EXECUTIVE SUMMARY

Never before has the rapid increase in new knowledge and technology and in
the base of change and itself demanded a learning response as great as what is
now required to remain competitive. Today individuals and organizations must
become continuous learners to survive and hence it is not surprising to find
that most successful organizations operate in a continuous learning mode.

The

challenge

of

globalization,

technological

innovation

increasing

competition and growth through expansion, diversification and acquisition has

had a wide-ranging and far reaching impact. There is a need for a continuous
process that aims at providing fresh knowledge and skill inputs to the
employees so as to ensure the development of their competencies, dynamism,
motivation and effectiveness in a systematic and planned way, thereby
improving the productivity and overall organizational effectiveness. As a
result, training and development activities have acquired great significance
and are now firmly centre-stage in most of the organizations. Hence it can be
said that with the advent of free market economy rapid change in the
environment, training and development activities have assumed an importance
never before witnessed in Indian corporate history.

Training is the process of assisting a person in enhancing his efficiency and

effectiveness at work by improving and updating his professional knowledge
developing his personal skills relevant to his work and cultivating in him
appropriate behavior and attitude towards his work and people he is working
with. Development takes place as a result of training and essentially implies
growth plus change. Thus, training and development go hand in hand. My
endeavor has been to gain an in-depth insight into the process of discovering,
1

harnessing and developing of the human capital to the benefit of both the
individual and the organization into days highly dynamic and competitive
business world through a comprehensive study and analysis of the latest
training and development techniques used by IIFL.

FINANCIAL MARKETS
Finance is the pre-requisite for modern business and financial institutions play a vital
role in the economic system. It is through financial markets and institutions that the
financial system of an economy works. Financial markets refer to the institutional
arrangements for dealing in financial assets and credit instruments of different types
such as currency, cheques, bank deposits, bills, bonds, equities, etc.
Financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives.
They are typically defined by having transparent pricing, basic regulations on trading,
costs and fees and market forces determining the prices of securities that trade.
Generally, there is no specific place or location to indicate a financial market. Wherever
a financial transaction takes place, it is deemed to have taken place in the financial
market. Hence financial markets are pervasive in nature since financial transactions are
themselves very pervasive throughout the economic system. For instance, issue of
equity shares, granting of loan by term lending institutions, deposit of money into a
bank, purchase of debentures, sale of shares and so on.
In a nutshell, financial markets are the credit markets catering to the various needs of
the individuals, firms and institutions by facilitating buying and selling of financial
assets, claims and services.

CLASSIFICATION OF FINANCIAL MARKETS

Financial markets

Organized markets

Capital Markets

Unorganized markets

Money Markets

Industrial Securities
Market

Money Lenders,
Indigenuos Bankers

Call Money Market

Primary Market

Commercial Bill
Market

Secondary market

Treasury Bill Market

Government
Securities Market
Long-term loan
market

Capital Market
The capital market is a market for financial assets which have a long or indefinite
maturity. Generally, it deals with long term securities which have a period of above one
year. In the widest sense, it consists of a series of channels through which the savings of
the community are made available for industrial and commercial enterprises and public
authorities. As a whole, capital market facilitates raising of capital.
The major functions performed by a capital market are:
1. Mobilization of financial resources on a nation-wide scale.
2. Securing the foreign capital and know-how to fill up deficit in the required
resources for economic growth at a faster rate.
3. Effective allocation of the mobilized financial resources, by directing the same
to projects yielding highest yield or to the projects needed to promote balanced
economic development.
Capital market consists of primary market and secondary market.
Primary market: Primary market is a market for new issues or new financial claims.
Hence it is also called as New Issue Market. It basically deals with those securities
which are issued to the public for the first time. The market, therefore, makes available
a new block of securities for public subscription. In other words, it deals with raising of
fresh capital by companies either for cash or for consideration other than cash. The best
example could be Initial Public Offering (IPO) where a firm offers shares to the public
for the first time.
Secondary market: Secondary market is a market where existing securities are traded.
In other words, securities which have already passed through new issue market are
traded in this market. Generally, such securities are quoted in the stock exchange and it
provides a continuous and regular market for buying and selling of securities. This
market consists of all stock exchanges recognized by the government of India.

Money Market
Money markets are the markets for short-term, highly liquid debt securities. Money
market securities are generally very safe investments which return relatively low
interest rate that is most appropriate for temporary cash storage or short term time
needs. It consists of a number of sub-markets which collectively constitute the money
market namely call money market, commercial bills market, acceptance market, and
Treasury bill market.
Derivatives Market
The derivatives market is the financial market for derivatives, financial instruments like
futures contracts or options, which are derived from other forms of assets. A derivative
is a security whose price is dependent upon or derived from one or more underlying
assets. 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. The important financial derivatives are the following:

Forwards: Forwards are the oldest of all the derivatives. A forward contract
refers to an agreement between two parties to exchange an agreed quantity of an
asset for cash at a certain date in future at a predetermined price specified in that
agreement. The promised asset may be currency, commodity, instrument etc.

Futures: Future contract is very similar to a forward contract in all respects

excepting the fact that it is completely a standardized one. It is nothing but a
standardized forward contract which is legally enforceable and always traded on
an organized exchange.

Options: A financial derivative that represents a contract sold by one party

(option writer) to another party (option holder). The contract offers the buyer
the right, but not the obligation, to buy (call) or sell (put) a security or other
financial asset at an agreed-upon price (the strike price) during a certain period
of time or on a specific date (exercise date). Call options give the option to buy
6

at certain price, so the buyer would want the stock to go up. Put options give the
option to sell at a certain price, so the buyer would want the stock to go down.

Swaps: It is yet another exciting trading instrument. Infact, it is the combination

of forwards by two counterparties. It is arranged to reap the benefits arising
from the fluctuations in the market either currency market or interest rate
market or any other market for that matter.

Foreign Exchange Market

It is a market in which participants are able to buy, sell, exchange and speculate on
currencies. Foreign exchange markets are made up of banks, commercial companies,
central banks, investment management firms, hedge funds, and retail forex brokers and
investors. The forex market is considered to be the largest financial market in the world.
It is a worldwide decentralized over-the-counter financial market for the trading of
currencies. Because the currency markets are large and liquid, they are believed to be
the most efficient financial markets. It is important to realize that the foreign exchange
market is not a single exchange, but is constructed of a global network of computers
that connects participants from all parts of the world.
Commodities Market
It is a physical or virtual marketplace for buying, selling and trading raw or primary
products. For investors' purposes there are currently about 50 major commodity
markets worldwide that facilitate investment trade in nearly 100 primary
commodities. Commodities are split into two types: hard and soft commodities. Hard
commodities are typically natural resources that must be mined or extracted (gold,
rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn,
wheat, coffee, sugar, soybeans, pork, etc.)

