 2003. Interest rate futures contract was launched from June 2003. The year 2001-02 has been quiet eventful for debt markets in India, with implementation of several important decisions like setting up of a clearing corporation for government securities, a negotiated dealing system to facilitate transparent electronic bidding in auctions and secondary market transactions on a real time bases an dematerialization of debt instruments. These developments in the securities market, which support corporate initiatives, finance the exploitation of new ideas and facilitate management of financial risks, hold out necessary impetus for growth, development and strength of the emerging market economy of India.

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4.1 PRODUCTS, PARTICIPANTS AND FUNCTIONS

Transfer of resources from those with idle resources to others who have a productive need for them is perhaps most efficiently achieved through the securities markets. Securities markets provide channels for reallocation of savings to investments and entrepreneurship and thereby decouple these two activities. Savings are linked to investments by a variety of intermediaries through a range of complex financial products called securities which is defined in the Securities Contracts (Regulation) Act, 1956 to include shares, bonds, scripts, stocks or other marketable securities of like nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the central government. The amount of funds supplied by the supplier may not be the amount needed by the user. Similarly, the risk, liquidity and maturity characteristics of the securities issued by the issuer may not match preference of the supplier. In such cases, they incur substantial search costs to find each other. Search costs are minimized by the intermediaries who match and bring the suppliers and users of funds together. These intermediaries may act as agents to match the needs of users and suppliers of funds for a commission, help suppliers and users in creation and sale of securities for a fee or buy the securities issued by users and in turn, sell their own securities to suppliers to book profit. A large variety and number of intermediaries provide intermediation services in the Indian securities market as may be seen from table. The securities market, thus, has three categories of participants, namely the issuers of securities, investors in securities and the intermediaries and two categories of products, namely the services of the intermediaries, the securities, including derivatives. The issuers and investors are the consumers of services rendered by the intermediaries while the investors are consumers of securities issued by issuer. In pursuit of providing a product to meet the needs of each investors and issuer, the intermediaries churn out more and more _______________________________________________________________________ 40

Capital market_______________________________________________________________ complicated products. They educate and guide them in their dealings and bring them together. Those who receive funds in exchange for securities and those who receive securities in exchange for funds often need the reassurance that it is safe to do so. This reassurance is provided by the law and by custom, often enforced by the regulator. The regulator develops fair market practices so as to protect the interests of funds. The regulator ensures a high standard of service from intermediaries and supply of quality securities and non-manipulated demand for them in the market.

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Capital market_______________________________________________________________

4.2 CAPITAL MARKET AND INDIAN ECONOMY

A logical starting point in assessing any equity market is to analyze the economic factors that affect stock prices. Understanding the current and future state of the economy is the first step in understanding what is happening and what is likely to happen to the market. A basic measure of the economy is Gross Domestic Product (GDP). It is a measure of the economic health and strength of the economy. Investors are concerned about whether the economy is experiencing good rate of growth or not. Indias GDP growth forecast for 2006 is next only to China. A 9.31% growth forecast will strengthen the equity market of India quite substantially.

INDIAS GDP GROWTH NEXT ONLY TO CHINA

GDP GROWTH 2006
12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%
IN DI A LA ND A G E G AP O R IN US IA LA YS JA PA CH KO N N

10.30%

9.31%

4.60%

4.50%

4.40%

4.20%

3.80% 2.30%

TH AI

M A

NG

HO

SI N

(RBI)
The favorable demographics of Indian economy in terms of working age of population, in terms of consuming/ producing age group as well as the growth of middle-income level will strengthen the equity market.

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Capital market_______________________________________________________________

Global Growth in Working Age Population (in mn)

400 350 300 250 200 150 100 50 0
fri ca s ia me ric a s ia Ch in a In d W A tA US A or ld ia A

375

80

75

55

45

42

21

18

th

So u

La t

in

es

Source: MSDW

Increasing Consuming/Producing Age Group

1400 1200 1000 800 600 400 200 0 92 49 598 380 2001
0-14 15-59

811

365 2016
60&Above

Source: BRICs Report by Goldman Sachs

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Capital market_______________________________________________________________

REVOLUTION OF INDIAN ECONOMY

There has been a tremendous transformation of the Indian Economy with the government taking a holistic view of the factors impacting growth, foreign investment and integration of India with the World Economy. The infrastructure spending has been on a high.

COMPARISON OF INFRASTRUCTURE SPENDING OF LAST SIX YEAR(IN $ BN.)

20 18 16 14 12 10 8 6 4 2 0 18.4 13.3 10.4 7.1 6.9 2 3.4 8.6 8.1 14.5 15.9 14.3

rts

Po w er

Ra ilw ay

Ro a

irp o

Ga s

Po rt s

2001-04

2004-07

O il &

/A

Source: Merrill Lynch Government too has lined up major infrastructure projects like the golden quadrilateral, new power plants, airports, ports etc. The total investment in the country is to increase from $ 120 billion (Rs. 5, 28, 000 crores) in 2004 to $ 208 billion (Rs. 9, 15, 200 crores) by 2007. Investors rely heavily on the financial statements of a corporation, which provide the major financial data about companies. The balance sheet of the company is hence a basic statement about the financial health. If we analyze the corporate balance sheets over the years, we find that Indian corporate have more stronger balance sheet and this fuelling their aggression as they aim to increase their corporate acquisitions. _______________________________________________________________________ 44

Te le c

om

ds

Capital market_______________________________________________________________

With the recent budget there has been some more rationalization of corporate tax rate structure. With the introduction of further tax reforms related to equity market, the domestic investors continue to look at equities as a favorable investment avenue, both in terms of generating consistent returns and saving tax.

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Capital market_______________________________________________________________

4.3 PROBLEMS IN INDIAN CAPITAL MARKET

The Indian stock market is suffering from many problems. Some of the important ones are the following:

Lack of Knowledge & Tendency

In India, having very large amount of investors but mainly or mostly the investors keep away from the capital market due to lack of knowledge of capital market, fear of taking risk. Thus, Indian stock market suffering from many limitations:

Absence of Genuine Investors

As it is, speculative activities outplay the genuine trading activities. Very negligible fraction of transactions represents purchases or sales by genuine investors. Most of the transaction is carry forward transactions with a speculative motive of deriving benefit from short term price fluctuations. Speculators are only interested in taking a bet on the stock and profiting from its price swings. Almost 85 per cent of the total volume is contributed by speculators.

Presence of Price-Rigging
There is a tendency among companies issuing securities to artificially push up the prices before the issue of securities. This is generally done by buying and selling securities by a few groups of persons among themselves and thereby pushing the prices up. There is a strong bull movement in the market.

