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A STUDY ON RISK RETURN ANALYSIS OF SELECTED TELECOM COMPANIES AT HEDGE EQUITIES PVT. LTD.

, ERNAKULAM

SUMMER PLACEMENT REPORT


Submitted to

MAHATMA GANDHI UNIVERSITY, KOTTAYAM


In partial fulfillment of the requirement for the award of the

MASTERS DEGREE IN BUSINESS ADMINISTRATION (2011-2013)

BY AKASH V Registration No: 36095

RAJAGIRI SCHOOL OF SOCIAL SCIENCES RAJAGIRI P.O KOCHI-683104

DECLARATION
I, Akash V, Student of Rajagiri College of Social Sciences, Kochi, hereby declare that this project report titled A study on risk return analysis of selected telecom companies at Hedge Equities Pvt. Ltd., Ernakulam is an original work carried out by me for the partial fulfilment of the requirement for the award of Masters of Business Administration degree of Mahatma Gandhi University, Kottayam.

I also declare that this project is original and has not been previously submitted for the award of any degree, diploma or any other similar title of Mahatma Gandhi University or any other University or Institute.

Date: Place:

Akash

ACKNOWLEDGEMENT
I wish to express my sincere gratitude to the management and staff of the RAJAGIRI COLLEGE OF SOCIAL SCIENCES for providing me a wonderful opportunity to gain practical knowledge by including this project as a part of MBA curriculum.

I wish to thank Dr. Minimol.M.C for helping me by correcting and assisting in completing the project successfully.

Also reserved on priority are my special wishes and gratefulness to management and staff of Hedge Equities Ltd, Ernakulam for permitting and assisting me in the project. I would like to thank Mr. Benil Dani Alexander of Hedge Equities Ltd, Ernakulam, without his guidance this project would not have been possible.

SECTION I

PROFILE OF ORGANISATION

Executive Summary
Imagine being a part of an industry that has grown over twenty times in just ten years. The Telecom Industry of India has grown from under 37 million subscribers in the year 2001 to over 846 million subscribers in the year 2011. This portentous growth of the Indian Telecom sector in the past ten years has opened up numerous opportunities, with only traces of these being felt by rural India. The total telecom density of the country is about 71%, but only 33% of the rural India, which occupies over 70% of the countrys population, has realized the access and benefits of the industry. The beginning of the Indian Telecom Industry can be marked with the introduction of the Posts and Telegraphs Department in the year 1851. Real liberalization of the Telecom Industry started in the year 1981, when the then Prime Minister of India Indira Gandhi, joined hands with authorities in France to merge with the state owned telecom company, in an effort to set up five million lines per year in the country. The first mobile telephone service started on a non-commercial basis in Delhi in the year 1985 however, the idea of mobile communication did not take-off until the first National Telecom Policy (NTP), which was released in the year 1994. A New National Telecom Policy was implemented in the year 2011 and licenses for a new fourth generation (4G) spectrum are expected to be rolled by out by the year 2013. A detailed telecom timeline is illustrated in the report. The industry has been profitable and the revenue has never been better. The total revenue of the Telecom Services Sector went up from US$ 31,597 million ( 157,985 crore) in 2009-10 to US$ 34,344 million ( 171,719 crore) in 2010-11, indicating a growth of 8.69%. The revenue contribution from the public sector telecom companies in the year 2010-11 was 20.37% and 79.66% from private sector companies. The sector is expected to witness up to US$ 55.95 billion in investments and the market will cross the US$ 100 billion revenue mark in the next 5 years. The Supply Chain of the Telecom Industry in India is fairly linear, with telecom operators defining the quality, type of services and price. The flow of orders in the Supply Chain is bottom/top - coming from the customers and going through the operators, whereas, the flow of services is top/bottom - coming through operators and going to the customers. Apart from the telecom operators, the other key players in the industry are tower providers, equipment

distributors, telecom operators, and retailers. A comprehensive Supply Chain analysis of the Industry has been detailed in this report. The wireline segment of the industry has a high level of concentration, with BSNL accounting for over 72% of revenue. On the other hand, the industry concentration in the wireless segment is medium, with the top four companies in the segment sharing 68% of the revenue. India is a diverse nation; while some parts of the country are competing with the world, other parts are struggling to make ends meet. A reflection of this diversity can be seen in the telecom segmentation of the nation. States such as Punjab and Tamil Nadu are leveraging with a tele-density of over 80% whereas; states such as Chhattisgarh Jharkhand and some parts of North East India are perverted with a tele-density of less than 8%. This report provides a state-wise breakdown of the Geographical Segmentation of Telecom Industry of India. The report provides an analysis of the competition and the market share of the telecom operators. In a nutshell, the competition in the industry is moderate and the trend is increasing. The wireless segment has a healthy mix of competition, with players such as Bharti (Airtel), Reliance, Vodafone and Idea occupying almost an equal share of the pie and BNSL continuing to dominate the wireline market. Rural competition mirrors the overall segment, with Bharti leading the rural wireless segment and BSNL dominating the wireline market. The telecom sector is going through the growth stage of its life cycle, with penetration in the rural areas being one of the major areas of opportunity for the next five years. Until March 2006, the rural tele-density of the Indian telecom sector was just 1.86% which has increased to 33.79% in March 2011. In the next five years, all the major telecom operators will be focusing on leveraging the opportunities that lie thereabouts. Barriers to Entry in the telecom industry are high and steady and the level of tax burden is medium and stable. There is also a considerable amount of assistance provided to the industry and the trend has been increasing. The industry is highly regulated and the recent spectrum scam has only lead to an increased scrutiny. The Cost Structure analysis identifies high profit margins and major costs such as depreciation and network operations expense incurred by the operators. This further justifies the high Capital Intensity of the telecom industry. The report
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provides us an analysis on such factors which gives us an insight into the conditions of the telecom industry of India. The real question to ask is; has the Telecom Industry of India realised its complete potential? If it has not, then what is to unfold will not only change the great nation but also the world we live in.

1.1 INDUSTRY PROFILE A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded). Financial markets facilitate:

The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) Price discovery Global transactions with integration of financial markets The transfer of liquidity (in the money markets) International trade (in the currency markets

Capital market Capital market consists of primary market and secondary market . In primary market newly issued stocks are exchanged and in secondary market buying and selling of already existing bonds and stocks takes place.So ,the capital market can be divided into bond market and stock market.Bond market provides financing by bond issuance and bond trading.Stock market provides financing by shares or stock issuance and by share trading.As a whole,capital market facilitates raising of capital. Money market Money market facilitates short term debt financing and capital. The money market is a subsection of the fixed income market. Money market securities are essentially IOUs issued by governments, financial institutions and large corporations. These instruments are very liquid and considered extraordinarily safe. Because they are extremely conservative, money market securities offer significantly lower returns than most other securities. One of the main differences between the money market and the stock market is that most money market securities trade in very high denominations. This limits access for the
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individual investor. Furthermore, the money market is a dealer market, which means that firms buy and sell securities in their own accounts, at their own risk. Compare this to the stock market where a broker receives commission to acts as an agent, while the investor takes the risk of holding the stock. Another characteristic of a dealer market is the lack of a central trading floor or exchange. Deals are transacted over the phone or through electronic systems.

Derivatives market Derivatives market provides instruments which help in controlling financial risk. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage. The first leap towards an organized derivatives market came in 1848, when the Chicago Board of trade, the largest derivative exchange in the world, was established. Derivatives markets broadly can be classified into two categories, those that are traded on the exchange and the those traded one to one or 'over the counter'. They are hence known as:

Exchange Traded Derivatives OTC Derivatives (Over The Counter) OTC Equity Derivatives

The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities.

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Foreign exchange market Foreign exchange market facilitates the foreign exchange trading. The foreign exchange market (forex, FX, or currency market) is a form of exchange for the global decentralized trading of international currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system. Insurance market Insurance market helps in relocation of various risk. Insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice. The transaction involves the insured assuming a guaranteed and known relatively small loss in the form of payment to the insurer in exchange for the insurer's promise to compensate (indemnify) the insured in the case of a financial (personal) loss. The insured receives a contract, called the insurance policy, which details the conditions and circumstances under which the insured will be financially compensated.