INDIAN FINANCIAL MARKETS

India Financial market is one of the oldest in the world and is considered to be the
fastest growing and best among all the markets of the emerging economies.
The history of Indian capital markets dates back 200 years toward the end of the
18th century when India was under the rule of the East India Company. The
development of the capital market in India concentrated around Mumbai where
no less than 200 to 250 securities brokers were active during the second half of
the 19th century.
The financial market in India today is more developed than many other sectors because
it was organized long before with the securities exchanges of Mumbai,
Ahmadabad and Kolkata were established as early as the 19th century.
By the early 1960s the total number of securities exchanges in India rose to eight,
including Mumbai, Ahmadabad and Kolkata apart from Madras, Kanpur, Delhi,
Bangalore and Pune. Today there are 21 regional securities exchanges in India
in addition to the centralized NSE (National Stock Exchange) and OTCEI (Over
the Counter Exchange of India).
However the stock markets in India remained stagnant due to stringent controls on the
market economy that allowed only a handful of monopolies to dominate their
respective sectors. The corporate sector wasn't allowed into many industry segments,
which were dominated by the state controlled public sector resulting in stagnation of
the economy right up to the early 1990s. Thereafter when the Indian economy began
liberalizing and the controls began to be dismantled or eased out; the securities markets
witnessed a flurry of IPOs that were launched. This resulted in many new companies
across different industry segments to come up with newer products and services.
A remarkable feature of the growth of the Indian economy in recent years has been the
role played by its securities markets in assisting and fuelling that growth with money
rose within the economy. This was in marked contrast to the initial phase of growth in
many of the fast growing economies of East Asia that witnessed huge doses of FDI
8

(Foreign Direct Investment) spurring growth in their initial days of market decontrol.
During this phase in India much of the organized sector has been affected by high
growth as the financial markets played an all-inclusive role in sustaining financial
resource mobilization. Many PSUs (Public Sector Undertakings) that decided to offload
part of their equity were also helped by the well-organized securities market in India.
The launch of the NSE (National Stock Exchange) and the OTCEI (Over the Counter
Exchange of India) during the mid 1990s by the government of India was meant to
usher in an easier and more transparent form of trading in securities. The NSE was
conceived as the market for trading in the securities of companies from the large-scale
sector and the OTCEI for those from the small-scale sector. While the NSE has not just
done well to grow and evolve into the virtual backbone of capital markets in India the
OTCEI struggled and is yet to show any sign of growth and development. The
integration of IT into the capital market infrastructure has been particularly smooth in
India due to the countrys world class IT industry. This has pushed up the operational
efficiency of the Indian stock market to global standards and as a result the country has
been able to capitalize on its high growth and attract foreign capital like never before.
The regulating authority for capital markets in India is the SEBI (Securities and
Exchange Board of India). SEBI came into prominence in the 1990s after the capital
markets experienced some turbulence. It had to take drastic measures to plug many
loopholes that were exploited by certain market forces to advance their vested interests.
After this initial phase of struggle SEBI has grown in strength as the regulator of Indias
capital markets and as one of the countrys most important institutions.

FINANCIAL MARKET REGULATIONS

Regulations are an absolute necessity in the face of the growing importance of capital
markets throughout the world. The development of a market economy is dependent on
the development of the capital market. The regulation of a capital market involves the
regulation of securities; these rules enable the capital market to function more
efficiently and impartially.
9

A well regulated market has the potential to encourage additional investors to partake,
and contribute in, furthering the development of the economy. The chief capital market
regulatory authority is Securities and Exchange Board of India (SEBI).
SEBI is the regulator for the securities market in India. It is the apex body to develop
and regulate the stock market in India It was formed officially by the Government of
India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. Chaired by C
B Bhave, SEBI is headquartered in the popular business district of Bandra-Kurla
complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices
in New Delhi, Kolkata, Chennai and Ahmedabad. In place of Government Control, a
statutory and autonomous regulatory board with defined responsibilities, to cover both
development & regulation of the market, and independent powers has been set up.
The basic objectives of the Board were identified as:

to protect the interests of investors in securities;

to promote the development of Securities Market;

to regulate the securities market and

For matters connected therewith or incidental thereto.

Since its inception SEBI has been working targeting the securities and is attending to
the fulfillment of its objectives with commendable zeal and dexterity. The
improvements in the securities markets like capitalization requirements, margining,
establishment of clearing corporations etc. reduced the risk of credit and also reduced
the market.
SEBI has introduced the comprehensive regulatory measures, prescribed registration
norms, the eligibility criteria, the code of obligations and the code of conduct for
different intermediaries like, bankers to issue, merchant bankers, brokers and subbrokers, registrars, portfolio managers, credit rating agencies, underwriters and others.
It has framed bye-laws, risk identification and risk management systems for Clearing

10

houses of stock exchanges, surveillance system etc. which has made dealing in
securities both safe and transparent to the end investor.
Another significant event is the approval of trading in stock indices (like S&P CNX
Nifty & Sensex) in 2000. A market Index is a convenient and effective product because
of the following reasons:

It acts as a barometer for market behavior;

It is used to benchmark portfolio performance;

It is used in derivative instruments like index futures and index options;

It can be used for passive fund management as in case of Index Funds.

Two broad approaches of SEBI is to integrate the securities market at the national level,
and also to diversify the trading products, so that there is an increase in number of
traders including banks, financial institutions, insurance companies, mutual funds,
primary dealers etc. to transact through the Exchanges. In this context the introduction
of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD
is a real landmark.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and
successively (e.g. the quick movement towards making the markets electronic and
paperless rolling settlement on T+2 bases). SEBI has been active in setting up the
regulations as required under law.

STOCK EXCHANGES IN INDIA

Stock Exchanges are an organized marketplace, either corporation or mutual
organization, where members of the organization gather to trade company stocks or
other securities. The members may act either as agents for their customers, or as
principals for their own accounts.

11

As per the Securities Contracts Regulation Act, 1956 a stock exchange is an

association, organization or body of individuals whether incorporated or not,
established for the purpose of assisting, regulating and controlling business in buying,
selling and dealing in securities.
Stock exchanges facilitate for the issue and redemption of securities and other financial
instruments including the payment of income and dividends. The record keeping is
central but trade is linked to such physical place because modern markets are
computerized. The trade on an exchange is only by members and stock broker do have
a seat on the exchange.
List of Stock Exchanges in India
Bombay Stock Exchange
National Stock Exchange

16. Meerut

OTC Exchange of India

17. Pune

Regional Stock Exchanges

18. Saurashtra Kutch

1. Ahmedabad

19. Uttar Pradesh

2. Bangalore

20. Vadodara

3. Bhubaneswar
4. Calcutta
5. Cochin
6. Coimbatore
7. Delhi
8. Guwahati
9. Hyderabad
10. Jaipur
11. Ludhiana
12. Madhya Pradesh
13. Madras
14. Magadh
15. Mangalore
12

BOMBAY STOCK EXCHANGE

A very common name for all traders in the stock market, BSE, stands for Bombay Stock
Exchange. It is the oldest market not only in the country, but also in Asia. In the early
days, BSE was known as "The Native Share & Stock Brokers Association." It was
established in the year 1875 and became the first stock exchange in the country to be
recognized by the government. In 1956, BSE obtained a permanent recognition from the
Government of India under the Securities Contracts (Regulation) Act, 1956.
In the past and even now, it plays a pivotal role in the development of the country's
capital market. This is recognized worldwide and its index, SENSEX, is also tracked
worldwide. Earlier it was an Association of Persons (AOP), but now it is a demutualised
and corporatised entity incorporated under the provisions of the Companies Act, 1956,
pursuant to the BSE (Corporatisation and Demutualization) Scheme, 2005 notified by the
Securities and Exchange Board of India (SEBI).
BSE Vision
The vision of the Bombay Stock Exchange is to "Emerge as the premier Indian stock
exchange by establishing global benchmarks."
BSE Management
Bombay Stock Exchange is managed professionally by Board of Directors. It comprises
of eminent professionals, representatives of Trading Members and the Managing
Director. The Board is an inclusive one and is shaped to benefit from the market
intermediaries participation.
The Board exercises complete control and formulates larger policy issues. The day-to-day
operations of BSE are managed by the Managing Director and its school of professional
as a management team.
BSE Network
13

