KARVY STOCK BROKING LTD, VIJAYAPURA

A Study Of Fundamental Analysis On Selected Stocks Project

INTRODUCTION

The Karvy Group is a premier integrated financial services provider, ranked among the top in the
country across its business segments. The Group services over 70 million individual investors in
various capacities, and provides investor services to over 600 corporate houses. Karvy Group
established its presence through a wide network of over 450 branches, (or 900 offices) covering
in excess of 400 cities and towns.

Karvy covers the entire spectrum of financial services, viz stock broking, depository participant,
distribution of financial products (including mutual funds, bonds and fixed deposits),
commodities broking, personal finance advisory services, merchant banking & corporate finance,
wealth management, NBFC, among others.

The Group is professionally managed and ranks among the best in technology, operations and
research across the financial industry. The Karvy Group has evolved over the last three decades
and today it assumes many avatars. Broadly the group pursues two lines of businesses and can be
graphically represented as follows:

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Introduction To Topic

Fundamental analysis is the examination of the underlying forces that affect the well-being of the
economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast
and profit from future price movements. At the company level, fundamental analysis may
involve examination of financial data, management, business concept and competition. At the
industry level, there might be an examination of supply and demand forces for the products
offered. For the national economy, fundamental analysis might focus on economic data to assess
the present and future growth of the economy. To forecast future stock prices, fundamental
analysis combines economic, industry, and company analysis to derive a stock's current fair
value and forecast future value. If fair value is not equal to the current stock price, fundamental
analysts believe that the stock is either overvalued or undervalued and the market price will
ultimately gravitate towards fair value. Fundamentalists do not heed the advice of the random
walkers and believe that markets are weak-form efficient. By believing that prices do not
accurately reflect all available information, fundamental analysts look to capitalize on perceived
price discrepancies.

The Indian IT sector is one of the ongoing shining sectors of the Indian economy showcase with
rapid development and promise. According to a report by NASSCOM called “Perspective 2020:
Transform. India” the exports element of the Indian Industry is anticipated to reach US$ 175
billion in revenue by 2020.India is considered as the home town to a huge number of potential IT
professionals who could congregate the demands and global industry expectations with their
eminent skill and expertise. IT sector in India is high cost efficient in terms of skilled
professionals as in comparison with the developed countries. This is also the reason for increase
in IT services like knowledge process outsourcing and business process outsourcing have
extended in the job market of Indian economy. The average purchasing powers of the individual
consumers have increased. With this aggregate demand and aggregate supply has increased.
Which resulted improvement in gross domestic production of goods and services in the India.
Therefore IT sector plays a very important role in Indian Economy as whole. This paper attempt
to study the fundamental analysis on selected five IT companies listed in NSE.

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NEED OF STUDY:

Fundamental value or intrinsic value is very important in doing an investment. The intrinsic
value of the stock does not refer to market value but refers to the natural value of the stock.
Through fundamental analysis, we can arrive at the fundamental value of the stock which
enhances the understanding of different stock to investors. Fundamental value or intrinsic value
is the actual value of the stock which can be derived from fundamental analysis and this value is
very important at the time of investment to take a rational decision in investing in a stock.
Fundamental analysis of stock also brings in elements like discounting, future projected projects
are discounted in relation to the time value of money to find out the actual value of the stock.
While investing in different stocks clear analysis is a need, without clear and rational analysis
decision making will become very complex, to make it more easy and accurate fundamental
analysis can be used.

OBJECTIVES OF THE STUDY

The following are the objective of the study :

 To study the growth and performance of IT sector.

 To study on the Fundamental Analysis for five company scripts to recommend for better
choice of investment.
 To analyze the Intrinsic value and forecast the future value through fundamental analysis.

SCOPE OF THE STUDY

The study is conducted based on the selected IT companies listed in NSE. The companies are
selected with respect to their market capitalization, revenue, sales and performance.

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RESEARCH METHODOLOGY
In this paper mainly secondary data is used. Data are collected from sources such as internet,
websites ‘of selected companies, company balance sheets, annual reports, press release etc.
Analysis of data is done with help of Fundamental tools for selected five companies.