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Commodity market Commodity market organizes trading of commodities. Commodity markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities standardized contracts. The trading of commodities consists of direct physical trading and derivatives trading. Exchange traded commodities have seen an upturn in the volume of trading since the start of the decade. This was largely a result of the growing attraction of commodities as an asset class and a proliferation of investment options which has made it easier to access this market. Commodity trading Spot trading is any transaction where delivery either takes place immediately, or with a minimum lag between the trade and delivery due to technical constraints. Spot trading normally involves visual inspection of the commodity or a sample of the commodity, and is carried out in markets such as wholesale markets. Commodity markets, on the other hand, require the existence of agreed standards so that trades can be made without visual inspection. Forward market A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today. The fixed price today is known as theforward price. Early on these forward contracts were used as a way of getting products from producer to the consumer. These typically were only for food and agricultural products. Futures contracts Futures contract has the same general features as a forward contract but is standardized and transacted through a futures exchange. Although more complex today, early forward contracts for example, were used for rice in seventeenth century Japan. Modern forward, or futures agreements, began in Chicago in the 1840s, with the appearance of the railroads. Chicago, being centrally located, emerged as the hub between Midwestern farmers and producers and the east coast consumer population centers.
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exchanges,

in

which

they

are

bought

and

sold

in

Hedging Hedging, a common practice of farming cooperatives, insures against a poor harvest by purchasing futures contracts in the same commodity. If the cooperative has significantly less of its product to sell due to weather or insects, it makes up for that loss with a profit on the markets, since the overall supply of the crop is short everywhere that suffered the same conditions.

Delivery and condition guarantees In addition, delivery day, method of settlement and delivery point must all be specified. Typically, trading must end two (or more) business days prior to the delivery day, so that the routing of the shipment can be finalized via ship or rail, and payment can be settled when the contract arrives at any delivery point. Stock exchange market A stock exchange is a form of exchange which provides services for stock

brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. History of stock market It has been suggested by Braudal about the History of Stock Market that during the 11th century in Cairo, the Jewish and Muslim merchants already had the notion of trade association and had setup all the methods of credit as well as payments. This claim though destroys the calls that the History of Stock Market originates with Italy. If we fall back upon the 12th century France it can be seen that the courtier change was worried about handling and regulating the debts on the banks behalf of the agricultural professions. As these men use to deal with debts they can also be called as originators of brokerage business in the History of Stock Market. During the end of 13th century traders of Bruges commodity accumulated inside the house of a native named Van der Beurse. During the early 14th century they came to be known as the Brugse Beurse. These people institutionalized their gatherings, which were known to be an informal meeting until then. This concept did spread

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at a rapid pace around the European nations and neighbouring countries. In the countries like Amsterdam and Ghent its branches known as Beurzen opened. During the middle of 13th century the bankers of Venice started trading in government securities. At this very time the government of Venice outlawed airing bruits which were intentionally used to lessen the price of governmental funds. The bankers from Florence, Verona, Genova during the 14th century also started trading with government securities. It were the Dutchs in the History of Stock Market who inaugurated the concept of joint stock exchanges which led the people to buy shares and become share holders and invest money in various businesses and get their part of profit and loss. The Dutch East India Company in the year 1602 brought out first shares on the Stock Exchange of Amsterdam and it was also the first Stock Exchange to bring out bonds and shares in the history of Stock Market. The Stock Exchange of Amsterdam is also known to be the first stock exchange in the History of Stock Market to inaugurate continuous trade during the early part of 17th century. There are Stock Markets in virtually every part of the world at this moment. Some of the important stock markets are located in United States, United Kingdom, India, China etc.

Major stock exchanges in various countries over the world are as follows: o American Stock Exchange o Australian Stock Exchange o Colombo Stock Exchange o Chicago Stock Exchange o Dhaka Stock Exchange o Hong Kong Stock Exchange o Jakarta Stock Exchange o Jamaica Stock Exchange o Kuwait Stock Exchange o London Stock Exchange o Nigerian Stock Exchange o New York Stock Exchange o Philippines Stock Exchange o Singapore Stock Exchange o The National Stock Exchange of India o Toronto Stock Exchange

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1.1.1 Indian Stock Exchanges An Umbrella Growth Stock Exchange means anybody of individuals whether incorporated or not, consolidated for the purpose of assisting, regulating and controlling the business of buying, selling and dealing in securities. It is a market where stocks, shares and other securities are bought and sold and also to provide avenue for disposal of securities when the owners feel like. It is an essential component of the economy and indispensable for the proper functioning of corporate enterprises. In general, the financial market is divided into two parts, Money Market and Capital Market. Securities market is an important, organised capital market where transaction of capital is facilitated by means of direct financing using securities as a commodity. Securities market can be divided into primary market and secondary market.

The working of stock exchanges in India started in 1875. BSE is the oldest stock market in India. The history of Indian stock trading starts with 318 persons taking membership in Native Share and Stock Brokers Association, which we now know by the name Bombay Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the Government of India. National Stock Exchange comes second to BSE in terms of popularity. BSE and NSE represent themselves as synonyms of Indian Stock Market. The history of Indian Stock Market is almost the same as the history of BSE. The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled based on the performance of the stocks of 30 financially sound benchmark companies. In 1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000 figures in 1992. The up-boat mood of the market was suddenly lost with Harshad Mehta scam. It came to public knowledge that Mr. Mehta, also known as the big bull of Indian stock market diverted huge funds from banks through fraudulent means. He played with 270 million shares of about 90 companies. Millions of small scale investors became victims to the fraud as the Sensex fell flat shedding 570 points.

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To prevent such fraud the Government formed The Securities and Exchange Board of India, through an act in 1992. SEBI is the statutory body that controls and regulates the functioning of stock exchanges, brokers, sub-brokers, portfolio managers, investment advisors etc. SEBI oblige several rigid measures to protect the interest of investors. Now with the inception of online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI. Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was crossed in June and the 8000 mark in September 8 in 2005. Many Foreign Institutional Investors (FII) are investing in Indian stock markets on a very large scale. The liberal economic policies pursued by successive Governments attracted Foreign Institutional Investors to a large scale. Experts now believe that the Sensex can soar past 20000 marks very soon. The unpredictable behaviour of the market gave it a tag a volatile market. The factors that affected the market in the past were good monsoon, Bharatiya Janatha Partys rise to power etc. The result of a cricket match between India and Pakistan also affected the movements in Indian stock markets. The National Democratic Alliance led by BJP, during 2004 public elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out of power and the Sensex recorded the biggest fall in a day amidst fears that the CongressCommunist coalition would stall economic reforms. Later Prime Minister Man Mohan Singhs assurance of reforms with a human face cast off the fears and market reacted sharply to touch the mark of 8500. India, after United States hosts the largest number of listed companies. Global investors now ardently seek India as their preferred location for investment. Once viewed with scepticism, stock market now appeals to middle class Indians also. Many Indian working in foreign countries now divert their savings to stocks. This recent phenomenon is the result of opening up of online trading and diminished interest rates from banks. The stock brokers based in India are opening offices in different countries mainly to cater the needs of Non Resident Indians. The time factor also works for the NRIs. They can buy or sell stocks online after returning from their work places. The bullish run of the stock market can be associated with a steady growth of around 6% in GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of telecommunication, mass media, education, tourism and IT sectors backed by economic reforms ensure that Indian stock market continues its bull run.
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Primary Market The primary market is that part of the capital market that deals with the issue of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issue to investors is called underwriting. In the case of a new stock issue, this sale is an Initial Public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary market creates long term instruments through which corporate entities borrow from capital market. Features of primary market: This is the market for new long term equity capital. This primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM) In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issue new security certificates to investors. Primary issue are used by companies for the purpose of setting up new business or for expanding or modernising the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loan from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as gong public. The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are: Initial public offering Right issue ( for existing companies) Preferential Issue

Secondary Market
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The secondary market is an ongoing market, which is equipped and organised with a place, facilities and other resources required for trading securities after their initial offering. It refers to a specific place where securities transaction among many and unspecified persons is carried out through intermediation of the securities firms, i.e. a licensed broker, the exchanges, a specified traditional organisation in accordance with the rules and regulations established by the exchanges.

With regard to the history of stock exchanges, they say it was under a tree when it was started back in the year 1875. Bombay Stock Exchange (BSE) was the major exchanges in India till 1994. National Stock Exchange (NSE) started operations in 1994. NSE was floated by major banks and financial institutions. It same as a result of Harshad Mehta scam of 1992. Contrary to popular belief the scam was more of a banking scam than a stock market scam. The old methods of trading in BSE were people assembling on what was called a ring in the BSE building. They had a unique language to communicate apart from all the shouting. Investors were not allowed access and the system was opaque and misused by brokers. The shares were in physical form and prone to duplication and fraud.