The Exchange reaches physically to 417 cities and towns in the country. The framework
of it has been designed to safeguard market integrity and to operate with transparency. It
provides an efficient market for the trading in equity, debt instruments and derivatives. Its
online trading system, popularly known as BOLT, is a proprietary system and it is BS
7799-2-2002 certified. The BOLT network was expanded, nationwide, in 1997. The
surveillance and clearing & settlement functions of the Exchange are ISO 9001:2000
certified.
BSE Facts
BSE as a brand is synonymous with capital markets in India. The BSE SENSEX is the
benchmark equity index that reflects the robustness of the economy and finance. It was
the

First in India to introduce Equity Derivatives

First in India to launch a Free Float Index

First in India to launch US$ version of BSE Sensex

First in India to launch Exchange Enabled Internet Trading Platform

First in India to obtain ISO certification for Surveillance, Clearing & Settlement

'BSE On-Line Trading System (BOLT) has been awarded the globally
recognized

the

Information

Security

Management

System

standard

BS7799-2:2002.

First to have an exclusive facility for financial training

Moved from Open Outcry to Electronic Trading within just 50 days

BSE with its long history of capital market development is fully geared
to continue its contributions to further the growth of the securities
markets of the country, thus helping India increases its sphere of
influence in international financial markets.

14

NATIONAL

STOCK

EXCHANGE

OF

INDIA

LIMITED

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access
to investors from all across the country on an equal footing. Based on the
recommendations, NSE was promoted by leading Financial Institutions at the behest of
the Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock Exchange in the country.
On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000.
NSE GROUP
National Securities Clearing Corporation Ltd. (NSCCL)
It is a wholly owned subsidiary, which was incorporated in August 1995 and commenced
clearing operations in April 1996. It was formed to build confidence in clearing and
settlement of securities, to promote and maintain the short and consistent settlement
cycles, to provide a counter-party risk guarantee and to operate a tight risk containment
system.
NSE.IT Ltd.
It is also a wholly owned subsidiary of NSE and is its IT arm. This arm of the NSE is
uniquely positioned to provide products, services and solutions for the securities industry.
NSE.IT primarily focuses on in the area of trading, broker front-end and back-office,
clearing and settlement, web-based, insurance, etc. Along with this, it also provides
consultancy and implementation services in Data Warehousing, Business Continuity

15

Plans, Site Maintenance and Backups, Stratus Mainframe Facility Management, Real
Time Market Analysis & Financial News.
India Index Services & Products Ltd. (IISL)
It is a joint venture between NSE and CRISIL Ltd. to provide a variety of indices and
index related services and products for the Indian Capital markets. It was set up in May
1998. IISL has a consulting and licensing agreement with the Standard and Poor's (S&P),
world's leading provider of investible equity indices, for co-branding equity indices.
National Securities Depository Ltd. (NSDL)
NSE joined hands with IDBI and UTI to promote dematerialization of securities. This
step was taken to solve problems related to trading in physical securities. It commenced
operations in November 1996.
NSE Facts

It uses satellite communication technology to energize participation from around

400 cities in India.

NSE can handle up to 1 million trades per day.

It is one of the largest interactive VSAT based stock exchanges in the world.

The NSE- network is the largest private wide area network in India and the first
extended C- Band VSAT network in the world.

Presently more than 9000 users are trading on the real time-online NSE
application.

Today, NSE is one of the largest exchanges in the world and still forging ahead. At NSE,
we are constantly working towards creating a more transparent, vibrant and innovative
capital market.

OVER THE COUNTER EXCHANGE OF INDIA

OTCEI was incorporated in 1990 as a section 25 company under the companies Act 1956
and is recognized as a stock exchange under section 4 of the securities Contracts
16

Regulation Act, 1956. The exchange was set up to aid enterprising promotes in raising
finance for new projects in a cost effective manner and to provide investors with a
transparent and efficient mode of trading Modeled along the lines of the NASDAQ
market of USA, OTCEI introduced many novel concepts to the Indian capital markets
such as screen-based nationwide trading, sponsorship of companies, market making and
scrip less trading. As a measure of success of these efforts, the Exchange today has 115
listings and has assisted in providing capital for enterprises that have gone on to build
successful brands for themselves like VIP Advanta, Sonora Tiles & Brilliant mineral
water, etc.
Need for OTCEI:
Studies by NASSCOM, software technology parks of India, the venture capitals funds
and the governments IT tasks Force, as well as rising interest in IT, Pharmaceutical,
Biotechnology and Media shares have repeatedly emphasized the need for a national
stock market for innovation and high growth companies.
Innovative companies are critical to developing economics like India, which is
undergoing a major technological revolution. With their abilities to generate employment
opportunities and contribute to the economy, it is essential that these companies not only
expand existing operations but also set up new units. The key issue for these companies is
raising timely, cost effective and long term capital to sustain their operations and enhance
growth. Such companies, particularly those that have been in operation for a short time,
are unable to raise funds through the traditional financing methods, because they have not
yet been evaluated by the financial world.

17

INDIA INFOLINE LIMITED

India Infoline is a one-stop financial services shop, most respected for quality of its
information, personalized service and cutting-edge technology.
Vision
Our vision is to be the most respected company in the financial services space.
India Infoline Group
The India Infoline group, comprising the holding company, India Infoline Limited and its
wholly-owned subsidiaries, include the entire financial services space with offerings
ranging from Equity research, Equities and derivatives trading, Commodities trading,
Portfolio Management Services, Mutual Funds, Life Insurance, Fixed deposits, GoI
bonds and other small savings instruments to loan products and Investment banking.
India Infoline also owns and manages the websites www.indiainfoline.com and
www.5paisa.com. The company has a network of over 2100 business locations (branches
and sub-brokers) spread across more than 450 cities and towns. The group caters to
approximately a million customers.
Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an
independent business research and information provider, the company gradually evolved
into a one-stop financial services solutions provider.
India Infoline received registration for a housing finance company from the National
Housing Bank and received the Fastest growing Equity Broking House - Large firms in
India by Dun & Bradstreet in 2009. It also received the Insurance broking license from
IRDA; received the venture capital license; received in principle approval to sponsor a
mutual fund; received Best broker- India award from Finance Asia; Most Improved
Brokerage- India award from Asia money.

18

COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the
Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a
member of both the exchanges. It is engaged in the businesses of Equities broking,
Wealth Advisory Services and Portfolio Management Services. It offers broking services
in the Cash and Derivatives segments of the NSE as well as the Cash segment of the
BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a
one-stop solution for clients trading in the equities market. It has recently launched its
Investment banking and Institutional Broking business.
A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients.
These services are offered to clients as different schemes, which are based on differing
investment strategies made to reflect the varied risk-return preferences of clients.