REVIEW LITERATURE

• (2011) Sugandharaj Kulkarni in his research paper titled, “A study on fundamental analysis
of ONGC” explains about the relevance of fundamental analysis along with the attempt to find
the Intrinsic value of shares.

• (2011) Venkatesh C K and Madhu Tyagi in their research paper titled, “Fundamental analysis
as a method of share valuation in comparison with technical analysis” detailed about different
movement of share prices in comparison with fundamental and technical analysis. It also
emphasized on the market capitalization and organizational structure.

• (2015) Ahmed s Wafi, Hassan Hassan and Abel Mabrouk in their learning headed, “
Fundamental analysis models in financial market” presented in third economic and finance
conference in Rome. This paper aims to find the better stock valuation model using the
fundamental analysis approach.

• (2016) J Hema and V Ariram in their research paper titled, “ Fundamental analysis with
special reference to pharmaceutical companies listed in NSE” stated that an investor should
analyze the market fundamentally and technically before investing in shares. They also noticed
growth in the pharmaceutical industry in India.

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DATA ANALYSIS

Economic Analysis

In economic analysis, the present performance of the economy as a whole is identified using
economic factors like GDP, Inflation rate, IIP, Balance of Payment, Fiscal deficit, Current
account deficit, Unemployment rate. Table 1 depicts the five year data of economic factors from
2015 to 2019 which indeed help the investors to take better investment decision.

Year 2015 2016 2016-2017 2017-2018 2018-2019 Compound

amount growth
rate%
GDP(%) 6.4 7.4 8 8.2 7.2
Inflation rate(&) 5.8 4.9 4.5 3.6 3.43
IIP 2.4 5.2 4.4 5.3 2.7
Balance 341.6 360.2 370 424.3 424.3
of payment
Fiscal deficit(%) -4.1 -3.89 -3.52 -3.53 -3.42
Current account -686.79 -317.76 -2554.006 -13047.43 -4628.37
deficit(%)
Unemployment(%) 2.782 2.730 2.557 2.551 2.551

Economic growth can be determined using the GDP of the country. GDP is showing an upwards
trend for the past four years as it increase year after year. As the inflation rate falls down the
purchasing power of the economy increases which boast the market performance. Inflation in
Indian economy is coming down from 5.8 percent in 2015 to 3.43 percent in 2018-19, therefore
shows a decreasing trend during last five years.

Industrial productions in an economy establish productivity of the country. Index of Industrial

production initially decreased steeply from 2015-16 to 2016-17. In 2016-17 and 2017-18
slightly increased. Balance of Payment depicts the economic transaction of country with rest of
the world. Balance of payment is highly fluctuating year after year. In the year 2014-15 it was
341.6 billion and increased to 424.3 billion in the year 2018-19.Fiscal deficit is surplus of total

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expenditure over total receipt exclusive of borrowings during the given fiscal year. Fiscal deficit
is having a downward trend in Indian economy since 2015-16. The highest fiscal deficit is in
2014-15 which is -4.1 percent.

A current account deficit is the value of investments or services or goods imported greater than
that of the value of exports. The highest current account deficit is identified as on which is -4.1
percent. The current account deficit is seemed to be decreasing gradually. The highest rate of
unemployment was in 2014-15 i.e. 2.782 percent and lowest unemployment was in 2017-18 i.e.
2.551 percent. After an increase in 2015 the unemployment rate is coming down in 2017-18.

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INDUSTRY ANALYSIS

In Industry analysis, Information technology industry is studied in terms of its problems and
prospects. India is considered as world’s leading sourcing destination for the information
technology industry, as ion figures it comes to just about 67 percent of the US $ 124-130 billion
market. The IT industry has shaped momentous command in education sector, in particular for
engineering and computer sciences. Information Technology is fragmented industry and not a
concentrated one. In fragmented industries, there is absence of big dominant players such that
small companies also prevail in the market but it is difficult for one company to establish a
vigorous operation. Information technology industry is a fragmented industry, which emphasis
on free entry and exit of firms into the sector. Even though such a situation prevails in the
market, the major role is played by the big giant corporate like IBM, Infosys, TCS, Inforte,
Wipro and others. Government can make their interference into the technology sector which has
its own effect in the industry. Government interference and intervention can be explained in two
fundamental parts i.e. directly and indirectly. Direct method means support given by the
government for the development of new technology and market mechanisms to present
incentives for change done by the industry. On the other

Jour of Adv. Research in Dynamical and Control Systems Vol: 9 SI: 5,2017

Special Issue on Allied Electrical and Control Systems hand, indirect approach deal with the
persuasion to regulate project standards and direct government purchases by the IT sector.