NSE was the first stock exchange to introduce screen based trading. BSE was forced to follow suit. The present day trading platform is transparent and gives investors prices on a real time basis. With the introduction of depository and mandatory dematerialisation of shares chances of fraud reduced further. The trading screen gives top 3 buy and sell quotes on every scrip. A typical trading day starts at 10 and ends at 3:30 during week days. BSE has 30 stocks which makes the Sensex. NSE has 50 stocks in its index called Nifty. FIIs, banks, financial institutions and mutual funds are biggest players in the market. Then there are the retail investors and speculators. The last ones are the ones who follow the market from morning till evening. Market can be very addictive like blogging through stakes are higher in the former. 1.1.2 Origin of Indian Stock Market The origin of stock market in India goes back to the eighteenth century when long term negotiable securities were first issued. However for all practical purposes, the real beginning
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occurred in the middle of nineteenth century after the enactment of the Companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities. An important early event in the development of stock markets in India was the formation of the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in Ahmedabad (1894), Calcutta (1908) and Madras (1937). In addition, a large number of ephemeral exchanges merged mainly in buoyant periods to recede into oblivion during depressing times subsequently. Stock exchanges are intricacy inter-woven in the fabric of a nations economic life. Without a stock exchange, the saving of the community the sinews of economic progress and productive efficiency would remain underutilised. The task of mobilisation and allocation of savings could be attempted in the old days by a much less specialised institution than the stock exchanges. But as business and industry expanded and the economy assumed more complex nature, the need for permanent finance arose. Entrepreneurs needed money for long term whereas investors demanded liquidity the facility to convert their investment into cash at any given time. The answer was a ready market for investments and this was how the stock exchanges came into being. Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include: a. Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; b. Government securities; and c. Rights or interest in securities The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two primary exchanges in India. In addition there are 22 Regional Stock Exchanges. However the BSE and NSE have established themselves as the two leading exchanges and account for about 80 percent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased form Rs. 851 crore in 1997-98 and further to Rs. 2273 crore in 1990-2000 (April August 1999).
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NSE has around 1500 shares listed with a total market capitalization of around Rs. 9, 21,500 crore. The BSE has over 6000 stock listed and has a market capitalization of around Rs. 9, 68,000 crore. Most key stocks are traded on both the stock exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerised mode of trading known as BOLT (BSE Online Trading) and NEAT ( National Exchange Automated Trading) system. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency; the scrips traded on BSE have been classified into A, B1, B2, C, F and Z groups. The A share represents those, which are in the carried forward system (Badla). The F group represents the debt market (fixed income securities) segment. The Z group scrips are the blacklisted companies. The C group covers the odd lot securities in A, B1 & B2 groups and rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd. 1.1.3 Brief History of Stock Exchanges The worlds foremost marketplace, New York Stock Exchange (NYSE), started its trading under a tree ( now known as 68 Wall Street) over 200 years ago. Similarly, Indias premier stock exchange Bombay stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association. News on the stock market appears in different media every day. We hear about it every time it reaches a new high or new low, and we also hear about it daily in statem ents like The BSE sensitive Index rose 5% today. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges? Known also as the stock market or bourse, a stock exchange is an organised
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market place for securities (like stock, bonds, options) featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors. The exchange makes buying and selling easy. For example, we do not have to really go to an exchange, say, BSE we can contact a broker, who does business with the BSE, and he or she will buy or sell his stock on our behalf. Trading Pattern of the Indian Stock Market Trading in Indian Stock Exchange is limited is limited to listed securities of public limited companies. They are basically developed into two categories namely, specified securities (forward list) and non specified securities (cash list). Equity shares of dividend paying, growth oriented companies with a paid up capital of at least Rs. 50 million and market capitalization of at least Rs. 100 million and having more than 20,000 shares are normally put in the specified group and balance in non-specified group. Two types of transactions can be carried out on the Indian Stock Exchanges Spot delivery Transaction For delivery and payment within the time or on the date stipulated when entering into the contract which shall not be more than 14 days following the date of the contract. Forward Transaction Delivery and payment can be extended further by a period of 14 days each so that the overall period does not exceed 90 days from the contract. The latter is permitted only in the case of specified shares. Stock Exchanges in India National Stock Exchange (NSE) National Stock Exchange (NSE) of India commenced its operation in the Indian Capital Market on 3rd November 1994 in Mumbai. The recommendations of Pherwani committee led to the beginning of NSE.

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Players in NSE Trading members Participants The recognised members of NSE are called trading members who trade on behalf of themselves and their clients. Participants include trading member and large players like bank who take direct settlement responsibility.

Promoters of NSE IDBI, ICICI, LIC, GIC, SBI, Canara Bank, Corporation Bank, Indian Bank, Orient Bank of Commerce, Union Bank of India, Punjab National Bank, Infrastructure leasing and financial services and SBI. Trading system of NSE The software used in the NSE trading system is known as National Exchange for Advanced Trading. The trade takes place through computers. The trading members computer is connected with the central computers at the NSE through leased lines and VSAT. The price at which the buyer and the seller are willing to transact will appear on the screen. When the price match the transaction will be completed and a confirmation slip will be printed at the office of the trading member. OTC Exchange of India (OTCEI) The OTC e of India (OTCEI) has been setup to provide a cost effective and convenient plat forms for raising finance from the capital market. OTCEI was promoted by a consortium of financial institutions sated its operations in 1992. It is a ring less, electronic, nation wider stock exchange committed to providing entrepreneurs with a smooth economical vehicle for going public and investors with a fair, sable and efficient market. Thus the OTCEI brings investors and promoters closer together. Bombay Stock exchange (BSE) The stock exchange, Mumbai is popularly known as BSE. It is oldest one in 1875 as The Native Share and sock Brokers Associations of People (AOP) and is engaged in the process
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of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country to have obtained. Permanent recognition in 1956 from the Govt. of India under the securities contracts (Regulation) Act, 1956. Market Size and Characteristics: The Indian retail brokerage is showing phenomenal growth. The total trading volume of brokerage companies has increased fromUS$1239.1 billion in 2004 to US$1492.1 billion in 2005, and is expected to reach US$6535.7 billion by 2015. Some of the main characteristics of the brokerage industry include growth in e-broking; growing derivatives market, decline in brokerage fees etc. Today, as per NSDL statistics, we have only 2.4million investors with demat account in the country. Considering various investor combinations that are holding accounts, we can presume the country has roughly 5-7.5 lakh active investors now. This figure is unbelievably small compared to the potential number of investors, which is anything between 200 million and 250 million. When we take into consideration the way transaction risk and cost in the Indian capital market is coming down, there will be a massive surge in the number of investors and also in volumes. The only way to manage this kind of potential growth is to adopt state-of-the-art trading techniques. The growth of the Internet-based trading as a mass trading technique in the country is unstoppable, going by the indicators available and the signals for the future. When it ultimately gathers momentum, the biggest beneficiary will be the investor, who will be able to trade with greater speed and transparency, and at lower costs. Major players in Indian share broking industry are follows ICIC Securities Ltd. Kotak Securities Ltd Indiabulls Financial Services Limited India Infoline IL&FS investmart Limited SSKLI Ltd. Motilal Oswal securities
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Fortis Securities Karya securities Geojit BNP Paribas HDFC Securities Hedge equities JRG Securities India Infoline

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1.2 COMPANY PROFILE Hedge equities ltd is one of the leading retail stock broking house which is running successfully in the country. Hedge offers its customers a wide range of equity related services including trade execution on BSE,NSE, derivatives, depository services, online trading, investment advice etc. The firm has online trading and investment site-

www.hedgeequities.com. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has registered base of over thousands of customers. The content rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisions and to simplify the process of investing in stocks. Hedge equities have always believed in investing in technology to build business. About Hedge Equities Hedge equities is one of the leading Financial services company in India, specialized in offering a wide range of financial products, tailor made to suit individual needs. As a first step to make their presence Global, Hedge equities have initiated operations iin Middle East to cater to the vast Non Resident Indian (NRI) population in that region. Ever since their inception, they have spanned their presence all over India through their Meticulous Research, High Brand awareness, Intellectual Management and Extensive Industry knowledge. Hedge believe in creating a new breed of investors who take judicious decisions through them. Team Hedge is a balanced mix of more than 15 years experience cutting across various industries with a strong background in the financial markets. The board comprises of six power houses in their respective fields- FedEx Securities, Baby Marine Exports, Thakker Developers, Smart financial, SM Hedge (CFO, Videocon Industries) and Padmasree Mohan Lal. FedEx Securities Managed by a team of ex-bankers, FedEx is a SEBI registered category I merchant banker. The company concentrates on non fund based activities like structuring, tie up of project financing, financial restructuring, investment banking, corporate and advisory services. The core management team consists of bankers with rich experience of decades and exposure to
26

volatile situations in commercial and investment banking. With offices at Nariman point and Vile Parle East, Mumbai, state of the art infrastructure and qualified manpower to conduct the business, FedEx Securities envisages phenomenal growth in this sector of clients.