19

India Infoline Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual fund
and portfolio management services businesses. It undertakes equities research which is
acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for
investors in Asia'. India Infoline's research is available not just over the internet but also
on international wire services like Bloomberg (Code: IILL), Thomson First Call and
Internet Securities where India Infoline is amongst the most read Indian brokers.
India Infoline Commodities Limited.
India Infoline Commodities Pvt Limited is engaged in the business of commodities
broking. Their experience in securities broking empowered them with the requisite skills
and technologies to allow them to offer commodities broking as a contra-cyclical
alternative to equities broking. It enjoys memberships with the MCX and NCDEX, two
leading Indian commodities exchanges, and recently acquired membership of DGCX. It
has a multi-channel delivery model, making it among the select few to offer online as
well as offline trading facilities.
India Infoline Marketing & Services
India Infoline Marketing and Services Limited is the holding company of India Infoline
Insurance Services Limited and India Infoline Insurance Brokers Limited.

India Infoline Insurance Services Limited is a registered Corporate Agent with the
Insurance Regulatory and Development Authority (IRDA). It is the largest
Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's
largest private Life Insurance Company. India Infoline was the first corporate
agent to get licensed by IRDA in early 2001.

India Infoline Insurance Brokers Limited India Infoline Insurance Brokers

Limited is a newly formed subsidiary which will carry out the business of
Insurance broking.

20

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and
financing activities under one subsidiary. Recently, Orient Global, a Singapore-based
investment institution invested USD 76.7 million for a 22.5% stake in India Infoline
Investment Services. This will help focused expansion and capital raising in the said
subsidiaries for various lending businesses like loans against securities, SME financing,
distribution of retail loan products, consumer finance business and housing finance
business. India Infoline Investment Services Private Limited consists of the following
step-down subsidiaries.

India Infoline Distribution Company Limited (distribution of retail loan products)

Moneyline Credit Limited (consumer finance)

India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Private Limited

IIFL (Asia) Private Limited is wholly owned subsidiary which has been incorporated in
Singapore to pursue financial sector activities in other Asian markets. Further to
obtaining the necessary regulatory approvals, the company has been initially capitalized
at 1 million Singapore dollars.
IIFL MANAGEMENT

THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director

Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded
Indias leading financial services company India Infoline Ltd. in 1995,
providing globally acclaimed financial services in equities and
commodities broking, life insurance and mutual funds distribution,
among others.
Mr. R Venkataraman, Executive Director
21

R Venkataraman, co-promoter and Executive Director of India Infoline

Ltd., is a B. Tech (Electronics and Electrical Communications
Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined
the India Infoline board in July 1999.

THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline
Ltd. comprises:
Mr. Nilesh Vikamsey, Independent Director
Mr. Vikamsey, Board member since February 2005 - a practicing Chartered Accountant
and partner (Khimji Kunverji & Co., Chartered Accountants), a
member firm of HLB International, headed the audit department till
1990 and thereafter also handles financial services, consultancy,
investigations, mergers and acquisitions, valuations etc
Mr Sat Pal Khattar, Non Executive Director
Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of Minority
Rights member, Chairman of the Board of Trustee of Singapore
Business Federation, is also a life trustee of SINDA, a non profit body,
helping the under-privileged Indians in Singapore. He joined the India
Infoline board in April 2001.
Mr Kranti Sinha, Independent Director
Mr. Kranti Sinha Board member since January 2005 completed
his masters from the Agra University and started his career as a Class I
officer with Life Insurance Corporation of India.
Mr Arun K. Purvar, Independent Director

22

Mr. A.K. Purvar Board member since March 2008 completed his
Masters degree in commerce from Allahabad University in 1966 and a
diploma in Business Administration in 1967.

PRODUCTS & SERVICES

Equities
India Infoline provided the prospect of researched investing to its clients, which was
hitherto restricted only to the institutions. Research for the retail investor did not exist
prior to India Infoline. India Infoline leveraged technology to bring the convenience of
trading to the investors location of preference (residence or office) through computerized
access. India Infoline made it possible for clients to view transaction costs and ledger
updates in real time. The Company is among the few financial intermediaries in India to
offer a complement of online and offline broking. The Companies network of branches
also allows customers to place orders on phone or visit our branches for trading.
Commodities
India Infolines extension into commodities trading reconciles its strategic intent to
emerge as a one stop solutions financial intermediary. Its experience in securities broking
has empowered it with requisite skills and technologies. The Companies commodities
business provides a contra-cyclical alternative to equities broking. The Company was
among the first to offer the facility of commodities trading in Indias young commodities
market (the MCX commenced operations in 2003). Average monthly turnover on the
commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn.
Insurance
An entry into this segment helped complete the client's product basket; concurrently, it
graduated the Company into a one stop retail financial solutions provider. To ensure
maximum reach to customers across India, it has employed a multi pronged approach and
23

reaches out to customers via our Network, Direct and Affiliate channels. India Infoline
was the first corporate in India to get the agency license in early 2001.
Invest Online
India Infoline has made investing in Mutual funds and primary market so effortless. Only
registration is needed. No paperwork no queues and No registration charges. India
Infoline offers a host of mutual fund choices under one roof, backed by in-depth
research and advice from research house and tools configured as investor friendly.
Wealth Management
The key to achieving a successful Investment Portfolio is to have a carefully planned
financial strategy based on a thorough understanding of the client's investment needs
and risk appetite. The IIFL Private Wealth Management Team of financial experts
will recommend an appropriate financial strategy to effectively meet customers
investment requirements.
Asset Management
India Infoline is a leading pan-India mutual fund distribution house associated with
leading asset management companies. It operates primarily in the retail segment
leveraging its existing distribution network to reach prospective clients. It has
received the in-principle approval to set up a mutual fund.
Portfolio Management
IIFL Portfolio Management Service is a product wherein an equity investment portfolio is
created to suit the investment objectives of a client. India Infoline invests the clients
resources into stocks from different sectors, depending on clients risk-return profile.
This service is particularly advisable for investors who cannot afford to give time or
don't have that expertise for day-to-day management of their equity portfolio.

24

Newsletters
As a subscriber to the Daily Market Strategy, clients get research reports of India
Infoline research team on a priority basis. The Indiainfoline Weekly Newsletter is the
flashback for the week gone by. A weekly outlook coupled with the best of the web
stories from Indiainfoline and links to important investment ideas, Leader Speak and
features is delivered in the clients inbox every Friday evening.

25

OBJECTIVES OF THE STUDY

The objective of this project is to deeply analyze our Indian Automobile Industry for
investment purpose by monitoring the growth rate and performance on the basis of
historical data.
The main objectives of the Project study are:

Detailed analysis of Automobile industry which is gearing towards international

standards

Analyze the impact of qualitative factors on industrys and companys prospects

Comparative analysis of three tough competitors TATA Motors, Maruti Suzuki

and Mahindra and Mahindra through fundamental analysis.

Suggesting as to which companys shares would be best for an investor to invest.