Prevalence of Insider Trading

Insider trading has been accepted as a routine practice in India. Insiders are those who have access to unpublished price sensitive information by virtue of their position in the company and who use such information in their best advantage. Hence it is an undesirable activity.

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High Volatility of Stock Market

The Indian stock market is subject to high volatility in recent years. The All India Index number of security prices was steady at 60% between the period 1999 and 2000. However, it was subject to heavy fluctuations afterwards. This high rate of volatility is not conducive for the smooth functioning of the stock market.

Dominance of Financial Institutions

Few financial institutions like the Mutual Funds, LIC and GIC dominate the Indian stock market scene. Hence, the Indian stock market is significantly influenced by the actions of these few institutions. It actually reduces the level of competition in the stock market, which is not a healthy trend for the growth of any stock market.

FIIs Control over the Market

Like the financial institutions the FIIs also lead the Indian stock market. As per the projection India will become one of the largest economy of the world based on its strong economic and demographic factor. As a result of this FIIs and other investors are attracted towards India. As a result the FIIs taking Indias market at a new high, but it is very important to know that how long they are investing in India because of a sudden change the Indian market collapsed.

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5.1 Indian Stock Market and Globalization

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5.0 GLOBAL SCENARIO

Reforms in the securities market, particularly the establishment and empowerment of SEBI, market determined allocation of resources, screen based nation wide trading, dematerialization and electronic transfer of securities, rolling settlement and ban on deferral products, sophisticated risk management and derivatives of trading and settlement. Indian market is now comparable to many developed markets in terms of a number of qualitative parameters. The next few decades the growth generated by the large developing countries, particularly the BRICs (Brazil, Russia, India and China) could become a much larger force in the world economy than it is nowand much larger than many investors currently expect. If things go right, the BRICs could become a very important source of new global spending in the not too distant future.

INTERNATIONAL COMPARISON (End December 2006)

Particulars USA No. of listed Companies Market Cap. ($mn) Market Cap. Ratio Turnover ($mn) Turnover Ratio (%) 7,651 16,635114, 210 18,574,100 124 UK 1945 2,933,280 232 1,377,859 52 Japan 2,470 4,546,937 111 1,849,228 53 Germany 933 1,432,190 66 1,357,841 108 Singapore 355 198,407 208 97,985 67 Hong Kong 695 609,090 385 244,886 51 China 950 330,703 36 377,099 134.2 India 9,871 280,619 85 486,360 245

Source: S&P Emerging Stock Market Fact book, 2006

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Capital market_______________________________________________________________ As may be seen from table except USASS, no other country has higher turnover ration than India. At the end of December 2006, Standard and Poors (S&P) ranked India 19th in terms of market capitalization, 17th in terms of total value traded in stock exchanges and 7th in terms of turnover ratio.

COMPARISON LISTED COMPANIES IN PERCENTAGE

USA 30 41 UK JAPAN GERMANY SINGAPORE 8 3 31 4 10 HONGKONG CHINA INDIA

COMPARISON OF TURNOVER RATIO

19%

24%

USA UK JAPAN GERMANY SINGAPORE HONG KONG CHINA INDIA

8% 5% 4% 16% 8% 16%

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Capital market_______________________________________________________________ The table shows you the international comparison in various ways, the same thing are shown in below charts in percentage point of view, the first chart shows the round about 41% of listed companies in the India which is greater than USA. The next chart shows the turnover ratio of the various countries the chart shows the Indias turnover ratio 19% which is next only to USA.

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5.1 INDIAN STOCK MARKET AND GLOBALIZATION

Indian Stock market has witnessed drastic changes during the past decade due to the broad stock market liberalization measures. Dematerialization of shares and setting up clearing houses has virtually eliminated the risks involved in trading. Similarly rapid strides were made in settlement procedures, corporate governance standards, introduction of derivative products etc.

GLOBALIZATION
The Indian Stock Market though one of the oldest in Asia being in operation since 1875, remained largely outside the global integration process until the late 1980s. A number of developing countries in concert with the International Finance Corporation and the World Bank took steps in the 1980s to establish and revitalize their stock markets as an effective way of mobilization and allocation of finance. In line with the global trend, reform of the Indian Stock Market began with the establishment of Securities and Exchange of India in 1988. However, the reform process gained momentum only in the aftermath of the external payment crisis of 1991 followed by the Securities scam of 1992. Among the significant measures of integration, portfolio investment by FIIs allowed since September 1992, has been the turning point for Indian Stock Market. As of now, FIIs are allowed to invest in all categories of securities traded in the primary and secondary segments and also in the derivatives segment. Following the commissioning of the NSE in June 1994, National Securities Clearing Corporation in April 1996 and National Securities Depository in November 1996, a screen based, anonymous, order driven online dematerialized trading has been the order of the day coupled with improved risk management practices for clearing and settlement. The process of integration received a major impetus when the Indian corporate was allowed to go global with GDR (Global Depository Receipt) /ADR(American Depository Receipt) issues. Starting with maiden issue of Infosys in March 1999, ADR

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Capital market_______________________________________________________________ issues has emerged as the star attraction due to its higher global visibility. Till date, around 12 Indian companies have taken advantage of the US market and 76 companies have captured the global market. In March 2001, two-way fungibility for Indian GDR/ADRs was introduced whereby converted local shares could be reconverted into GDR/ADR subject to sectoral caps.

GLOBAL INVESTMENT
India embarked on economic reforms to transform the controlled economy into market driven one. This included the financial liberalization strategies like dismantling of capital controls, reforms in trade and investment policies and so on to integrate the Indian Financial Markets with the global financial markets. All these reforms opened the floodgates to foreign capital flows into the country. The total net capital flows have risen to US $ 12.1 billion in 2005-06 from US $ 7.1 billion in 1990-91. The cross border flows are averaging around US $ 10 billion every year currently. Like elsewhere in the globe, the nature of capital flows has come to constitute a higher percentage of the total capital flows. The ratio of non-debt creating inflows to debt creating inflows was 1.5 to 83.3 in 1990-91 as against 44.6 to -6.6 in 2005-06.