Baby Marine Exports Baby Marine Group, started its operations in 1977 from Kozhikode and through innovation and hard work has grown into three units and related industries spanning both the west and east coast of Indian. Baby Marine Exports, B.M products, and Baby Marine (Eastern) Exports are efficiently aided by pre processing units, ice factories and a fleet of insulated and refrigerated trucks for sea food transportation. Due to constant upgrading of machinery, statement of the art infrastructural facilities, better links with raw materials suppliers, and an established network of purchasers have obviously made Baby Marine Group a leading Exporter of processed marine products to various international markets. Smart Financial Smart Financial entered the financial market only in 1992 but over this brief span has covered a niche for itself by becoming leading financial service provider. The company offers guidance to investors as to equities, commodities, mutual funds, portfolio management services and insurance. It offers complete range of every sphere of life. Thakker Group Starting of as a land developer and builder in 1962, Thackers group diversified into commercial production of agricultural and horticultural products, housing real estate marketing, plantations etc. They have provided shelter to more than 40000 families by offering residential plots and premises. A Thakker developer is the flagship company of the group. It was established as private limited in 1987 and later went on to become the only public limited company in North Maharashtra engaged in housing, commercial construction and land development. financial solutions that encompasses

27

S. M. Hedge Mr S. M. Hedge, a chartered accountant by profession is the Chief Finance Officer of the Indian Multinational Videocon International and has been at the helm of affairs for the last 20 years. Padmashree Bharat Mohanlal Mohanlal, the south Indian movie superstar has become a legend, a brand and cultural ambassador owing to various factors. Versatility and a natural flair for donning complex characters have won him numerous accodales not to speak of some unforgettable films contributed by him. A multifaced personality, he has some business ventures also which include Vismaya Max Film Post production studio, college for dubbing artists at the Kinfra fil and video park, Trivandrum. He is also the director of Uni Royal Marine Exports; a Kozhikode based major Seafood Export Company. Intelllectual and knowledge arbitrage is the face of modern day business. The same holds true for the financial markets. With the breathy and depth of knowledge of modern day business that the board of hedge brings to the table, you can be rest assured that some of the business minds in the business are taking care of your investments.

Mission To create an ethical and sustainable financial services platform for our customers and partner them to build business, to provide employees with meaningful work, selfdevelopment and progression, and to achieve a consistent and competitive growth in profit and earnings for our shareholders and staff. Vision Ever since its inception, Hedge equities has been a household name among the masses owing our success to timely Professional financial assistance to our clients. This aptly articulates our vision of Evolving into a financial supermarket which will be a one stop shop for all financial solutions.

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1.2.1 Hedge School of Applied Economics Hedge Equities initiates Hedge School of Applied Economics with the sole objective of moulding highly qualified investment professionals in the state. It is infact a company itself floated by Hedge Equities with the parent holding cent percent stake. It is a knowledge initiative of hedge Equities. The initiative has now developed into a movement imparting financial freedom at individual and organisational level and thus building a financially strong India. Through the various activities of Hedge School, they facilitate the students, youths and new investors who wish to explore career as well as investment opportunities in the sector. It offers a set of structured courses which enables the incumbents to build a better career in the financial industry and take informed investment decisions. Courses Offered: Financial market Participant Module(FMPM) FMPM New Investors Module NCFM Preparatory Project Study Guidance Social Corporate Responsibility Being a responsible corporate citizen, Hedge equities has initiated a non-profit movement, Hedge Yuva, which focuses on educating the masses about Stock Market. The movement has also formulated various scholarship programs for young and dynamic youth. Services Offered Online trading Hedge equities has a large network of branches with online terminals of NSE and BSE in the capital market and Derivative segments. The clients are assured of prompt order execution through dedicated phones and expert dealers at our offices. Internet Trading Hedge equities offers internet trading through their site. One can trade through the internet from the comforts of your office or home, anywhere in the world. The dedicated IT

29

systems ensure service up time and speed, making internet broking through Hedge equities hassle-free. Using the easiest facility provided by NSDL, our clients can transfer the shares sold by them online without delivery instruction slips. Additionally, digitally signed contract notes can be sent to clients through E-mail. Depository Services Hedge offers trading in the futures and options segment of the National Stock Exchange (NSE). Through the present derivative trading an investor can take a short term view on the market for up to a three months perspective by paying a small margin on the futures segment and a small premium in the options segment. In the case of options, if the trade goes in the opposite direction the maximum loss will be limited to the premium paid. Knowledge Centre Knowledge centre activities are intended to provide systematic and structured services mainly to new investors and also to young aspirant aiming for a career in financial markets. The centre has three functional areas: the publication division, the training center, and wealth management advisory service which provides complete investment solutions to investments through knowledge based personalized services. Equity Research Hedge equities constantly strive to deliver insightful research to enable pro-active investment decisions. The research department is broadly divided into two divisions- Fundamental Analysis Group (FAG) and Technical Analysis Group (TAG) . Our fundamental analysts are continuously scanning the entire economy for discovering what they call the hidden gems in stock market terminology and present it to our clients for profitable investments. A good fundamental analysis team has the capability to identify emerging businesses before such businesses become the talk of the street and we are proud to say we have one such fundamental analysis team. Timing the market has always been the most difficult task for all analysts and our Technical Analysis Group has merged to predict the market movements well in advance using complex analytical methods including Elliot Wave Theory. We are equipped with cutting-edge technologies for technical charting which assist our technical

30

analysts to predict both upside and downside movements efficiently for the benefit of our clients. Portfolio Management Services (PMS) Hedge equity is a SEBI-approved portfolio manager offering discretionary and nondiscretionary schemes to its clients. Hedge equities portfolio management team keeps track of the markets on a daily basis and is exposed to a lot of information and analytic tools which an investor would not normally have access to. Other technicalities pertaining to shares like dividends, rights, bonus, buy-back, Mergers and Acquisitions and are also taken care of by us. Maximize your returns by opting for our PMS scheme. Commodity Trading One can trade in futures like gold, silver, crude oil, rubber etc and take advantage of the extended trading hours (10 am to 11 pm) in commodities trading. Mutual Funds, Bonds etc Hedge equities also offer Mutual funds and bonds. One can select from a wide range of Mutual funds and bonds available in the market today. Currency Trading Currency derivatives can be described as contracts between the sellers and buyers, whose values are to be derived from the underlying assets, the currency amounts. These are basically risk management tools in force and money markets used for hedging risks and act as insurance against unforeseen and unpredictable currency and interest rate movements. Any individual or corporate expecting to receive or pay certain amounts in foreign currencies at future date can use these products to opt for a fixed rate- at which the currencies can exchanged now itself. Currency derivatives serve the purpose of financial risk management encompassing various market risks. An upfront premium is payable for buying a derivative. Currency6 futures will bring in more transparency and efficiency in price discovery, eliminate counterparty credit risk, provide access to all types of market participants, offer standardized products and provide transparent trading platform. Competitors
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Geojit BNP Paribas JRG Securities Religare Karvy Stock Brokers Muthoot Securities Sharewealth Motilal Oswal Anandrathi

1.2.2 Functional departments


Client relation Department The client relation department assists the client or customer to open an account in Hedge equities. This department is also known as the front office. A client has to open two types of accounts to trade and own securities in the NSE & BSE. They are: Finance Department Thus a department, to organize financial activities may be created under the direct control of the board of directors. Finance manager will decide the major financial policy methods. Lower levels can delegate the other routine activities. Marketing Department The major functions of marketing department are: a) Business associate development: the company takes up the marketing activities of the various branches . It ensures an efficient marketing arena at its various branches. The company encourages better relations in its branches and promotes for the development of various marketing strategies. b) Brand promotion: An important function of marketing department is to promote the name of the company. Hedge equities do it through the different promotional activities. The name of Hedge equities as a stock broking firm is made known to the outside world.