26

INTRODUCTION
India is a developing country. Nowadays many people are interested to invest in financial
markets especially on equities to get high returns, and to save tax in honest way. Equities
are playing a major role in contribution of capital to the business from the beginning.
Since the introduction of shares concept, large numbers of investors are showing interest
to invest in stock market.
In an industry plagued with skepticism and a stock market increasingly difficult to predict
and contend with, if one looks hard enough there may still be a genuine aid for the Day
Trader and Short Term Investor.
The price of a security represents a consensus. It is the price at which one person agrees
to buy and another agrees to sell. The price at which an investor is willing to buy or sell
depends primarily on his expectations. If he expects the security's price to rise, he will
buy it; if the investor expects the price to fall, he will sell it. These simple statements are
the cause of a major challenge in forecasting security prices, because they refer to human
expectations. As we all know firsthand, humans expectations are neither easily
quantifiable nor predictable. If prices are based on investor expectations, then knowing
what a security should sell for (i.e., fundamental analysis) becomes less important than
knowing what other investors expect it to sell for. That's not to say that knowing what a
security should sell for isn't important--it is. But there is usually a fairly strong consensus
of a stock's future earnings that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each
other. Since all the investors in the stock market want to make the maximum profits
possible, they just cannot afford to ignore either fundamental or technical analysis.

27

SECURITY ANALYSIS
Investment success is pretty much a matter of careful selection and timing of stock
purchases coupled with perfect matching to an individuals risk tolerance. In order to carry
out selection, timing and matching actions an investor must conduct deep security
analysis.
Investors purchase equity shares with two basic objectives;
1.

To make capital profits by selling shares at higher prices.

2.

To earn dividend income.

These two factors are affected by a host of factors. An investor has to carefully
understand and analyze all these factors. There are basically two approaches to study
security prices and valuation i.e. fundamental analysis and technical analysis
The value of common stock is determined in large measure by the performance of the
firm that issued the stock. If the company is healthy and can demonstrate strength and
growth, the value of the stock will increase. When values increase then prices follow and
returns on an investment will increase. However, just to keep the savvy investor on their
toes, the mix is complicated by the risk factors involved. Fundamental analysis examines
all the dimensions of risk exposure and the probabilities of return, and merges them with
broader economic analysis and greater industry analysis to formulate the valuation of a
stock.

FUNDAMENTAL ANALYSIS
Fundamental analysis is a method of forecasting the future price movements of a
financial instrument based on economic, political, environmental and other relevant
factors and statistics that will affect the basic supply and demand of whatever underlies
the financial instrument. It is the study of economic, industry and company conditions in
an effort to determine the value of a companys stock. Fundamental analysis typically
28

focuses on key statistics in companys financial statements to determine if the stock price
is correctly valued. The term simply refers to the analysis of the economic well-being of a
financial entity as opposed to only its price movements.
Fundamental analysis is the cornerstone of investing. The basic philosophy underlying
the fundamental analysis is that if an investor invests re.1 in buying a share of a company,
how much expected returns from this investment he has.
The fundamental analysis is to appraise the intrinsic value of a security. It insists that no
one should purchase or sell a share on the basis of tips and rumors. The fundamental
approach calls upon the investors to make his buy or sell decision on the basis of a
detailed analysis of the information about the company, about the industry, and the
economy. It is also known as top-down approach. This approach attempts to study the
economic scenario, industry position and the company expectations and is also known as
economic-industry-company approach (EIC approach).
Thus the EIC approach involves three steps:
1.

Economic analysis

2.

Industry analysis

3.

Company analysis

29

1. ECONOMIC ANALYSIS
The level of economic activity has an impact on investment in many ways. If the
economy grows rapidly, the industry can also be expected to show rapid growth and vice
versa. When the level of economic activity is low, stock prices are low, and when the
level of economic activity is high, stock prices are high reflecting the prosperous outlook
for sales and profits of the firms. The analysis of macro economic environment is
essential to understand the behavior of the stock prices.
The commonly analyzed macro economic factors are as follows:
Gross Domestic Product (GDP): GDP indicates the rate of growth of the economy. It
represents the aggregate value of the goods and services produced in the economy. It
consists of personal consumption expenditure, gross private domestic investment and
government expenditure on goods and services and net exports of goods and services.
The growth rate of economy points out the prospects for the industrial sector and the
return investors can expect from investment in shares. The higher growth rate is more
favorable to the stock market.
Savings and investment: It is obvious that growth requires investment which in turn
requires substantial amount of domestic savings. Stock market is a channel through
which the savings are made available to the corporate bodies. Savings are distributed over
various assets like equity shares, deposits, mutual funds, real estate and bullion. The
savings and investment patterns of the public affect the stock to a great extent.
Inflation: Along with the growth of GDP, if the inflation rate also increases, then the real
growth would be very little. The effects of inflation on capital markets are numerous. An
increase in the expected rate of inflation is expected to cause a nominal rise in interest
rates. Also, it increases uncertainty of future business and investment decisions. As
inflation increases, it results in extra costs to businesses, thereby squeezing their profit
margins and leading to real declines in profitability.
30

Interest rates: The interest rate affects the cost of financing to the firms. A decrease in
interest rate implies lower cost of finance for firms and more profitability. More money is
available at a lower interest rate for the brokers who are doing business with borrowed
money. Availability of cheap funds encourages speculation and rise in the price of shares.
Tax structure: Every year in March, the business community eagerly awaits the
Governments announcement regarding the tax policy. Concessions and incentives given
to a certain industry encourage investment in that particular industry. Tax reliefs given to
savings encourage savings. The type of tax exemption has impact on the profitability of
the industries.
Infrastructure facilities: Infrastructure facilities are essential for the growth of industrial
and agricultural sector. A wide network of communication system is a must for the
growth of the economy. Regular supply of power without any power cut would
boost the production. Banking and financial sectors also should be sound enough to
provide adequate support to the industry. Good infrastructure facilities affect the stock
market favorably.
2. INDUSTRY ANALYSIS
An industry is a group of firms that have similar technological structure of production
and produce similar products and Industry analysis is a type of business research that
focuses on the status of an industry or an industrial sector (a broad industry classification,
like "manufacturing"). Irrespective of specific economic situations, some industries might
be expected to perform better, and share prices in these industries may not decline as
much as in other industries. This identification of economic and industry specific factors
influencing share prices will help investors to identify the shares that fit individual
expectations

31

Industry Life Cycle: The industry life cycle theory is generally attributed to Julius
Grodensky. The life cycle of the industry is separated into four well defined stages.

Pioneering stage: The prospective demand for the product is promising in this
stage and the technology of the product is low. The demand for the product
attracts many producers to produce the particular product. There would be severe
competition and only fittest companies survive this stage. The producers try to
develop brand name, differentiate the product and create a product image. In this
situation, it is difficult to select companies for investment because the survival
rate is unknown.

Rapid growth stage: This stage starts with the appearance of surviving firms from
the pioneering stage. The companies that have withstood the competition grow
strongly in market share and financial performance. The technology of the
production would have improved resulting in low cost of production and good
quality products. The companies have stable growth rate in this stage and they
declare dividend to the shareholders. It is advisable to invest in the shares of these
companies.

Maturity and stabilization stage: the growth rate tends to moderate and the rate
of growth would be more or less equal to the industrial growth rate or the gross
domestic product growth rate. Symptoms of obsolescence may appear in the
technology. To keep going, technological innovations in the production process
and products should be introduced. The investors have to closely monitor the
events that take place in the maturity stage of the industry.

Decline stage: demand for the particular product and the earnings of the
companies in the industry decline. It is better to avoid investing in the shares of
the low growth industry even in the boom period. Investment in the shares of
these types of companies leads to erosion of capital.