Porter’s five force models consist of five major indicators to analyze an industry i.e. existing
competition, availability of substitutes, threat of new entrants, bargaining power of suppliers and
bargaining power of customers.

• EXISTING COMPETITION: IT services such as network management services, data-center

services, infrastructure management services, application development and maintenance etc
which leads to competition. Many companies in the industry are offering the similar services and
therefore difficult to differentiate each other. • BARGAINING POWER OF CUSTOMERS:
Buyers bargaining power is large and chance of pressure on rates prevails in the industry. Both
the international and Indian IT firms have negated the advantages all the way through global
delivery and mature procurement.

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• BARGAINING POWER OF SUPPLIERS: Supplier’s bargaining power is very low and as

high standardization prevails in the industry there is modest chance for the suppliers to have any
thump.

• THREAT OF NEW ENTRANTS: Industry is also characterized by high people dependence

and consequently can observe veterans isolate from prevailing companies to devote in new
ventures. The innovative technology allows the opportunity of entrants to new niche players
which are not dependent on experience constraints or size.

• AVAILABILITY OF SUBSTITUTES: IT sector has been a mixed bag for newer services as
well since internal specialization is low and most of the work is outsourced generally. Therefore
there is no substantial substitute to information technology industry from internal perspective,
and are thinner in numbers and significance.

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COMPANY ANALYSIS

In company analysis the financial performance of the selected companies are analyzed in order to
analyze the profitability of the firm. An investor should be aware of the financial performance of
the company to know the risk and return associated with particular share. For the purpose of
analysis various ratios such as EPS, Book Value, P/E ratio, Ratio on equity and Dividend payout
ratio are used.

Below are the top IT Companies in India classified by revenue

1st – TCS – 64,672.93 cr

2nd – Infosys – 44,341 cr

3rd – Wipro – 38,757.2 cr

4th – HCL Technologies – 16,497.37 cr

5th – Tech Mahindra – 16,295.1cr

6th – Oracle Financial Services – 3159.4 cr

7th – Mindtree – 3031.6 cr

8th – Mphasis – 1328.9 cr

9th – Rolta – 1142.8 cr

10th – Cyient – 1224.4 cr

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• EARNINGS PER SHARE

Earnings per share is calculated as a company’s profit divided by the outstanding shares of its
common stock . EPS indicates the earning capacity of the company.

Year TCS Infosys Wipro HCL Tech

Technologies Mahindra
2014-15 97.7 31.04 14.84 52.09
51.24
2015-16 111.9 31.8 14.13 39.79
51.24
2016-17 123.28 33.2 14.13 60.33
51.24
2017-18 133.4 38.8 14.13 62.23
51.24
2018-19 87.04 36.04 15.54 73.58
51.24
CAGR

Wipro and TCS is having a positive CAGR while Infosys, HCL Tech and Mindtree is having
negative CAGR. Positive CAGR reveals increase of EPS over years and Negative CAGR reveals
decrease in EPS over years.

• PRICE TO EARNINGS RATIO

The P/E Ratio is a measure of the price paid for share relative to income or profit earned by the
firm per share. A higher P/E ratio means that investors are paying more for unit of income.

Year TCS Infosys Wipro HCL Tech

Technologies Mahindra
2015-15 25.20 17.74 32.94 60.35 22.84
2015-16 20.46 19.31 30.30 52.88 33.27
2016-17 18.23 15.69 29.58 48.17 31.28
2017-18 21.22 15.58 26.01 33.46 40.82
2018-19 24.10 21.64 18.30 45.14 44.55
CAGR

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It shows a positive CAGR in Infosys, TCS, HCL Tech and Mindtree whereas Wipro shows
negative CAGR as its P/E ratio during last five years have a downward trend.