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c) Investment promotion: The main clients of Hedge equities were its investors. Hence the marketing department tries to capture as many as possible to encourage them to invest. d) Delivery promotion: Intraday trading is not always profitable and might involve a lot of risk hence Hedge equities promotes for delivery where the shares are kept to be sold for a later date after analyzing the profitability factors. Systems Department The systems department is playing a vital role in the day to day operations of the company. It is through the systems department that the clients can avail the facilities of Internet trading. Optic fibre cables and high bandwidth connections from the Hedge equities office to the ISP, a dedicated server and back-up ISDN connections were maintained directly by the systems department. For the purpose of trading they have made use of two software namely ODIN (Open Dealers Integrated Network) Human resource Department Human resource is often considered as the back of an organization even in this age of advanced automation & mechanization. Since virtual organizations are not very much popular in our part of the world, it is very important to any organization to have a HR department. The presence of an excellent HR department increases the efficiency of an organization considerably. Human resource management is defined as asset of practices, policies and programmes designed to maximize both personal and organizational goals. a) Training & Induction The selected employees will undergo three days continuous induction. During this period, he will undergo training with all the department of Hedge equities. There will also be classroom induction also within three months. b) Wages and Salary Administration The wages and salaries of the employees were fixed and granted by the HR department with consent of the finance department c) Performance appraisal It was human resources department which gives the promotions to all employees, making transfers and taking disciplinary actions if needed.
33

D) Grievance Handling The grievances of the employees were received only through proper channels i.e, through the particular department heads. The HR department will make as per the rules and regulations of the company. Trading Department The department deals with the trading related activities of the company. The trading refers to the buying & selling of shares. This department is the most important part of the Organization. There are two types of trading. They are: a)Online Trading These are the trading terminal of the organization. The each computer of the department is termed as trading terminal. The each terminal is assigned with NCFM certified dealers, who is in charge of each portal will do the trade according to the client request. The terminal is managed by either NEAT (National Exchange for automated trading) software or ODIN (Open Dealers Integrated Network) software. The client can also place his through written request or through the telephone, in this the order will be placed by the dealer. b) Internet Trading The internet trading is a facility provides by the company in order to trade the securities from his convenient place like his office, home etc, the order will be placed by the client itself, and he can make changes before the trade is done for changing the price, cancellation of the order. Delivery & Depository Department Delivery refers to the shares that bought on a particular day are not sold on that day itself and holding of the shares for an appreciation in the value of the security and to trade it on a future date. Deliver instruction slip: it is a slip the client should fill and gave to the dealer regarding the purchase of the share. There are two procedures to move the shares namely, a)Power of attorney

34

This is which the client signs at the time of opening a trading account and depository participant account. If the client has given the power of attorney, HEDGE EQUITIES (P) LTD will have the power to transact the clients stocks without pay-in slips. b) Easiest It is secured internet enabled service which means Electronic Access to Securities information and Execution of Secured Transaction. This is facility where in the clients can give delivery instructions via internet. Easiest is a facility provided by CDSL. The activities related with the depository department. Depository function Dematerialization Pledging

Equity Research Department The function of the department is to study the details regarding the share or security and to make predictions regarding the future performance of the company. The types of approaches done in the department a) Fundamental analysis b) Equity Analysis

There are five analysts in the department. The fundamental analysts are continuously scanning the entire economy for discovering what they call the hidden gems in stock markets terminology and present it to the clients for profitable investments. Timing the market has always been the most difficult task for all analysts and their Technical Analysis Group has emerged to predict the market movements well in advance using complex Analytical methods. They are equipped with cutting-edge technologies for technical charting which assist the technical analysts to predict both upside and downside movements efficiently for the benefits of clients.

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1.2.3 Research Department Structure and Functions


(Head Research (Sr. & Strategies) Fundamental Analyst) (Fundamental Analyst) (Economic Fundamental Analyst) & (Sr. Technical

Analyst)

Controlling Department

the Fundamental analysis report

Fundamental and analysis report

Company results Intraday and & news tracking calls

stock

Morning report- Company results Company results Company video and tracking news and tracking news snippets (prep/updates)

Intraday futures calls

Data mining

Research presentations

Derivative reports

Fundamental analysis report and

Position calls

Customer

Company

Research presentations

Research presentations

Daily report

technical

portfolio review snippets on request (prep/updates)

Mentoring team Marketing members reports

of Company snippets (prep/updates)

Daily economic Investor meets & report branch visits

Attending management meetings

MISperformance calls

Marketing of reports

of Economic news Chat system- for track and reports query handling

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Presentation group circles

to Auto

monthly Daily (oversight)

report Daily report

currency

investor sales report

Articles in Ohari magazine

Investor meets & Tracking branch visits international markets

Articles and data input to medias (TV Channels,

Daily commodity report

Newspapers, Magazines)

Investor meets & branch visits

Tracking international commodity markets

Preparing special commodity reports

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SECTION II

PROBLEM CENTERED STUDY

38

CHAPTER I PROBLEM FORMULATION

39

Title of the study:


A study on risk return analysis of selected Telecom companies at Hedge Equities Pvt. Ltd., Ernakulam.

Statement of the problem:


The Indian telecom sector has achieved a phenomenal growth during the last few years, telecom sector has continued to emerge as the prime engine of economic growth, contributing to nearly 2.3% of the Indian GDP. Indias teledensit y has improved from under 4% in March 2001 to around 73.07% by the end of January 2013. The mobile subscriber base has growth from under 41 million at the end of March 2000 to touch 893.15 million at the end of January 2013. In this situation, this study aims to analyze risk return and financial performance of companies in telecom services sector is suitable for investment. And provide suggestion based on this analysis.

Need of the study:


Investment decisions are influenced by various motives. Some people invest in a business to acquire control and enjoy the prestige associated with it. Some people invest in expensive yachts and famous villas to display their wealth. Most investors however are largely guided by the pecuniary motive of earning a return on their investment.

Relevance of the study:


ROE is important to every organization: for-profit, not-for-profit, educational

Institutions, government agencies, and more. There are variations in how they define value, however, all organizations want value for the investments they make. What makes ROE important is it provides leaders with an important way of deciding in which programs to invest and which programs to delay or reject.

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CHAPTER II RESEARCH PROCESS

41

Objectives of the study:


1. To analyze risk return relation of selected companies of telecom service sector. 2. To suggest/recommend the best company out of selected companies. 3. To make suggestions and recommendations based on analysis.

Scope of the study:


The scope of the study is confined to only five selected companies viz. Bharti Airtel, MTNL, Idea cellular, RCOM and TATA Communications Ltd., of telecom service sector of India.

Research Methodology:
This project is based on exploratory research with both qualitative analysis as well as quantitative analysis. The research methodology adopted is based on secondary data. The various sources include: Internet Share prices of different NSE index companies Information provided by Hedge Equities Pvt. Ltd Articles

Tools for data collection:


The tools used for analysing the risk and return of five companies are as follows: Capital yield Current yield Rate of return Beta Standard deviation

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CHAPTER III PRESENTATION AND ANALYSIS OF DATA

INTRODUCTION
Most of the telecommunications forms in India are as prevalent or as advanced as those in modern Western countries, and the system includes some of the most sophisticated
43

technology in the world and constitutes a foundation for further development of a modern network. Telecom Regularity Authority of India (TRAI) is the sole authority empowered to take binding decisions on fixation of tariffs for provision of telecommunication services. India has the world's second largest mobile phone users with over 903 million as of January 2012. It has the world's third largest Internet users with over 121 million as of December 2011. India has become the world's most competitive and one of the fastest growing telecom markets. Key developments Telecom Regulatory Authority of India (TRAI) has revealed that the country's mobile subscriber base has increased from 893.84 million in December 2011 to 903.73 million in January 2012 Telecom operators added 9.88 million mobile subscribers in January 2012 The overall tele-density reached 77.57 per cent Broadband subscriber base increased from 13.30 million at the end of December 2011 to 13.42 million at the end of January 2012 Telecom users in rural areas have grown at a faster pace compared to their urban counterparts in the last five years, a CAG report said India added around 20 million subscriptions of the estimated 140 million net additions in mobile subscriptions across the world during the April-June quarter in 2012, said a report by Ericsson The Indian telecom sector is a very capital intensive sector and involves high value investments. Correspondingly, the mobile phone industry is also experiencing a parallel upward surge, and a parallel enhancement in technologies used. With the liberalization of the Indian economy, the telecom sector has become very attractive for mergers and acquisitions latest being SingTel increasing its stake in Bharti telecom.

I.

BHARTI AIRTEL

Bharti Airtel Limited is a leading global telecommunications company with operations in 20 countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks
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amongst the top 4 mobile service providers globally in terms of subscribers. In India, the company's product offerings include 2G, 3G and 4G wireless services, mobile commerce, fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including national & international long distance services to carriers. In the rest of the geographies, it offers 2G, 3G wireless services and mobile commerce. Bharti Airtel had over 269 million customers across its operations at the end of March 2013.

II.