Growth of the industry: The historical performance of the industry in terms of growth
and profitability should be analyzed. The past variability in return and growth in reaction
to macro economic factors provide an insight into the future.
32

Nature of competition: Nature of competition is an essential factor that determines the

demand for the particular product, its profitability and the price of the concerned
company scrips. The companies' ability to withstand the local as well as the multinational
competition counts much. If too many firms are present in the organized sector, the
competition would be severe. The competition would lead to a decline in the price of the
product. The investor before investing in the scrip of a company should analyze the
market share of the particular company's product and should compare it with the top five
companies.
SWOT analysis: SWOT analysis represents the strength, weakness, opportunity and
threat for an industry. Every investor should carry out a SWOT analysis for the chosen
industry. Take for instance, increase in demand for the industrys product becomes its
strength, presence of numerous players in the market, i.e. competition becomes the threat
to a particular company. The progress in R & D in that industry is an opportunity and
entry of multinationals in the industry is a threat. In this way the factors are to be
arranged and analyzed.

33

NEED OF THE STUDY

To start any business capital plays major role. Capital can be acquired in two ways by
issuing shares or by taking debt from financial institutions or borrowing money from
financial institutions. The owners of the company have to pay regular interest and
principal amount at the end.
Stock is ownership in a company, with each share of stock representing a tiny piece of
ownership. The more shares you own, the more of the company you own. The more
shares you own, the more dividends you earn when the company makes a profit. In the
financial world, ownership is called Equity.
Advantages of selling stock:

A company can raise more capital than it could borrow.

A company does not have to make periodic interest payments to creditors.

A company does not have to make principal payments

Stock/shares play a major role in acquiring capital to the business in return investors are
paid dividends to the shares they own. The more shares you own the more dividends you
receive.
The role of equity analysis is to provide information to the market. An efficient market
relies on information: a lack of information creates inefficiencies that result in stocks
being misrepresented (over or under valued). This is valuable because it fills information
gaps so that each individual investor does not need to analyze every stock thereby making
the markets more efficient.

34

SCOPE OF THE STUDY

The scope of the study is identified after and during the study is conducted. The
project is based on tools like fundamental analysis and ratio analysis. Further, the
study is based on information of last five years.

The analysis is made by taking into consideration five companies i.e. TATA
Motors, Maruti Suzuki and Mahindra and Mahindra.

The scope of the study is limited for a period of five years.

The scope is limited to only the fundamental analysis of the chosen stocks.

35

METHODOLOGY
Research design or research methodology is the procedure of collecting, analyzing
and interpreting the data to diagnose the problem and react to the opportunity in such
a way where the costs can be minimized and the desired level of accuracy can be
achieved to arrive at a particular conclusion.
The methodology used in the study for the completion of the project and the
fulfillment of the project objectives.
The sample of the stocks for the purpose of collecting secondary data has been
selected on the basis of Random Sampling. The stocks are chosen in an unbiased
manner and each stock is chosen independent of the other stocks chosen. The stocks
are chosen from the automobile sector.
The sample size for the number of stocks is taken as 3 for fundamental analysis of
stocks as fundamental analysis is very exhaustive and requires detailed study.

36

ANALYSIS OF AUTOMOBILE INDUSTRY

Over a period of more than two decades the Indian Automobile industry has been
driving its own growth through phases. With comparatively higher rate of economic
growth rate index against that of great global powers, India has become a hub of
domestic and exports business. The automobile sector has been contributing its share
to the shining economic performance of India in the recent years.
To understand this industry for the purpose of investment we need to analyze it by the
following approach:
Fundamental Analysis (E.I.C Approach)
a. Economy analysis
b. Industry analysis
c. Company analysis

Fundamental Analysis
Fundamental analysis is the study of economic, industry and company conditions in
an effort to determine the value of a company s stock. Fundamental analysis typically
focuses on key statistics in company s financial statements to determine if the stock
price is correctly valued.
Most fundamental information focuses on economic, industry and company statistics.
The typical approach to analyzing a company involves three basic steps:
1. Determine the condition of the general economy.
2. Determine the condition of the industry.
3. Determine the condition of the company.

37

1. ECONOMY ANALYSIS
Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an
economy.
GDP and Automobile Industry
In absolute terms, India is 16th in the world in
terms of nominal factory output. The service
sector is growing rapidly in the past few years.
This is the pie- chart showing contributions of
different sectors in Indian economy.

Today, automobile sector in India is one of the key sectors of the economy in terms of
the employment. Directly and indirectly it employs more than 10 million people and
if we add the number of people employed in the auto-component and auto ancillary
industry then the number goes even higher.
As the world economy slipped into recession hitting the demand hard and the banking
sector takes conservative approach towards lending to corporate sector, the GDP

38

growth has downgraded it to 7.1 per cent for 2008-09 and it has increased to 8.6% in
2010 by overcoming the setbacks of recession.
Recession
Auto industry in India had been hit hard by ongoing global financial recession. But it
is in a good shape now. Much of this optimism resulted from renewed interest being
shown in India auto industry by reputed overseas car makers. Nissan Motors which is
a well known Japanese car making company regarded India automobile market as a
global car manufacturing hub for future and invested huge amount in our market.
There are some other automobile companies of world who have shown interest in
India auto market. Major names among these are General Motors, Skoda Auto and
Mercedes-Benz. These companies have major plans lined up for India auto industry.
These are few signs of the revolutionized auto industry after recession.
Inflation
The rise in inflation will have adverse impact on the industry that will not only see
interest rates getting further hardened but also a drop in demand due to the squeeze in
purchasing power. The effect of inflation has affected every sector which is related to
car manufacturing and production. The increase in the price of fuel and the steel due
to inflation has led to a slower growth rate of the car industry in India.
Foreign Direct Investment
The automobile sector in the Indian industry is one of the high performing sectors of
the Indian economy. This has contributed largely in making India a prime destination
for many international players in the automobile industry who wish to set up their
businesses in India. Automatic approval for foreign equity investment up to 100 per
cent of manufacture of automobiles and component is permitted.

39

Exports
Despite recession, the Indian automobile market continues to perform better than
most of the other industries in the economy in coming future; more and more MNCs
coming in India to setup their ventures which clearly shows the scope of expansion.
During April-January 2010, overall automobile exports registered a growth rate of
13.24 percent.

2. INDUSTRY ANALYSIS (AUTOMOBILE)

The automobile industry in India is the ninth largest in the world with an annual
production of over 2.3 million units in 2008. In 2009, India emerged as Asia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand. The
Automobile Industry is one of the fastest growing sectors in India. The increase in the
demand for cars, and other vehicles, powered by the increase in the income is the
primary growth driver of the automobile industry in India. In 2009, estimated rate of
growth of India Auto industry is going to be 9% .The Indian automobile sector is far
from being saturated, leaving ample opportunity for volume growth.
Segmentation of Automobile Industry
The automobile industry comprises of Heavy
vehicles

(trucks, buses, tempos, tractors);

passenger cars; Two-wheelers; Commercial

Vehicles; and Three-wheelers. Following is the
segmentation that how much each sector
comprises of whole Indian Automobile Industry.
Industry life cycle
The industrial life cycle is a term used for classifying industry life over time. Industry
life cycle classification generally groups industries into one of four stages: pioneer,
growth, maturity and decline. In the pioneer phase, the product has not been widely

40

accepted or adopted. Business strategies are developing, and there is high risk of
failure. However, successful companies can grow at extraordinary rates. The Indian
automobile sector has passed this stage quite successfully. The industry is growing
rapidly, often at an accelerating rate of sales and earnings growth. Indian Automotive
Industry is booming with a growth rate of around 15 % annually. The growth rate of
the automobile industry in India is greater than the GDP growth rate of the economy,
so the automobile sector can be very well be said to be in the growth phase.
Swot analysis:
A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified
as strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis. SWOT analysis of the Indian automobile sector gives
the following points:
1. Strengths

Large domestic market

Sustainable labor cost advantage

Competitive auto component vendor base

Government incentives for manufacturing plants

Strong engineering skills in design etc

2. Weaknesses

Low labor productivity

High interest costs and high overheads make the production uncompetitive

Various forms of taxes push up the cost of production

Low investment in Research and Development

41

Infrastructure bottleneck

3. Opportunities

Increasing challenges in consumer demands, technology development, and

globalization.