• RETURN ON EQUITY

Return on equity is a measure of profitability of company that reveals how profit is generated by
the company with the money shareholders have invested. It is computed by dividing profit after
tax with net worth.

Year TCS Infosys Wipro HCL Tech

Technologies Mahindra
2014-15 38.91 24.12 22.77 39.44 22.84
2015-16 38.91 24.12 22.77 39.44 33.27
2016-17 38.91 24.12 22.77 39.44 31.28
2017-18 38.91 24.12 22.77 39.44 40.82
2018-19 38.91 24.12 22.77 39.44 44.55
CAGR

It depicts that Return on equity of Wipro and Mindtree is moving in positive trend. On the other
hand Infosys, TCS and HCL Tech show a downward trend.

• DIVIDEND PAYOUT RATIO

The DPR measures what a company‘s pay out to investors in the form of dividends. It can be
calculated by dividing the annual dividends per share by the Earnings per share. It can be
computed by DPS divided by EPS.

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Year TCS Infosys Wipro HCL Tech

Technologies Mahindra
2014-15 80.35 42.41 36.17 32.60 25.67
2015-16 34.63 43.88 43.49 48.15 36.09
2016-17 38.73 50.51 10.75 39.34 45.24
2017-18 36.78 46.42 7.05 19.40 25.90
2018-19 33.54 93.64 7.16 10.85 31.42
CAGR

It shows dividend payout ratio for last five years, in that Infosys, HCL Tech and Mindtree is
providing shareholders with high dividend whereas Wipro and TCS declined in their dividend
payout ratio.

• BOOK VALUE

This ratio indicates the share of equity shareholders after the company has paid all its liabilities,
creditors, debenture holders and preference shareholders.

Year TCS Infosys Wipro HCL Tech

Technologies Mahindra
2014-15 258.51 443.96 150.23 172.30 629.70
2015-16 360.69 270.14 186.77 194.21 472.85
2016-17 437.54 301.80 212.56 230.93 459.15
2017-18 444.70 298.73 105.94 261.35 638.70
2018-19 239.58 149.79 93.51 305 775.90
CAGR

It depicts book value where Wipro, TCS and HCL Tech shows a positive CAGR and Mindtree as
well as Infosys is showing a negative CAGR.

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VALUATION OF SHARE :

Ratios TCS Infosys Wipro HCL Tech

Technologies Mahindra
Average DPR

(∑DPS/no of years)
Average ROE
(ROE/ No. of years)
Growth in Equity
(Avg. Retention Ratio
*Avg. ROE)
Normalized Average
P/E ratio
(∑P/E ratio/ No. of
years)
Projected EPS
(Current EPS * (1 +
Growth in equity)
Intrinsic Value
(Projected EPS *
Normalized Avg. P
Ratio)
Market Value(as on 28-
Apr-2017)

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EXECUTIVE SUMMARY

This project has been a great experience for me and at the same time it gave me enough scope to
implement my analytical ability. Stock Broking Leading industry which is basically my concern
industry around which my project has to be revolved is really a very complex industry. This
project as a whole can be divided into two parts:- The first part gives an insight about demit
account and share trading and its various aspects. It is purely based on what I learned at Karvy
Stock Broking Ltd. One can have a brief knowledge about demit and share trading and all its
basics through the project. Apart from it I have also gained knowledge briefly about mutual fund,
general insurance etc.

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This entire topic has been covered in a very systematic way. The language has been kept
simple so that even a layman could understand. All the data’s have well analysed with the help of
chart and diagram.

I have really enjoyed during the time period of summer internship because I gained much
better knowledge about the share market trading activities not only a single Karvy Stock Broking
Ltd. But also gained another Company’s trading activities. The practical knowledge given me
enough scope to implement my experience in related companies in the near future. I am able to
know better how to manage the employees work and to take necessary step to enhance growth
and development of the employees as well as the company’s wellness.

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