IDEA CELLULAR

Idea Cellular is an Aditya Birla Group Company, India's first truly multinational corporation. Idea is a pan-India integrated GSM operator offering 2G and 3G services, and has its own NLD and ILD operations, and ISP license. With revenue in excess of $4 billion; revenue market share of nearly 15%; and subscriber base of over 121 million in FY 2013, Idea is Indias 3rd largest mobile operator. Idea ranks among the Top 10 country operators in the world with a traffic of over 1.5 billion minutes a day. Ideas robust pan-India coverage is built on a network of over 100,000 2G and 3G cell sites, spread across over 55,000 towns in India. Using the latest in technology, Idea provides world-class service delivery through the most extensive network of customer touch points, comprising of nearly 4,500 exclusive Idea outlets, and over 7,000 call centre seats. Ideas customer service delivery platform is ISO 9001:2008 certified, making it the only operator in the country to have this standard certification for all 22 service areas and the corporate office. Idea is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) in India.

III.

MTNL

MTNL was setup on 1st April, 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India is key metro cities of Delhi & Mumbai. MTNL is the principal provider of fixed-line telecommunication service in the two Metropolitan Cities of Delhi and Mumbai. It offers mobile services in the city of Delhi including four peripheral towns Noida, Gurgaon, Faridabad & Gaziabad and the Mumbai city along with the areas

45

falling under the Mumbai Municipal Corporation, New Mumbai Corporation and Thane Municipal Corporation. The authorized capital of the Company is Rs. 800 crores. The Paid up Share Capital is Rs. 630 crores divided into 63 crore share of Rs. 10 each. At present, 56.25% equity shares are held by President of India & her nominees and remaining 43.75% shares are held by FIIs, Financial Institutions, Banks, Mutual Funds and others including individual investors. MTNL has been given Navratna status in 1997 and was listed in New York Stock Exchange in 2001.

IV.

TATA Communications LTD

Tata Communications is a leading global provider of a new world of communications. With a leadership position in emerging markets, Tata Communications leverages its advanced solutions capabilities and domain expertise across its global and pan-India network to deliver managed solutions to multi-national enterprises, service providers and Indian consumers. The Tata Global Network includes one of the most advanced and largest submarine cable networks, a Tier-1 IP network, with connectivity to more than 200 countries and territories across 400 PoPs, and nearly 1 million square feet of data centre and collocation space worldwide. Tata Communications' depth and breadth of reach in emerging markets includes leadership in Indian enterprise data services, leadership in global international voice, and strategic investments in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited) and Nepal (United Telecom Limited) Tata Communications Limited is listed on the Bombay Stock Exchange and the National Stock Exchange of India and its ADRs are listed on the New York Stock Exchange (NYSE: TCL).

V.

RELIANCE Communications

RCOM is an Indian broadband and telecommunications company headquartered in Mumbai, India. RCOM is the worlds 15th largest mobile phone operator with over 150 million subscribers and Indias one of the largest telecom operator in India, only after Bharti Airtel and Vodafone India. Established on 2004, a subsidiary of the Reliance Group. The company has five segments: Wireless segment includes wireless operations of the company; broadband segment includes broadband operations of the company; Global segment include national
46

long distance and international long distance operations of the company and the wholesale operations of its subsidiaries; Investment segment include investments activities of the Group companies; and Other segments consists of the customer care activities and direct-to-home (DTH) activities.

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Is the industry attractive in terms of long term potential?


Short term profitability (based on demand & supply) - Hyper-competition is good for natterers, of course: prices have fallen to a level the poor can afford. Firms have become leaner, too. Bharti outsources furiously. Most companies share radio towers and have learned how to compress traffic. Yet the industry is right to fret about returns. Only one of the big four firms was close to recouping its cost of capital last year (see chart 1), as the price war hit margins and an expensive 3G spectrum auction in 2010 bloated balance-sheets. Vodafone has a rich parent company but the others are now uncomfortably indebted. Middle-sized operators, meanwhile, are thought to be bleeding badly. Of the small fry, only two disclose figures: Uninor, run by Telenor, a Norwegian firm; and Russian-backed Sistema. Together they lost almost $2 billion of cashflow last year. Both say they are in India for the long haul. Longterm Profitability - Weak returns are bearable if the market grows and the rules are clear. Long-term growth seems certain, but India's spectrum regime, once admired, is now an embarrassment. A roundtable with the new telecoms minister and mobile-phone executives in March revealed a fog of confusion about vital issues: the fees on existing spectrum, the terms on which old licences are renewed and corruptly awarded ones relinquished (if at all), new spectrum grants and the rules on mergers and acquisitions. It is also unclear whether nonvoice 4G licences, originally intended for data only, some of which are in the hands of Mukesh Ambani, India's richest man, will have their terms tweaked to allow voice services, creating even more new entrants into the mobile market. Is it a Fragmented or concentrated one? - If the market is too fragmented, consolidation is the only plausible cure. From Brazil to America, places with mosaics of technologies, operators and regional licences have cleaned themselves up. In India this process may not correct past injustices, but by allowing unviable firms and their spectrum to be acquired, a scarce resource could be allocated more efficiently and customers could be saved the annoyance of having their carrier go bust. Most executives expect a cull. After the scandal erupted last year, says one boss, banks cut off credit to the industry, making life hardest for the small firms that have yet to break even. The big operators have stepped back from price cuts, allowing industry revenues, which had stalled despite the boom in customers, to grow again.
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Entry Barriers - Barriers to Entry in the telecom industry are high and steady and the level of tax burden is medium and stable. There is also a considerable amount of assistance provided to the industry and the trend has been increasing. The industry is highly regulated and the recent spectrum scam has only lead to an increased scrutiny. The Cost Structure analysis identifies high profit margins and major costs such as depreciation and network operations expense incurred by the operators. This further justifies the high Capital Intensity of the telecom industry. The report provides us an analysis on such factors which gives us an insight into the conditions of the telecom industry of India. Life Cycle - The telecom sector is going through the growth stage of its life cycle, with penetration in the rural areas being one of the major areas of opportunity for the next five years. Until March 2006, the rural tele-density of the Indian telecom sector was just 1.86% which has increased to 33.79% in March 2011. In the next five years, all the major telecom operators will be focusing on leveraging the opportunities that lie there about. Opportunities - This portentous growth of the Indian Telecom sector in the past ten years has opened up numerous opportunities, with only traces of these being felt by rural India. The total telecom density of the country is about 71%, but only 33% of the rural India, which occupies over 70% of the countrys population, has realized the access and benefits of the industry.

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3.1. RETURN ANALYSIS


Return : The gain or loss of a security in a particular period. The return consists of the income and the capital gains relative on an investment. It is usually quoted as a percentage. Tools Used: Current Yield - The earnings per share for the most recent 12-month period divided by the current market price per share. The earnings yield (which is the inverse of the P/E ratio) shows the percentage of each dollar invested in the stock that was earned by the company. The earnings yield is used by many investment managers to determine optimal asset allocations. Formula: Current yield= Annual EPS/ Beginning price *100 Capital Yield - The formula for the capital gains yield is used to calculate the return on a stock based solely on the appreciation of the stock. The formula for capital gains yield does not include dividends paid on the stock, which can be found using the dividend yield. The capital gains yield and dividend yield is combined to calculate the total stock return. The capital gains yield formula uses the rate of change formula. Calculating the capital gains yield is effectively calculating the rate of change of the stock price. The rate of change can be found by subtracting an ending amount from the original amount then divided by the original amount Formula : Capitl Yield= End Price Beginning Price/Beginning Price Rate of Return - The gain or loss on an investment over a specified period, expressed as a percentage increase over the initial investment cost. Gains on investments are considered to be any income received from the security plus realized capital gains. Formula: ROR = [Annual Income + (End price Beginning price)]/ Beginning Price *100

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1. BHARTI AIRTEL
Beginning Price Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 830.00 626.40 312.60 354.60 338.90 Closing Price 625.75 312.55 357.40 337.90 291.75 EPS 40.80 24.82 20.32 15.09 13.42 Income (lakhs) 33076.82 21334.76 29900.53 13269.16 13007.01

(Data obtained from nseindia.com website) Table 3.1.1 - Current Yield, Capital Yield and Rate of Return of Bharti Airtel for following years: Current Yield 2009 2010 2011 2012 2013 4.915 3.962 6.500 4.255 3.959 Capital Yield -0.246 -0.501 0.143 -0.047 -0.139 ROR 3960.55 3355.82 9579.44 3734.05 3824.09

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CURRENT YIELD
8 6 4 2 0 2009 2010 2011 2012 2013 CURRENT YIELD