COMPOSITION OF CAPITAL FLOWS TO INDIA

(US $ Million) FDI Year Total net Capital flow Flow as a % of 1990-91 1999-00 2000-01 2006-07 7056 10444 10018 12638 Portfolio Equity flows As a % of Debt Creating % of Others* Flows as a As a % of

1.4 0.1 83.3 15.2 20.7 29.0 23.1 27.2 40.2 27.6 59.4 -27.2 36.9 7.7 -6.6 62.0 Source: Reserve Bank of India Annual Report 2006-07

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Capital market_______________________________________________________________

The portfolio flows have been one of the major forces that have changed the quantum and nature of international capital flows to India. Portfolio flows include the investment in ADRs /GDRs and offshore funds in addition to investment by Foreign Institutional Investors (FIIs). Foreign portfolio investments have been allowed in India on the basis of the recommendations of the Narasimham committee. Prior to 1992, only non-resident Indians (NRIs) and Overseas Corporate Bodies (OCBs) were allowed to undertake the portfolio investment in India. Only on September 14, 1992 the Government of India issued guidelines on FII investments in India which was followed by a notification by Securities and Exchange Board of India (SEBI) three years later in November 1995. Ever since the opening up of the market for FIIs, the net investments by FIIs have always been positive every year except in the year 1998-99 where the net investment was negative primarily because of the uncertainty that prevailed after India tested a series of nuclear bombs in May 1998 and the imposition of the economic sanctions by the United States, Japan and other industrialized countries. On an average India has received cross border portfolio investment around US $ 2.2 billion per year between 1992-93 and 2006-07 of which close to US $ 1.2 billion per year on an average is the share of FIIs. The cumulative FII investment in India is around US $ 19 billion and the FII investment in India account for over 10 percent of the total market capitalization of the Indian Stock market.

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Capital market_______________________________________________________________

FII INVESTMENT IN INDIA

(US $ million) Year 199293 199900 200001 200102 200607 Total FII GDRs Offshore funds 3 123 82 39 2 Portfolio flows Investment / ADRs* 244 3026 2760 2021 979 1 2135 1847 1505 377 240 768 831 477 600

Source: Reserve Bank of India Annual Report 2006-07 The investments by FIIs have been registering a steady growth since the opening of the Indian capital markets in September 1992. That this trend has come to stay is evident from the fact that the FIIs investments amounted to over $ 8 billion for the period of calendar 2008. The below table further based on the investment in total portfolio investment inflows have always have been the increase.

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Capital market_______________________________________________________________

TRENDS IN FII INVESTMENT

Period Gross Purchases (Rs.crore) 1994 1996 1998 2000 2004 2007 7631 15554 16115 74051 47060 144858 Gross Sales (Rs.crore) 2835 6979 17699 64116 44371 99094 Net Investment (Rs.crore) Net Investment ** (US Cumulative Net Investment**

$million) (US $million) 4796 1528 3167 8575 2432 7634 -1584 -386 8898 9934 2160 13396 2689 562 15804 45765 9949 25754 Source: SEBI Annual Report 2007

The FIIs hold 8.12 per cent of the total outstanding shares of the 469 companies studied as of September 2006, emerging as the biggest institutional investor, ahead of the mutual funds, domestic financial institutions and the private corporate bodies. In an overall ranking they occupy the third position after the promoters and the Indian public holding higher levels of investment than FIIs.

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SHARE HOLDING PATTERN

Category Total Share Outstanding (in Rs.) 69220551 12365489 Financial 25432703 30627991 5642696 15205012 446293 3475716 162416441 % of Share Held 42.62 7.61 15.66 18.86 3.47 9.36 0.28 2.14 100

Promoters Mutual Funds Domestic Institution FIIs Private Corporate Bodies Indian Public NRIs/OCBs Others Total

The above table shows the FIIs holding over the Indian security market, which says that FIIs are the one of the large investors in Indian security market. The FIIs holding is the third highest in the overall holding in Indian security market.

ONE IN THREE FIRMS HAS FII STAKES

FIIs hold stakes in a third of all listed companies in India. Data regarding holding pattern filed by 2,500 listed companies with the Bombay Stock Exchange shows a marked increase in the number of companies with FII investments. The FIIs have added 291 companies in their equity portfolio of which 127 companies were added during April-June 2007 quarter. The quantum that FIIs hold varies between 0.01 per cent and 64.26 per cent stake in these companies. During the year FIIs more than doubled their stakes in 164 companies and increased their stakes between 50 per cent and 100 per cent in another 40. In over FIIs are the second-largest shareholders after the promoters. a 100 companies, the

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Capital market_______________________________________________________________ In the first quarter of the current fiscal, FIIs held over 30 per cent stake each in 12 companies. In 41 firms, they hold stakes between 20 per cent and 30 per cent and in 55 companies, their holdings range between 15 per cent and 20 per cent. Finally, in 76 companies they hold between 10 per cent and 15 per cent stakes. The FIIs have been the largest shareholder in Housing Development Finance Corporation and followed by the others: Housing Development Finance Corporation Satyam Computer Services ICICI Bank SB&T International Infosys Technologies Zee Telefilms 64.26% 53.90% 45.24% 40.34% 39.61% 38.96%

The list of companies in which they have acquired substantial stakes recently includes Grabal Alok Impex 27.21%, Goldstone Teleservices 20%, Vaibhav Gems 19.71% and Sabero Organics 13.77%, which had no FII presence a year back.

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6.0 EFFICIENT MARKET HYPOTHESIS

A market is efficient with respect to a particular set of information if it is impossible to make abnormal profits (other than by chance) by using this set of information to formulate buying and selling decisions. EMH has been the subject of intense debate among academics and financial professionals. It is a world in which (1) all investors have costless access to currently available information about the future, (2) all investors are capable analysts, and (3) all investors pay close attention to market prices and adjust their holdings appropriately. In such a market a securitys price is a good indicator of its investment value, fair value or intrinsic value, wherein it is the present value of the securitys future prospects, as estimated by well-informed and skillful analysts who use the information that is currently at hand. That is, an efficient market is one in which every securitys price equals its investment value at all times and is an unbiased estimate of its true value. Contrary to popular view, market efficiency does not require that the market price be equal to the true value at every point of time. All it requires is that errors in the market price be unbiased, that is, prices can be greater than or less than true value as long as these deviations are random. In an efficient market a set of information is fully and immediately reflected in market prices. However, the goal has always been to encourage the establishment of allocationally efficient markets in which an investor with the most promising investment opportunities has access to the needed funds. However, in order for markets to be allocationally efficient, they need to be both internally and externally efficient. In an externally efficient market, information is quickly and widely disseminated, which allows each securitys price to adjust rapidly in an unbiased manner to new information so that it reflects its investment value. In comparison, an