Heavy thrust on mining and construction activity

Increase in the income level

Cut in excise duties

4. Threats

Ignorance of Research & development

Rising interest rates

Cut throat competition

3. COMPANY ANALYSIS
The company analysis shows the long-term strenght of the company that what is the
financial position of the company in the market, where it stands among its
competitors and who are the key drivers of the company, what are the future plans of
the company, what are the policies of government towards the company and how the
stake of the company divested among different groups of people.
Here, I have taken three companies namely TATA Motors, Maruti Suzuki and
Mahindra and Mahindra for the purpose of fundamental analysis.

Tata Motors Limited is India's largest automobile company, with consolidated

revenues of Rs. 92,519 crores (USD 20 billion) in 2009-10. It is the leader in
commercial vehicles in each segment, and among the top three in passenger vehicles

42

with winning products in the compact, midsize car and utility vehicle segments. The
company is the world's fourth largest truck manufacturer, and the world's second
largest bus manufacturer.

Maruti Suzuki is a subsidiary of Suzuki Motor Corporation Japan. More than half the
numbers of cars sold in India wear Maruti Suzuki badge. They offer a full range of
cars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A star, Swift,
Wagon R, Estillo and sedans Dzire, SX4 and Sports Utility Vehicle Grand Vitara.
Since inception, it has produced and sold over 7.5 million vehicles in India and
exported over 500,000 units to Europe and other countries. Its turnover for the fiscal
2008-09 stood at Rs. 203,583 Million & Profit after Tax at Rs. 12,187 Million.

The Mahindra Groups Automotive Sector is in the business of manufacturing and

marketing utility vehicles and light commercial vehicles, including three-wheelers. It
is the market leader in utility vehicles in India since inception, and currently accounts
for about half of Indias market for utility vehicles. The Automotive Sector continues
to be a leader in the utility vehicle segment with a diverse portfolio that includes mass
transport as well as new generation vehicles like Scorpio, Bolero and the recently
launched Xylo.

RATIO ANALYSIS OF TATA MOTORS, MARUTI SUZUKI AND

MAHINDRA & MAHINDRA
EARNINGS PER SHARE

43

EARNINGS PER SHARE

YEARS
TATA
MARUTI
MAHINDRA

Mar'05
34.19
29.55
45.92

Mar'06
39.94
41.16
36.72

Mar'07
49.65
54.07
44.88

Mar'08
52.63
59.91
46.15

Mar'09
19.48
42.18
30.69

Interpretations
EPS measures the profit available to the equity shareholders per share, that is, the
amount that they can get on every share held. Till 2008 TATA and Maruti had a rising
EPS but in 2009 both of them fall and the effect is more on Tata motors because of
the slump in domestic and international markets and sharp fall in sales and net profits
which resulted in low EPS. Mahindra is not much affected as its sales have increased
from the previous year. But as trend shows Mahindra motors has potential so a
shareholder can expect better in future.
SALES
SALES
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
20,262.61
13,458.20
7,649.51

Mar'06
23,490.55
14,898.80
9,273.09

Mar'07
31,089.69
17,358.40
11,231.99

Mar'08
33,123.54
21,200.40
12,894.94

Mar'09
28,538.20
23,381.50
14,713.03

44

Interpretations
Maruti and Mahindra show a positive trend in sales over the past five years. Though
slowdown in the economy brought hurdles but these companies have potential to
grow in future as lots of products are still to add in their portfolio. Moreover
increased demand in foreign market also seems to be a positive signal for better
future. TATA has witnessed a decline in sales of each segment. Maruti and Mahindra
are going swiftly.
DIVIDEND PER SHARE

DIVIDEND PER SHARE

YEARS
TATA
MARUTI
MAHINDRA

Mar'05
12.5
2
13

Mar'06
13
3.5
10

Mar'07
15
4.5
11.5

Mar'08
15
5
11.5

Mar'09
6
3.5
10

45

Interpretations
Tata motors and Maruti Suzuki both the companies showed a positive trend in paying
dividends till 2008, but the scenario changed in 2009 as both the companys dividend
per share fell. According to graph Tatas dividend has fallen drastically while Maruti
stick to below 5 per share. Mahindra has made a slight reduction from rs.11.5 per
share in 2008 to rs.10 per share this year. Therefore Mahindra would be the best
option for an investor.
RETURN ON INVESTMENT (ROI)

Return on Investment
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
30.09
19.49
25.66

Mar'06
27.74
21.81
29.6

Mar'07
27.96
22.79
30.18

Mar'08
25.98
20.56
25.51

Mar'09
8.09
13.04
16.03

46

Interpretations
ROI is one of the most important ratios used for measuring the overall efficiency of a
firm and determines whether the investments in the firms are attractive or not.
According the graph, ROI of TATA has declined to a large extent in 2009, making it a
quite risky investment. Marutis ROI has also declined but Mahindras ROI is
showing a higher rate compared to TATA and Maruti in 2009. As the investors would
like to invest only where the return is higher, Mahindra would be attractive for
investment.
DIVIDEND PAYOUT RATIO
DIVIDEND PAYOUT RATIO
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
41.68
7.73
33.54

Mar'06
37.13
9.69
32.45

Mar'07
35.34
9.72
30.39

Mar'08
32.51
9.78
29.1

Mar'09
34.52
9.7
37.29

47

Interpretations
Dividend payout ratio is the percentage of earnings paid to shareholders in dividends.
It provides an idea to an investor of how well earnings support the dividend
payments. Maruti has maintained a stable payout ratio. Both TATA and Mahindra
have increased their payout ratio in which Mahindra shows a higher payout ratio.
PRICE-EARNINGS RATIO (P/E RATIO)

PRICE-EARNINGS RATIO
YEARS
TATA
MARUTI
MAHINDRA

Mar'05
19.09
21.5
11.1

Mar'06
22.5
22.5
24.6

Mar'07
14.9
18.3
19.1

Mar'08
3.02
8.6
5.9

Mar'09
40.6
36.9
35.2

48

Interpretations
This ratio is widely used by investors to decide whether or not to buy shares in a
particular company. As per the graph, in 2008, the P/E ratio of the three companies
was the lowest compared to the previous years. TATA has the highest P/E ratio in
2009 which indicates that it is overvalued, so the investors can benefit by selling the
shares. An investor can go for Mahindra as its P/E ratio is the lowest in 2009 which
indicates that it is undervalued and there is a scope for growth in the future.