CAPITAL YIELD
0.2 0 -0.2 -0.4 -0.6 2009 2010 2011 2012 2013 CAPITAL YIELD

ROR
12000 10000 8000 6000 4000 2000 0 2009 2010 2011 2012 2013 ROR

Chart 3.1.1 Current Yield, Capital Yield and Rate of Return of Bharti Airtel for following years

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2. MTNL
Beginning Price 2009 2010 2011 2012 2013 97.60 69.50 73.50 46.00 27.45 Closing Price 69.00 73.20 45.35 27.40 18.40 EPS 2.67 -48.63 -44.47 -65.23 -84.46 Income (lakhs) 409.80 410.33 485.18 423.63 117.76

Table 3.1.2 - Current Yield, Capital Yield and Rate of Return of MTNL for following years:

Current Yield

Capital Yield

ROR

2009

2.735

-0.29

390.57

2010

-69.97

0.053

595.72

2011

-60.50

-0.382

621.80

2012

-141.80

-0.40

880.5

2013

-307.686

-0.329

396.02

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CURRENT YIELD
50 0 -50 -100 -150 -200 -250 -300 -350 CURRENT YIELD 2009 2010 2011 2012 2013

CAPITAL YIELD
0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 2009 2010 2011 2012 2013 CAPITAL YIELD

ROR
1000 800 600 400 200 0 2009 2010 2011 2012 2013 ROR

Chart 3.1.2 - Current Yield, Capital Yield and Rate of Return of MNL for following years

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3. IDEA CELLULAR
Beginning Price Closing Price EPS Income(lakhs)

103.70 2009 50.50 2010 66.00 2011 67.50 2012 98.82 2013

50.10

3.23

3679.68

65.50

3.19

1738.83

67.45

2.56

2723.80

98.80

1.74

2321.64

113.90

2.47

2696.11

Table 3.1.3 - Current Yield, Capital Yield and Rate of Return of Idea Cellular for following years:

Current Yield 2009 2010 2011 2012 2013 3.11 6.31 3.87 2.57 2.49

Capital Yield -0.51 0.21 0.02 0.46 0.15

ROR 3496.70 3472.93 4129.16 3485.83 2743.56

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CURRENT YIELD
8 6 4 2 0 2009 2010 2011 2012 2013 CURRENT YIELD

CAPITAL YIELD
0.5 0.4 0.3 0.2 0.1 0 -0.1 2009 2010 2011 2012 2013 CAPITAL YIELD

ROR
5000 4000 3000 2000 1000 0 2009 2010 2011 2012 2013 ROR

Chart 3.1.3 - Current Yield, Capital Yield and Rate of Return of Idea Cellular for following years

56

4. RCOM
Beginning Price March 09 March 10 March 11 March 12 March 13 512 176.00 170.95 110.40 84.35 Closing Price 174.85 169.95 107.65 84.05 55.30 EPS 23.27 2.32 -3.67 0.76 3.02 Income(lakhs) 16869.75 8008.28 8585.98 6687.96 9776.63

Table 3.1.4 - Current Yield, Capital Yield and Rate of Return of RCOM following years:
Current Yield Capital Yield ROR

for

2009

4.544

-0.65

3229.02

2010

1.34

-0.03

4546.72

2011

-2.14

-0.37

4985.48

2012

0.68

-0.23

6034.06

2013

3.58

-0.34

11556.11

57

CURRENT YIELD
5 4 3 2 1 0 -1 -2 -3 2009 2010 2011 2012 2013 CURRENT YIELD

CAPITAL YIELD
0 -0.1 -0.2 -0.3 -0.4 -0.5 -0.6 -0.7 CAPITAL YIELD 2009 2010 2011 2012 2013

ROR
14000 12000 10000 8000 6000 4000 2000 0 2009 2010 2011 2012 2013

ROR

Chart 3.1.4 Current Yield, Capital Yield and Rate of Return of RCOM for following years

58

5. TATA COMMUNICATIONS LTD


Beginning Price Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 513.00 523.75 Closing Price 518.35 280.70 EPS 18.10 16.95 Income (Lakhs) 1509.73 791.12

282.00

239.00

5.70

1119.59

237.95 224.90

225.90 233.95

6.01 16.68

506.32 1437.61

Table 3.1.5 - Current Yield, Capital Yield and Rate of Return of TATA Communications Ltd for following years:
Current Yield Capital Yield ROR

2009

3.52

-0.001

295.33

2010

3.23

-0.46

104.64

2011

2.02

-0.15

381.76

2012

2.52

-0.05

207.72

2013

7.41

0.04

643.24

59

CURRENT YIELD
8 6 4 2 0 2009 2010 2011 2012 2013 CURRENT YIELD

Capital Yield
0.1 0 -0.1 -0.2 -0.3 -0.4 -0.5 2009 2010 2011 2012 2013 Capital Yield

ROR
700 600 500 400 300 200 100 0 2009 2010 2011 2012 2013 ROR

Chart 3.1.5 Current Yield, Capital Yield and Rate of Return of TATA communications ltd, for following years:

60

Current Yield
50

0 2009 2010 2011 2012 2013

-50

-100

-150

-200

-250

-300

-350 Bharti Airtel MTNL Idea RCOM TATACOM

Chart 3.1.6- Current representation:

Yield

of

companies

with

Graphical

Inference: The Current yield for companies like Bharti Airtel, Idea Cellular, RCOM, TATA Communications Ltd shows same trend for the 5 years showing positive indication in 2011 as the peak growth but in case of MTNL the yield actually declines drastically over the 5 years which shows that companies poor performance.

61

Capital Yield
0.6

0.4

0.2 Bharti Airtel 0 2009 -0.2 2010 2011 2012 2013 MTNL Idea Rcom TATA COM -0.4

-0.6

-0.8

Chart 3.1.7- Capital representation:

Yield

of

companies

with

Graphical

Capital yield actually shows a positive growth for the stakeholders for Idea Cellular and TATA Communications. Bharti airtel shows the moderate performance since it showed good growth in 2011 but went low for 2013. RCOM and MTNL shows negative trend for the past 5 years.

62

Rate Of Return
14000

12000

10000 Bharti Airtel 8000 MTNL Idea 6000 RCOM TATA COM

4000

2000

0 2009 2010 2011 2012 2013

Chart 3.1.8- Rate of return of 5 companies with Graphical representation:

Rate of Return with comparison to 5 companies RCOM showed the highest return rate by the end of 2013. Bharti Airtel showed is peak rate during 2011 but it touched down low during 2013. Rest other 3 companies showed a steady growth.

63

3.2. RISK ANALYSIS


Risk: The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical

returns or average returns of a specific investment. A high standard deviation indicates a high degree of risk. Tools Used Beta - A measure of volatility, systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and one can think of beta as the tendency of a securitys return to respond to swings in the market. A beta of 1 indicates that the securitys price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the securitys price will be more volatile than the market. For example, if a stocks beta is 1.2. its theoretically 20% more volatile than the market. Formula Beta = n( Where, x= benchmark return y= stock return

Standard Deviation - A measure of the dispersion of a set of data from its a mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance. In finance, standard deviation is applied as the annual rate of return of an investment to measure the investments volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility. Standard deviation is a statistical measurement that sheds light on historical volatility. A low standard deviation indicates that the data points tend to be very close to the mean; high standard deviation indicates that the data points are spread out over a large range of values.

Formula for Standard deviation =

64

1. Bharti Airtel Table 3.2.1- Index and Stock return of Bharti Airtel
INDEX YEAR RETURN (X) STOCK RETURN (Y) X2 Y2 XY

2009

0.7358996

-0.5432699

0.541548221

0.29514218

-0.39979

2010

0.1135983

0.08606061

0.012904574

0.00740643

0.009776

2011

-0.09245073

-0.04324777

0.008547137

0.00187037

0.003998

2012

0.07291814

-0.08439306

0.005317055

0.00712219

-0.00615

2013

0.02434465
x=0.85430996

0.02434465
y=-0.56050547

0.000592662
x2= 0.56890965

0.00059266
y2=0.31213383

0.000593
xy=0.39158

65

Performance measurement:
Beta = 0.68646 Standard Deviation = 0.223293778

Beta: It describes the relationship between stock return and index return, in the above case, Beta of Bharti Airtel Ltd is 0.68646, which means that Bharti Airtel share is very sensitive than the market index. Investing in this share will have low risk and the return may also be likely to be very low. Standard Deviation: Standard deviation is a statistical term that measures the amount of variability or dispersion or volatility around an average return. It is a popular risk measurement tool. Generally speaking, dispersion is the difference between the actual value and the average value. In the case of Bharti Airtel Standard Deviation was 0.223293778, which means there is some variation from the average return during the past 5 years. Risk of the stock is higher. Generally speaking higher the standard deviation higher the risk, lower the standard deviation lower the risk. Investing in this share will have risk and the return may also be likely to be higher.