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Capital market_______________________________________________________________ internally efficient market is one in which market players compete fairly, making demand and supply equations, making the cost of transaction low and the speed of transacting high. In an efficient market, investors should expect to make normal profits by earning a normal rate of return on their investments. However, most individuals who buy and sell securities do so under the assumption that the securities they are buying are worth more than the price they are paying, while securities that they are selling are worth less than the selling price. But if markets are efficient and current market prices fully reflect all information, buying and selling securities in an attempt to outperform the market will effectively be a game of chance rather than skill. EMH evolved in the early 1960s from the PhD dissertation of Eugene Fama. Fama persuasively made the argument that in an active market that includes many well-informed and intelligent investors, securities will be appropriately priced and reflect all available information. If a market is efficient, where large number of rational, profit maximisers actively compete, with each trying to predict the future market values of individual securities and where important current information is almost freely available to all participants, no information or analysis or perception can be expected to result in out-performance of an appropriate benchmark. The arrival of new information to a competitive market can be linked to the meat chop. The instant the chop hits the water; there is turmoil as the fish devour the meat. Very soon the meat is gone, leaving the worthless bone behind, and the water returns to normal. Similarly, when new information reaches a competitive market there is much turmoil as investors buy and sell securities in response to the news, causing prices to change. Once prices adjust, all that is left of the information is the worthless bone. No amount of gnawing on the bone will yield any more meat, and no further study of old information will yield any more valuable intelligence.

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Three Important Classifications of EMH

(a)Weak Form: Weak Form EMH states that previous prices of securities or historical data are used to make buying and selling decisions. The significant conclusion derived from weak-form hypothesis is that past rates of return and any other security/ market information should have no relationship with future stock prices or future rates of return. In other words, Technical Analysis is of no use. Early tests of weak form market efficiency failed to find any evidence that abnormal profits could be earned trading on information related to past prices. More recent studies, however, have indicated that investors may under react to current types of information in the short term, but overreact in the long term, driving security prices away from this investment values. As a result, it may be possible to earn abnormal profits by buying either securities that have recently risen in price or those that have fallen in price over a longer time period. These two strategies are known as momentum and contrarians strategies respectively.

(b)

Semi Strong Form: Semi strong form EMH states that stock prices fully reflect all publicly

available information at its best and quickest. Usually, when talked about efficient markets, semi strong form of efficient markets is meant, because of the strict laws governing the use of insider information (a form of private information) to make buying and selling decisions, as that involves restricting the analysis to the publicly available information that analysts use in making recommendations. However, public information also includes all non-market information such as news about the industry or various economies, the current political state abroad, etc.

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Capital market_______________________________________________________________ The implication of semi strong form EMH is that investors should not be able to derive above average rates of return from public information. In other words, fundamental analysis is of no use. A number of tests have been conducted to verify the semi strong form of EMH with the majority of tests providing mixed evidence. Some of the notable exceptions include the January effect, in which stocks that experienced losses during the previous year tend to provide abnormal rates of return in the current January, the Friday effect, the size effect, the neglected firms effect and the book value to market value effect. For those who think all these anomalies are funny, here is a quote from Mark Twain: October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February!

(c)Strong Form: Strong form EMH suggests that all information, both public and private has been discounted in the efficient markets, where it would be impossible to earn abnormal profits (other than by chance) by using information whatsoever. It encompasses both weak form and semi strong form and implies that no opportunities should exist for any investor to derive above average rates of return, even with the use of insider information. Like the semi strong version, tests of this hypothesis provided mixed results. However, the bulk of tests were supportive. Two glaring anomalies exist: Corporate insiders and market specialists seem to be able to consistently earn above average rates of return which implies that they possess monopolistic access to important information. In addition, there is enough evidence to support the notion that superior security analysts could also consistently above average rates of return, although this group tends

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Capital market_______________________________________________________________ to be small. They manufacture their own private information through their research efforts and are able to discern mispricing.

Information and the Levels of Market Efficiency

Strong Form: All Public & Private Information Semi Strong: All public Information Weak Form: Past Prices

Security Price Changes are Random

New, meaning a Surprise. Anything that is not a surprise is predictable and should have been anticipated; hence it is old information. A securitys price should move upward by an amount that provides a reasonable return on capital, or dividend payments, but anything above or below such an amount would, in an efficient market, be unpredictable. What happens when new information arrives, such as an announcement that a companys earnings have experienced a significant and unexpected decline? In an efficient market, the actions of investors will result in the new informations being incorporated immediately and fully into security prices. Good surprises are as likely as bad ones and so the price changes in an efficient market are as likely to be positive as negative.

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Capital market_______________________________________________________________ Price changes are random in a perfectly efficient market, but this randomness does not mean that prices are irrational. As a flow of information arrives randomly, changes in prices that occur as a consequence of that flow will seem random, being sometimes positive and sometimes negative. However, price changes are simply the result of investors reassessing a securitys prospects and adjusting their buying and selling appropriately. Hence, price changes are random but rational. In a developed and free market, major disparities between price and investment value are noted by alert analysts who seek to take advantage of their discoveries. Securities priced below investment value known as under priced or undervalued securities will be purchased, creating pressure for price increases caused by the increased demand to buy. Securities priced above investment value, known as overpriced or overvalued securities will be sold, creating pressure for price decreases caused by the increased supply to sell. As investors seek to take advantage of opportunities created by temporary inefficiencies, the inefficiencies are reduced, and the less alert and less informed have a less chance to obtain large abnormal profits.

TESTING THE EMH

To determine if markets actually are perfectly efficient, reasonably efficient or not efficient at all, there are multitude of methodologies available, of which following three stand out:(A) Event Studies Event studies can be performed to determine how fast security prices actually react to the release of information. As an example, when the information arrives in the market about ACC raising its guidance for its bottom-line earnings from 20% to 34% for FY07 and its annual EPS of Rs. 62.70, on the 13th of July,07, prices react instantaneously and, in doing so, immediately move to their new investment values from Rs.950 to Rs.1132. At this level, ACC quotes at 23x its earnings. Figure (1.1) shows what happens in such a market when good news arrives. Figure (1.2) shows what _______________________________________________________________________ 66