49

FINDINGS
From the data analysis and interpretations of the ratios of three companies viz. Tata
Motors, Maruti Suzuki and Mahindra and Mahindra, the following findings have been
given:

The three companies were performing well till 2008 with a positive trend in
the earnings per share. But there was a downward trend in 2009. Especially,
TATA has witnessed a steep fall in the year 2009.

The sales trend has been upward and positive in case of all the three
companies. The sales growth looks positive but in the year 2009, TATAs sales
have declined whereas Maruti and Mahindra have maintained the same
upward positive trend.

In case of dividend per share, there were fluctuations during the period 20052009. Due to recession, the dividends per share have declined in all the three
companies. Tatas dividend has fallen drastically while Maruti stick to below 5
per share. Mahindra has made a slight reduction from rs.11.5 per share in
2008 to rs.10 per share this year.

The return on investment has been fluctuating since 2005 and the year 2009
witnessed low returns in case of all the companies amongst which TATA has
the least rate of return. Compared to the three companies, Mahindra has the
highest ROI in 2009.

Maruti had a stable dividend payout ratio since 2005. TATA and Mahindra
have increased their payout ratio in which Mahindra shows a higher payout
ratio.

The three companies have witnessed a low price earnings ratio in 2008
compared to the previous years. But the ratio increased in 2009 in three
companies. TATA has the highest P/E ratio in 2009 which indicates that it is

50

overvalued and Mahindras P/E ratio is the lowest in 2009 which indicates that
it is undervalued and there is a scope for growth in the future.

By analyzing the current trend of Indian Economy and Automobile Industry I have
found that being a developing economy there is lot of scope for growth and this
industry still has to cross many levels so there are huge opportunities to invest in and
this is being proved as more and more foreign companies are setting up there ventures
in India.
Increase in income level, increase in consumer demand, technology development,
globalization, foreign investments are few of the opportunities which the industry has
to explore for developing the economy.

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CONCLUSION
The Automobile industry in India is the seventh largest in the world with an annual
production of over 2.6 million units in 2015. In 2015, India emerged as Asia's fourth
largest exporter of automobiles, behind Japan, South Korea and Thailand.
The collapse in market place witnessed unprecedented turbulence in the wake of
global financial meltdown. A runaway inflation touching a high point of 12% early in
the year, the tight monetary policies followed by the authorities for most of the year
to control inflation with the consequent high interest rates and weak consumer
demand, have collectively had a devastating effect on the automotive sector.
Maruti Suzuki India LTD. company has a trend of growth from till 2014.During the
financial year 2014-15 the there is downfall in the growth of the company. The main
reason behind this downfall is because of the global recession. The downfall of net
profit during the financial year 2014-15 is 29.6% over the financial year 2014-2015.
TATA Motors, which was trying to consolidate its leadership position in the market,
also had to face the impact of global meltdown. Amid the crippling economic crisis,
Tata purchased Britains Jaguar Land Rover (JLR) from Ford Motor Company.
Acquiring JLR saddled Tata with some tough losses. Dividends and earnings remain
low.
Inspite of it being a tough year for all the companies across the globe and in India,
Mahindra has given a satisfactory performance. At present its shares are undervalued
giving it a potential for growth.
Global recession had a dampener effect on the growth of automobile industry but it
was a short term phenomenon. The industry is bouncing back. One factor favoring
this point is that India has become a hot destination for companies of diverse nature to
invest in. Cut throat competition among top companies, lots of new car and vehicle
model launches at regular intervals keeps the Indian auto sector moving.
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A continuous effort at cost cutting and improving productivity will help the
companies in making reasonable profits despite the impact of higher commodity
prices and weaker rupee.

The analysis gives an optimistic view about the industry and its growth which
recommends the investors to keep a good watch on the major players to benefit in
terms of returns on their investments.

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LIMITATIONS

This study has been conducted purely to understand Equity analysis for
investors.

The study is restricted to three companies based on Fundamental analysis.

The study is limited to the companies having equities.

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

There was a constraint with regard to time allocation for the research study i.e.
for a period of 45 days.

Suggestions and conclusions are based on the limited data of five years.

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SUGGESTIONS
By analyzing the automobile industry with the help of fundamental analysis, it has
been revealed that this industry has a lot of potential to grow. So recommending
investing in Automobile industry with no doubt is going to be a good and smart
option because this industry is booming like never before not only in India but all
over the world.
The three giants of Indian Automobile industry viz. TATA Motors, Maruti Suzuki and
Mahindra and Mahindra have outperformed in the industry.

From the company analysis, we can know that Mahindra would be a better
option for an investor compared to TATA and Maruti. In view of the slump in
the domestic and international market, TATA has recorded a slowdown in
sales and income level. Its Earnings per share has also declined drastically. It
has reduced its dividend per share from rs.15 in the previous year to rs.6 in
2015. The return on investment is also very low. In view of all these, TATA is
not a better option for an investor.

The global turmoil in financial markets has affected Maruti also. The
company is maintaining a stable position. Its sales have grown over past five
years. Inspite of the general economic slowdown, the sales of Maruti Suzuki
increased from Rs 21200 Crore to Rs 23381 Crore. As it is maintaining a
stable position, it can be recommended that for now Maruti share price shows
that its a time to hold the position or buy more shares as there is scope of
further rise in share prices.

Despite the challenging business environment, Mahindra has maintained its

upward sales level. Its Return on Investment is much higher compared to
TATA and Maruti. The dividend per share is rs.10 which is higher amongst the
three companies. The company has potential to grow. It would be the best
option for the investor.
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Investing in Maruti Suzuki for long time could be a good option whereas in
TATA motors there is a chance of getting correction, as it already went on high
side in a very short period of time and is experiencing a downfall from 2014.

Holding the shares for long time could be a wrong step and at this point of
time those who invested earlier can book their profits. As Mahindras shares
are undervalued, the investor can buy these shares. This is because a relatively
lower P/E would save investors from paying a very high price that does not
justify the value of an investment.

Few Suggestions for Right Stock Selection

There are three factors which an investor must consider for selecting the right stocks.

Business: An investor must look into what kind of business the company is
doing, visibility of the business, its past track record, capital needs of the
company for expansion etc.

Balance Sheet: The investor must focus on its key financial ratios such as
earnings per share, price-earning ratio; debt-equity ratio, dividends per share
etc and he must also check whether the company is generating cash flows.

Bargaining: This is the most important factor which shows the true worth of
the company. An investor needs to choose valuation parameters which suit its
business.

Investment rules

Invest for long term in equity markets

Align your thought process with the business cycle of the company.

Set the purpose for investment.

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Long term goals should be the objective of equity investment.

Disciplined investment during market volatility helps attains profits.

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BIBLIOGRAPHY
Text Books
Security Analysis and Portfolio Management by Pandian Punithavathy, Vikas
Publications.
Security analysis and portfolio management by Avadhani V.A.
Financial Markets and Services by Gordon and Natarajan, Himalaya
Publications.
Financial Management by Gupta Shashi K and Sharma R. K, Kalyani
Publications.
Newspapers
Economic times
Business line
Websites

www.nseindia.com

www.bseindia.com

www.investopedia.com

www.moneycontrol.com

www.indiainfoline.com

www.sebi.gov.in

www.tatamotors.com

www.marutisuzuki.com

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www.mahindra.com

www.yahoofinance.com

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