66

2. MTNL Table 3.2.2: Index and Stock return of MTNL


INDEX RETURN YEAR (X) STOCK RETURN (Y) X2 Y2 XY

2009

0.7359

-0.06051

0.541548

0.003661

-0.04453

2010

0.113598

-0.25222

0.012905

0.063613

-0.02865

2011

-0.09246

-0.59099

0.008548

0.34927

0.054641

2012

0.072918

0.142857

0.005317

0.020408

0.010417

2013

0.024345

-0.44828

0.000593

0.200951

-0.01091

SUM

0.854303

-1.20913

0.568911

0.637904

-0.01904

67

Performance Measurements
Beta = 0.44346 Standard deviation =0.26287

Beta: in the above case, Beta of MTNL is 0.44346, which means return pattern was similar to the market index. But it is less sensitive than the market index. Investing in this share will have risk and the return very low. Standard Deviation: in the case of MTNL standard deviation was .26287, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

68

3. Idea Cellular Table 3.2.3 - Index and Stock return of Idea Cellular
INDEX RETURN YEAR (X) STOCK RETURN (Y) X2 Y2 XY

2009

0.7359

0.103318

0.541548

0.010675

0.076031

2010

0.113598

0.19244

0.012905

0.037033

0.021861

2011

-0.09246

0.163121

0.008548

0.026608

-0.01508

2012

0.072918

0.261557

0.005317

0.068412

0.019072

2013

0.024345

0.573826

0.000593

0.329276

0.01397

SUM

0.854303

1.294261

0.568911

0.472004

0.115852

69

Performance Measurements:
Beta = -0.24894 Standard deviation = 0.165518

Beta: The beta for Idea Cellular is -0.24894, the means that the stock is inversely correlated with the market. This also means that the stocks are less aggressive.
Standard Deviation: Standard deviation is a statistical term that measures the amount of

variability or dispersion or volatility around an average return. It is a popular risk measurement tool. Generally speaking, dispersion is the difference between the actual value and the average value. In the case of Idea Cellular Standard Deviation was 0.165518, which means there is some variation from the average return during the past 5 years. Risk of the stock is bit higher. Generally speaking higher the standard deviation higher the risk, lower the standard deviation lower the risk. Investing in this share will have risk and the return both moderately.

70

4. RCOM Table 3.2.4- Index and Stock return of RCOM


INDEX RETURN Year (X) STOCK RETURN (Y) X2 Y2 XY

2009

0.7359

-0.24167

0.541548

0.058403

-0.17784

2010

0.113598

-0.1751

0.012905

0.03066

-0.01989

2011

-0.09246

-0.05253

0.008548

0.00276

0.004857

2012

0.072918

0.052031

0.005317

0.002707

0.003794

2013

0.024345

0.801609

0.000593

0.642576

0.019515

SUM

0.854303

0.384342

0.568911

0.737106

-0.16957

71

Performance Measurement
Beta = 0.55619 Standard deviation=0.376181

Beta: in the above case, Beta of RCOM is 0.55619, which means return pattern was similar to the market index. But it is less sensitive than the market index. Investing in this share will have risk and the return very low. Standard Deviation: in the case of MTNL standard deviation was .376181, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

72

5. TATA Communications Ltd Table 3.2.5- Index and Stock return of TATA Communications Ltd
INDEX RETURN YEAR (X) STOCK RETURN (Y) X2 Y2 XY

2009

0.7359

-0.33204

0.541548

0.110251

-0.24435

2010

0.113598

-0.24757

0.012905

0.061292

-0.02812

2011

-0.09246

-0.17341

0.008548

0.030072

0.016033

2012

0.072918

0.108235

0.005317

0.011715

0.007892

2013

0.024345

0.328257

0.000593

0.107753

0.007991

SUM

0.854303

-0.31653

0.568911

0.321083

-0.24056

73

Performance Measurement
Beta = -0.44089 Standard deviation = 0.245375

Beta: The beta for TATA Communications Ltd, is -0.44089, this means that the stock is inversely correlated with the market. This also means that the stocks are less aggressive. Standard deviation: in the case of TATA Communications Ltd, standard deviation was .245375, which means there is some variation from the average return during the past 5 years. Risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher.

74

CHAPTER IV FINDINGS, SUGGESTIONS AND CONCLUSION

75

Findings
Returns The Current yield for companies like Bharti Airtel, Idea Cellular, RCOM, TATA Communications Ltd shows same trend for the 5 years showing positive indication in 2011 as the peak growth but in case of MTNL the yield actually declines drastically over the 5 years which shows that companies poor performance Capital yield actually shows a positive growth for the stakeholders for Idea Cellular and TATA Communications. Bharti airtel shows the moderate performance since it showed good growth in 2011 but went low for 2013. RCOM and MTNL shows negative trend for the past 5 years Rate of Return with comparison to 5 companies RCOM showed the highest return rate by the end of 2013. Bharti Airtel showed is peak rate during 2011 but it touched down low during 2013. Rest other 3 companies showed a steady growth. Risk Beta for Idea Cellular and TATA Communications Ltd shows negative beta value for respective stocks of -0.24894 and -0.44089 respectively, which also indicates that the stocks are inversely correlated to the market and very less aggressive. Beta for Bharti Airtel, MTNL and RCOM shows positive beta value of +0.6868466, +0.4434 and +0.55619 respectively, which means that return pattern was similar to the market index. But it is less sensitive than the market index. Investing in this share will have risk and the return very low. Standard deviation for Bharti Airtel, Idea Cellular, MTNL, RCOM and TATA Communications Ltd shows the value like 0.223293778, 0.26287, 0.165518, 0.376181 and 0.245375 respectively which means that risk of the stock is comparatively higher. Investing in this share will have risk and the return may also be likely to be higher

76

Suggestions
Higher the beta, higher will be the risk. In this context hedging is suggested. For long term investors, investment in RCOM can fetch them high return on the equity. For short term investors, investment in Bharti Airtel and Idea cellular will be more feasible option since the risk is very high. Every investor is suggested to make a detailed analysis of the share market, about the company and industry before making investment decisions. Investing in one security alone is not recommended as returns may not be favourable always. Investing in multiple and diversified securities reduces the risk and provides a stable returns. It is suggested to buy and hold the undervalued stocks, i.e., Idea Cellular and RCOM as their shares prices have a tendency to increase in the future. Stock market fluctuates from time to time; therefore it is advised to check the market conditions each time before investing. The investor hould stick on one strategy in the whole time he should range his strategies according to the market. It is very risky and may incur huge losses. Dont mix investments with trading It is always better to hold good stocks than to engage in rapid-fire trading for quick returns. Buy low sell high. This is a basic rule, whatever approach you choose, you only make money if you sell a stock for more than you paid for it.

77

Conclusion
The risk return analysis of five major telecom companies was a very relevant topic on account of the increased investors in stock markets and therefore rational investments behaviour. There is always a need to study and analyse a stock before investing in to the share. Now a days, majority of the stockbrokers use this techniques along with the others to advice clients on investment matters. The exercise proved fruitful as it opened my eyes the reality of stock market and the stocks under study. As well as the prospective return of each share under study. It also revealed that some shares are profitable to invested. At the same time, the risk associated with some stocks was really pointed out through some of the techniques used in this study. Though the return from shares will be satisfactory, there is an increased need on the part of the investor or the portfolio manager to study the associated risk. T not only helps to predict how the return will be, but also guides the prospective investor in making good decisions. It cannot be expected that layman interested in investing in securities, to know about them before taking a proper investment decision. But it is always an effective tool in the hands of stock broker or a portfolio manager to be applied in planning different portfolios. Though the study reveals certain insights about the stock markets, it never conclusive in nature, the calculations are based on the past figures which had already happened and became the part of a history. The economy is uncertain and a rational investor should incorporate several other aspects before taking an investment decision.

78

Bibliography
Websites: Www. bseindia.com www.nseindia.com Www. ICICIdirect.com Www. moneycontrol.com Www. capitalmarket.com Www capitalline.com Www. investopedia.com Www. google.com

BOOKS: a) b) c) Investment management Investment management V.K.Bhalla Preethi Singh

Security Analysis And Portfolio Management V.A.Avadhani

d)

Marketing of Financial Services

V.A.Avadhani M.Y.Khan

e) Indian Financial System

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