Capital market_______________________________________________________________ happens when bad news arrives. As an example, consider WIPRO Q1 FY07 results which show a decline of PAT from 720 lacks to 665 lacks Q-o-Q basis. Although within the sector, this company is quoted at its cheapest PE of 9x, as soon as the results were declared, the prices reacted immediately on the 19th July, 07 to fall down to Rs. 545 from Rs. 505, nearly 8% down from its previous close. Note that in both the cases the horizontal axis is the time line and the vertical axis is the securitys price. Observe that shortly before the news arrived, prices were Rs. 950 and Rs.545 for ACC and WIPRO respectively. With the arrival of the information the prices immediately move intraday to their new equilibrium level of Rs. 1132 and Rs.505 respectively, where it stays until additional information arrives. Figure (1.3) tries to explain the over-reaction of UTI banks price from Rs. 650 to Rs. 600 to the information of a private bank Global Trust Bank getting moratarised by RBI for 3 months. A negative sentiment for the entire banking sector, mainly private banks, made this disequilibrium, which slowly settled down to its equilibrium value of Rs. 650 at the end of the day. Such situations cannot occur with regularity in an efficient market, as the analysts realize that the security is selling below its fair value and will proceed to buy it or even go long on their speculative positions if they do not want the delivery for the same. Consequently they will force UTI to reach its equilibrium price before the next trading day, i.e. the 05th July, 07. Various event studies can be conducted pertaining to the news like share repurchase program like in case of Reliance Energy, stock splits and dividends like in the cases of Infosys, Wipro, HLL, etc., stock listings and IPOs like in the cases of DLF ,VISHAL RETAIL, SPICE TELECOM, , etc., mergers and acquisitions .

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Capital market_______________________________________________________________

Price in Rs.

1132

950

T = 11th July, 2007

Time

Figure 1.1: Arrival of Good News about acc

Price in Rs.

545

505

T = 19th July, 2007

Time

Figure 1.2: Arrival of Bad News about WIPRO

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Capital market_______________________________________________________________

Price in Rs. 650

600

Beginning of the Day

End of the Day

Time

T = 11 DEC, 2006

Figure 1.3: Over-reaction of UTI Banks Share Price over GTB News

(B) Looking for Patterns A second method to test for market efficiency is to investigate whether there are any patterns in security price movements attributable to something other than what one would expect. Various Time Series Properties of price changes like a short term price movement with a notion that todays price change conveys information about tomorrows price change can be tested in financial markets. The serial correlation measures the correlation between price changes in consecutive time periods, whether hourly, daily, or weekly, and is a measure of how much the price change in any period depends upon the price change over previous time period. Long Term Price movements over a period of one year to five years can also be focused to find out any deviation from the common rule. Studies of market efficiency have uncovered

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Capital market_______________________________________________________________ numerous examples of market behavior that defy rational explanations. In recent years, many of these patterns have been identified and labeled as market anomalies. For example, one of the most prominent market anomalies is the January effect. Security returns appear to be abnormally high in the month of January. Same is the case with the May effect. Security prices tend to fall down drastically each May. These patterns have a long and consistent track record, and no convincing explanations have been proposed. (C) Examining Performance The third approach for testing market efficiency is to examine the investment records of professional investors, returns offered by various mutual funds, individual portfolio management and measurement, etc to know if earnings are abnormally higher than one would expect in a perfectly efficient market and if there is any consistency over a period of time. There are difficulties in conducting these tests because they require the determination of what constitute abnormal returns, which, in turn, requires determination of just what are normal returns. Moreover a fair amount of data is a limitation to this study.

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7.1 Bajaj Auto 7.2 Mahindra & Mahindra

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7.0 INDIAN AUTOMOBILE INDUSTRY

The Indian automotive industry has been witnessing dynamic growth over the years. The Indian two-wheeler Industry is one of the largest in the world, and is expected to maintain robust growth in the future At the back of this phenomenal automotive growth is the success of the Indian auto component industry. Presently a US$ 6.7 billion industry, it is expected to almost treble in less than eight years time to US$ 17 billion by 2012 India offers a distinct technological and cost-competitive advantage, which global Original Equipment Manufacturers (OEMs) and automotive suppliers are leveraging for both manufacturing and research facilities

BENEFIT FOR INDIA Competitive Cost Advantage

The Indian automotive industry has a significant labor cost advantage. Indias automotive sector has the worlds second largest pool of skilled labor. The country with its high education levels also provides the worlds largest pool of qualified engineers.
400 Stock Population 2006 350 300 250 200 150 100 50 0 -50 -3 0.04 13 20 38 41 56 73 83 Series1 375

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JA W . E PA N U RO P E N. U AM SA ER L. AM ICA ER IC S. E. A AS IA CH IN AF A RI CA IN D W IA O R LD

Additional Working Population by 2010

Source: UN, Morgan Stanley

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Global Comparisons: Availability of Qualified Engineers, 2006

10 9 8 7 6 5 4 3 2 1 0
ng U SA ea ic o y e Ch in a iw an K or an H og ko or ex Si ng ap T m In di a

8.9 6.9 7.3 7.9

5.8 3.9

6.4

6.7

6.7

Scale of 1 to 10 with 1 = Low and 10 = High; Source: IMD Competitiveness Yearbook 2006

Government Initiatives
The Indian automobile regulatory policy has undergone progressive change over the last decade. In June 1993, the First Automobile Policy was announced. It abolished the requirement of licenses to set up an auto manufacturing plant in India, which was the first step to allow private and foreign investment in the automobile industry. In 1995, the Government introduced a company-specific Memorandum of Understanding (MoU) route for manufacturers of cars and multi-utility vehicles. The Policy allowed investments in the automobile industry with a capitalization restriction of at least US$ 50 million over a three-year period.

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Ge r

Capital market_______________________________________________________________ With effect from April 1, 2001 Quantitative Restrictions (QRs) on import of automobiles have been removed, thereby phasing out the MoU policy. With the removal.

Attracted Numerous Players in the Passenger Car Segment

The early 1990s witnessed several reforms initiated by the Indian Government aimed at encouraging private and foreign investment through delicensing, governmentdecontrol and deregulation of various sectors of the economy. In June 1993, a new automobile policy was formulated allowing foreign investment in the automobile sector, abolition of licenses and a reduction in duties across the board to enable the sector to become globally competitive. This resulted in several new players entering the Indian automobile industry, including General Motors, Ford, Hyundai, Honda, and several others.

Market Shares of Players in the Domestic Passenger Car Market

(April 2006 - March 2007)
3.0% 2.1% 2.6% 0.5% 1.5% 15.5% 0.7%
Honda Ikoda T oyota Daimler Maruti Fiat India

18.6% 51.4% 2.6% 1.5%

General Moters Hyundai T ata Ford HM

Source: SIAM

Two-Wheelers Market, One of the Largest in the World and Still Growing
India represents one of the largest two-wheeler markets in the world, with an estimated size of 5.4 million units a year. Two-wheelers are used extensively in the country, both at the rural and semi-urban level. India is the two-wheeler capital of Asia

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Capital market_______________________________________________________________ with an average of 27 two-wheelers per thousand people, compared to Chinas 8 twowheelers per thousand people . The Indian two-wheeler market in India is oligopolistic in nature, with the top three companies accounting for over 80 per cent of the total industry sales. Hero Honda Motors Limited, a joint venture between Honda Motors, Japan and the Indianbased Hero Group, is the largest manufacturer of two-wheelers in the world with a 38 per cent market share of the domestic 5.4 million units two-wheeler market. Bajaj Auto is the second largest player in the two-wheeler market with a 22.3 per cent share. The company uses indigenously developed technology for its two-wheelers. TVS Motor Company is the third largest player with a 20.9 per cent market share, with a majority of its sales coming from the southern states of India.

Market Shares of Players in the Domestic Two-Wheeler Market

(April 2006 - March 2007)
0.8% 4.3% 5.8% 37.9% 7.0%

Hero Honda Bajaj Auto TVS Honda Scooters

20.9%

Yamaha Majestic Auto Others

23.3%

Source: SIAM

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7.1 BAJAJ AUTO

Company Description
Bajaj Auto is the second largest two wheeler manufacturer in India. Its product portfolio includes scooters, mopeds, motorcycles and three wheelers. An erstwhile scooter company, Bajaj Auto has reinvented itself by innovate its product portfolio to become the second largest motorcycle manufacturer in India. With the opening up of the insurance sector, the company has entered into joint venture agreements with Allianz AG, Germany.

Key Investment Arguments

The company has significantly increased its market share in the motorcycle segment by 380bp in FY07. With a strong portfolio of motorcycles, we believe Bajaj Auto will continue to benefit from the volume growth in the motorcycle industry.

Key Investment Risks

Increasing competition in the executive segment where Bajaj Auto is trying to gain a foothold with the Pulsar.

Recent Developments
Hero Honda has launched the SplendorNXG to compete with the Bajaj Pulsar. BAL is planning to launch the Pulsar 220cc, a new entry level bike.

Sector View
Numerous motorcycle launches will lead to an increase in competition.

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Capital market_______________________________________________________________ Despite a number of players, market share remains concentrated in the hands of the top two.

SPECIFICATION OF THE COMPANY

Registered Office Web site BSE Script Code NSE Script Code Face Value of Share 52 week H/L Mumbai - Pune Road, Akurdi Pune Maharashtra 411035 http://www.bajajauto.com 500490 BAJAJAUTOEQ Rs 10 Rs 3375 / 2058

Performance Graph of the Company

1200 1000 800 600 400 200 0 Apr-06 May- Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 06

Share Holding Pattern

Share Holding Pattern Promoters Institutional Investors Other Investor General Public % 29.80 25.92 17.36 26.92

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Financial Details
YEAR END FY 07 FY 08 E NET SALES (Rs M) 74494 92922 PAT (Rs M) 11016 12380 EPS (Rs) 105 122 EPS GROWTH (%) 6.5 16.2

In 4QFY07, Bajaj Auto reported Net Profit of Rs 2.6b (3% increase YoY), largely driven by higher sales and higher other income. Sales grew by 28% YoY to Rs 16.5b led by better product mix. The realization per unit for Bajaj Auto at Rs 38,910 (up 5.2% YoY and 11.3% QoQ) was the highest in the last several quarters. However, higher other expenditure resulted in only a 10 bp increase QoQ in EBITDA margin.

In FY07, the company grew its volumes by 42% in the motorcycles segment, resulting in a sales growth of 21% to Rs 59.3b. However, a significant fall in EBITDA margin and higher taxation led to a marginal 1% growth in PAT.

Volume Growth: Riding on Motorcycles

In 4QFY07, motorcycles continued to lead the growth. Overall volumes grew by 22% YoY, led by a 51% growth in motorcycle. Three wheelers witnessed the second consecutive quarter of de-growth, with sales dropping 11% YoY. Exports grew by 38% YoY, once again led by a 64% growth in motorcycles.

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Capital market_______________________________________________________________ In FY07, motorcycles accounted for the entire gains in volumes with a 42% YoY growth. Despite strong gains in this segment, de-growth in the other segments led to a 20% increase in volumes for the year.

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SALES IN UNITS
4Q FY 07 4Q FY 06 GR% Total Sales Motorcycles Scooters geared Scooters un-geared Step Through Total Two Wheeler 3 Wheelers Grand Total Exports Motorcycles Scooters 3 wheelers Total Exports 396107 20418 4971 4391 425887 53725 479 41050 2674 14814 548538 262893 49640 12039 8487 333059 60437 393437 25054 3157 14264 42485 51 -59 -59 -48 28 -11 22 64 -15 4 38 144967 3 102762 31084 19195 160271 4 221985 182469 9 42 -42 -43 -41 24 -3 20 FY 07 GR%

123950 50 6995 -5 65747 0 19692 20 Source: Company

Motorcycles

In 4QFY07, motorcycles grew by 51% YoY at 396,000 units. Growth was driven by an over 100% YoY increase in sales of the 150cc and above 180cc category (which includes the Discover and Pulsar).

In FY07, Bajaj Autos volumes have grown by 42% YoY in motorbikes, resulting in a market share gain of 380bp. Bajaj Auto ended the year with a market share of 27.1% in the motorcycle segment. The growth has been driven by pulsar 200cc and 220cc. Further growth will depend on the ramp up in volumes of the Pulsar, which currently accounts for only 8-10% of the executive level segment volumes. The

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Capital market_______________________________________________________________ executive level segment accounts for 55% of total sales; hence further growth will be determined by increased sales of this product.

7.2 MAHINDRA & MAHINDRA

Company Description
M&M is Indias leading UV and tractor manufacturer. Having successfully weathered the recent downturn in the tractor industry M&M is now well poised to benefit from the upturn. The company is now aspiring to be the leading Indian Utility Vehicle manufacturer providing high quality UVs at low costs.

Key Investment Arguments

The continued growth in the tractor sector will benefit M&M as it is the market leader. Increased focus by the government on rural spending in this budget will benefit tractor manufacturers. The companys increased focus on exports and the well acceptance of the Scorpio, despite strong competition from MNC players.

Key Investment Risks

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Capital market_______________________________________________________________ Numerous launches in the UV segment has lead to an increase in the competitive scenario Reports of increase in inventory pipeline in the current year are currently in line with increased sales, but need to be carefully watched.

Recent Developments
Mahindra has tied up with Renault for manufacturing the Logan from FY07

Valuation and View

We expect M&M to see 11% volume growth in UVs over FY07-09 and a 12% volume growth in tractors. M&M trades at a P/E of 10.6x and EV/EBITDA of 5x on standalone FY08 estimates. On a consolidated basis, the stock trades at 8.6x FY08. M&M remains the best bet in the sector, as valuations are at discount to its peers. We reiterate Buy with a target price of Rs 598.

Sector View
We remain bullish on the macro growth picture for passenger cars in India We also believe that within passenger cars, UVs will increase their market share consistently over the next few years Tractors are only in their first year of growth. We believe we are clearly in the early part of the cycle.

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SPECIFICATION OF THE COMPANY

Registered Office Web site BSE Script Code NSE Script Code Face Value of Share 52 week H/L Gateway Building, Apollo Bunder Mumbai Maharashtra 400001 www.mahindraworld.com, www.mahindra.com 500520 M&MEQ Rs 10 Rs 1001/ 494.60

Performance Graph of the Company

600 500 400 300 200 100 0 Apr- May- Jun06 06 06 Jul06 Aug- Sep06 06 Oct06 Nov06 Dec06 Jan07 Feb- Mar07 07

Share Holding Pattern

Share Holding Pattern Promoters Institutional Investors Other Investor General Public % 23.98 54.40 11.17 10.45

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Financial Details
YEAR END FY 07 FY 08 E NET SALES (Rs M) 66606 76219 PAT (Rs M) 4991 5876 EPS (Rs) 44.19 48.1 EPS GROWTH (%) 47.1 16.6

Mahindra & Mahindra's (M&M) net sales, EBITDA and net profit grew 27%, 23% and 32% in 4QFY07 to Rs 19.1b, Rs 2.1b and Rs 1.5b respectively, in-line with our expectation. EBITDA margins were impacted because of higher other expenses. Margins declined 40bp YoY and 90bp QoQ to 11% in 4QFY07. For FY07, M&Ms total income, EBITDA and net profit grew 45%, 42% and 52% to Rs 66.6b, Rs 7.7b and Rs 5b, respectively. All the subsidiaries of M&M showed good performance in FY07. Consolidated revenues, EBITDA and net profit grew 36%, 50% and 61% to Rs 95.7b, Rs 13.5b, and Rs 7.2b, respectively. The business outlook for M&M remains positive. M&M, with its rural-centric product line, will register a 12% YoY growth in tractor volumes over FY07-08E. We expect M&M to register 11% YoY volume growth in utility vehicles (UV) over FY0708, following a strong 23% growth in FY07. Moreover, exports of UVs and tractors and rise in three wheeler sales will provide additional growth drivers to the company. M&Ms net revenues increased 27% YoY to Rs 19.1b in 4QFY07 on the back of 19% volume growth. Tractors, UVs, and three-wheelers witnessed 12%, 17% and 35% YoY growth, respectively. LCVs saw a 6% decline over the same period. Net realization increased 5.5% on a YoY basis.

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SEGMENTAL BREAK UP OF REVENUES (Rs Mn)

Q4 FY07 Q4 FY06 %CH FY07 Automotive UV 32183 27474 2023 5152 34649 13914 48563 1761 50324 17 -6 35 18 12 17 82 19 11113 8 7887 22943 14196 8 60005 20197 3 8431 21040 4 91429 22 FY06 %CH

LCVs 1910 Three Wh. 6951 Total Automo. 41044 Tractors Total Exports Grand Total 15579 56623 3199 59822

7003 13 17347 32 11577 23 9 44807 34 16058 26 6 6375 32 16696 26 1 Source: Company

Strong Performance in FY07:

M&Ms net revenues increased 34% YoY to Rs 66.6b in FY07 on the back of a 26% volume growth. Tractors, UVs, three wheelers and LCVs witnessed 32%, 23%, 13% and 32% YoY growth, respectively. Net realizations increased 9% YoY. EBITDA margin expanded 60bp to 11.6% driven by strong cost management, robust volume growth and savings in staff and other expenses. M&M witnessed margin expansion of 280bp over FY05-07 due to a 26% CAGR in volumes. We expect margins to expand by 60bp in FY08 on the back of a 15% volume growth.

Valuation and View Passenger Vehicles

We expect the passenger vehicle demand to grow at a CAGR of 10% over FY07-09E driven by changing lifestyles, rapid growth in high-income earning households and vibrancy in the service sector. Lower vehicle prices resulting from cheaper finance rates, drop in excise duty and easy financing

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Capital market_______________________________________________________________ solutions will continue to be the catalyst for demand growth. The UV segment may outperform the passenger vehicle segment on account of improvement in road infrastructure and low penetration. M&M is best positioned to derive benefit on account of overall ramp up in product offerings. Today, M&M provides the full utility vehicle platform and has offerings for all segments taxi, semi urban, rural and urban. However, we believe the Innova, which was launched by Toyota, could put some pressure on Scorpios volumes in FY08. We expect M&M to register 11% YoY volume growth in utility vehicles (UV) over FY07-09, following a strong 23% growth in FY07.

TREND IN UTILITY VEHICLES

FY05 Utility Vehicles 6885 Growth (%) 8 22.0 FY06 9304 3 35.1 FY07 11418 FY08E 128457

4 22.7 12.5 Source: Company

Farm Equipment
The farm equipment segment (FES) is expected to continue its growth momentum in FY08. However, growth rates may slow down on account of higher base effect. Also, sharp correction in industry inventories (from 65 days in FY04 to 35 days in FY07) will support growth going forward. We believe M&M, with its rural centric product line, will capitalize on these trends and register a 12% YoY growth in tractor volumes over FY07-09E.

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TRACTORS DISPLAYING GROWTH

Tractors Growth (%) Source: Company FY05 4700 8 -19.0 FY06 4955 4 5.4 FY07 6539 0 32.0 FY08E 74541 14.0

Entry in Cars with the Renault Logan

The Mahindra-Renault joint venture have launched Sedan Logan in India in the first half of 2007. The low-end sedan, which was launched in Europe in June 2004, sports a price tag of US$ 6,100 for the base model in Eastern Europe. The car is targeted to sell 1m units per year by 2010 in seven regions across Eastern and Central Europe, Russia, the Middle East, Latin America, North Africa and Asia. The Logan has launched in India with 50% localized components initially and have be marketed under the Mahindra-Renault badge. The companies USP would be World class quality at an affordable price the car is expected to sell between Rs. 0.4- 0.5m which is comparable to its competitors Marutis Esteem and Tatas Indigo. The car is also expected to be available in the diesel version. Hence, Logan is expected to impress the market with its quality and affordability.

Outlook
The business outlook for M&M remains positive given the governments focus on the development of the rural economy. We remain positive on the demand scenario for tractors and UVs. We expect M&M, with its rural centric product line, to capitalize on these trends and register a 13% YoY growth in total volumes over FY07-09E.

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8.0 RECOMMENDATION
1. Focus on Companies not on Stocks
Many individual investors make the mistake of focusing on stocks and the stock market at the expense of focusing on the underlying companies. We know that sounds strange. But many people continue to ignore Mr. Buffets most important lesson: first analyze the business. The individual investor plays a dangerous game when he or she tries to divine whether a stock is going to go up or down next quarter. Its tough to do well, and even tougher to do consistently. Our opinion is the market offers no magic bullet or money machine. If you are a buyer, the best you can do is finding a good company with strong fundamental prospects that is currently undervalued or otherwise under-recognized. This brings up an important point there are many good companies, but not all are good investments. Were looking for (1) good companies at (2) the right price. A good company can be too expensive; and a bad company is never cheap enough. The problem with investing in good companies at the right price is you need patience. If you are being told that picking stocks is easy, think again. However, with the right team in your corner, the market can be beaten and money can be made.

2. Be Careful with the Power of the Market

Even if investors bought a good company that has good potential, they may still have a dog on their hands. The market has an ability to paint entire sectors with the same brush. These prolonged sector judgments can be very costly to investors if they dont account for them. Some reports suggest that selecting individual companies is barely important. In most cases, you are buying into a sector first and a company second. Context matters more than company particulars.

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Capital market_______________________________________________________________ For example, to have found Microsoft at its precious infancy, you would have had to first appreciate the enormous impact that the graphical user interface (GUI) was about to have on the world. (Remember when your computer was nothing more than a black screen and a command prompt?) When Microsoft was pushing Windows 3.0 over a decade ago, there were plenty of people in the industry who did not believe graphical user interfaces were going to amount to anything. If, at the time, you believed in the inevitable power of the GUI, Microsoft would have been a natural choice.

3. Know Your Time Limit

Risk and return are really important, but your most important point might actually be this: I am investing for how long. Your time horizon will determine your style in a big way. Day traders have very short horizons - they dont use fundamental analysis (nor do they need to). Many individual investors, whether or not they admit it, get caught up in gaming the next quarters earning surprise, and are therefore investing for about three months. Investing for the next quarterly surprise is a playable game, but investors should understand that they are competing against people who do it full time or who are very expert then them. Investors might be smarter, but they are trying to beat professionals who spend their whole week on a handful of stocks. They may move the market; they may know the people who move the market (for clarification institutions, not individuals, move the market). The short-term horizons are not bad, but an individual investor should realize they are playing a tough game. It may be wise to set a longer time frame and find good companies.

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4. Avoid Big Mistakes and Losses

At first glance, this is sound like common sense, but far too often investors simply do not practice the risk-mitigation tactic of avoiding big mistakes. Somewhat instinctively, investors seem to hunt for big game defending against losses. But, if investors can manage to avoid losses, they will really do wonders for their average. So, the investors portfolio should very defensive so that losses avoided.

5. Get the Proper Information

Be very careful about daily news. Most of it is noise. So, be careful in daily news and avoid noises so, think that how does this impact the fundamental prospects of the business. So, dont trust on that noise. All public companies issue press releases that are understandably favorable; some of the news you get is repeat from the press release. Much of the daily commentary that pushes through the media onto your television or newspaper is highly trendy commentators are finding patterns that do not really exist and turning tips into news flashes.

6. Recognize Your Limitations

The talking heads on cable television can seem amazing as they travel from analyzing biotech to financials to transportation to technology. The televisions are not experts in all subjects. So, know your limit. Investors start to believe in fantasy when they think they really know their companies. All good investors want to know as much as possible about their investments, but a company is an onion you can never fully peel. Every piece of information is valuable and if investors have it, the odds are tilted a bit in their favor, enhancing the hedge against failure. But, investor making an educated investment based on incomplete information.

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Capital market_______________________________________________________________ So, since investor cannot know everything and much of the market commentary is suspect. Look elsewhere and trust real experts. See what true industry experts say, what industry associations say, what customers say, what competitors say and so on.

7. Be Different
It has often been said that in order to make money investing investors need to be (1) correct and (2) contrary. Investors need to be correct no wonder some people think the market is efficient. In order to be contrary, investors have to embrace their uniqueness and play on a different field. This is not to say ignore fundamentals. Investors have to respect the foundation and the basic tools of analysis, but on top of that foundation, investors are better off approaching the market circumspectly. In other words, investors need to be somewhat suspicious of it. Anyone serious about research subscribes to industry journals. If investor interested in technology, read technology periodicals. If investor likes science, read up on science. This strategy means investor let the market turn on its endless recirculation of gossip while investor locate expertise that will help them find the growing companies worthy of their money.

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CONCLUSION
After the few years the India become the larger force in the world economy. The growth of the Indian economy is become the high which leads to the higher returns in the capital market. Indias constantly increasing growth attracting the FIIs interest in the Indian markets. There will be more and more capital flow from the developed countries in India through FIIs and FDI. India becomes the very powerful in the automobile sector because of the high growth in the automobile sector. From the suggestion the investors should be very cautious in terms of investing the money.

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BIBLIOGRAPHY

REFERENCE BOOKS
1. Cooper & Schindler RESEARCH METHODOLOFY Tata McGraw Hill, Eighth Edition. 2. I.M.Pandey FINANCIAL MANAGEMENT Vikas Publications, Ninth Edition. 3. V. K. Bhalla, INVESTMENT MANAGEMENT Seventh Edision.

WEB SITES
www.nseindia.com www.bseindia.com www.indinfoline.com www.moneycontrol.com www.business-standard.com www.rbi.org www.sebi.org

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GLOSSARY
LIST of ABBREVIATIONS
ADR BSE CDSL CM Co. DCA DEA DP FDI FI FII GDR NSCCL NSDL NSE OCB RBI SEBI T+2 T+3 T+5 UTI American Depository Receipts Bombay Stock Exchange Central Depositories Services Ltd. Capital Market Company Department of Company Affairs Department of Economic Affairs Depository Participant Foreign Direct Investment Financial Institution Foreign Institutional Investors Global Depository Receipts National Securities Clearing Corporation Limited National Securities Depository Ltd. National Stock Exchange Overseas Corporate Bodies Reserve Bank of India Securities and Exchange Board of India Second days from the trading day Third days from the trading day Fifth days from the trading day Unit Trust of India

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