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A STUDY ON RISK RETURN ANALYSIS OF SELECTED TELECOM
COMPANIES AT HEDGE EQUITIES PVT. LTD., ERNAKULAM
SUMMER PLACEMENT REPORT
Submitted to
MAHATMA GANDHI UNIVERSITY, KOTTAYAM
In partial fulfillment of the requirement for the award of the
MASTERS DEGREE IN BUSINESS ADMINISTRATION
(2011-2013)
BY
AKASH V
Registration No: 36095
RAJAGIRI SCHOOL OF SOCIAL SCIENCES
RAJAGIRI P.O
KOCHI-683104
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DECLARATION
I, Akash V, Student of Rajagiri College of Social Sciences, Kochi, hereby
declare that this project report titled A study on risk return analysis of selected
telecom companies at Hedge Equities Pvt. Ltd., Ernakulamis an original work
carried out by me for the partial fulfilment of the requirement for the award of
Masters of Business Administration degree of Mahatma Gandhi University,
Kottayam.
I also declare that this project is original and has not been previously submitted
for the award of any degree, diploma or any other similar title of Mahatma
Gandhi University or any other University or Institute.
Date:Place: Akash
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ACKNOWLEDGEMENT
I wish to express my sincere gratitude to the management and staff of the
RAJAGIRI COLLEGE OF SOCIAL SCIENCES for providing me a wonderful
opportunity to gain practical knowledge by including this project as a part of
MBA curriculum.
I wish to thank Dr. Minimol.M.Cfor helping me by correcting and assisting in
completing the project successfully.
Also reserved on priority are my special wishes and gratefulness to management
and staff of Hedge Equities Ltd, Ernakulamfor permitting and assisting me in
the project. I would like to thank Mr. Benil Dani Alexander of Hedge Equities
Ltd, Ernakulam, without his guidance this project would not have been possible.
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SECTION I
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PROFILE OF ORGANI SATION
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Executive Summary
Imagine being a part of an industry that has grown over twenty times in just ten years. The
Telecom Industry of India has grown from under 37 million subscribers in the year 2001 to
over 846 million subscribers in the year 2011.
This portentous growth of the Indian Telecom sector in the past ten years has opened up
numerous opportunities, with only traces of these being felt by rural India. The total telecom
density of the country is about 71%, but only 33% of the rural India, which occupies over
70% of the countrys population, has realized the access and benefits of the industry.
The beginning of the Indian Telecom Industry can be marked with the introduction of the
Posts and Telegraphs Department in the year 1851. Real liberalization of the Telecom
Industry started in the year 1981, when the then Prime Minister of India Indira Gandhi, joined
hands with authorities in France to merge with the state owned telecom company, in an effort
to set up five million lines per year in the country. The first mobile telephone service started
on a non-commercial basis in Delhi in the year 1985 however, the idea of mobile
communication did not take-off until the first National Telecom Policy (NTP), which was
released in the year 1994. A New National Telecom Policy was implemented in the year 2011
and licenses for a new fourth generation (4G) spectrum are expected to be rolled by out by
the year 2013. A detailed telecom timeline is illustrated in the report.
The industry has been profitable and the revenue has never been better. The total revenue of
the Telecom Services Sector went up from US$ 31,597 million ( 157,985 crore) in 2009-10
to US$ 34,344 million ( 171,719 crore) in 2010-11, indicating a growth of 8.69%. The
revenue contribution from the public sector telecom companies in the year 2010-11 was
20.37% and 79.66% from private sector companies. The sector is expected to witness up to
US$ 55.95 billion in investments and the market will cross the US$ 100 billion revenue mark
in the next 5 years.
The Supply Chain of the Telecom Industry in India is fairly linear, with telecom operators
defining the quality, type of services and price. The flow of orders in the Supply Chain is
bottom/top - coming from the customers and going through the operators, whereas, the flow
of services is top/bottom - coming through operators and going to the customers. Apart from
the telecom operators, the other key players in the industry are tower providers, equipment
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distributors, telecom operators, and retailers. A comprehensive Supply Chain analysis of the
Industry has been detailed in this report.
The wireline segment of the industry has a high level of concentration, with BSNL
accounting for over 72% of revenue. On the other hand, the industry concentration in the
wireless segment is medium, with the top four companies in the segment sharing 68% of the
revenue.
India is a diverse nation; while some parts of the country are competing with the world, other
parts are struggling to make ends meet. A reflection of this diversity can be seen in the
telecom segmentation of the nation. States such as Punjab and Tamil Nadu are leveraging
with a tele-density of over 80% whereas; states such as Chhattisgarh Jharkhand and some
parts of North East India are perverted with a tele-density of less than 8%. This report
provides a state-wise breakdown of the Geographical Segmentation of Telecom Industry of
India.
The report provides an analysis of the competition and the market share of the telecom
operators. In a nutshell, the competition in the industry is moderate and the trend is
increasing. The wireless segment has a healthy mix of competition, with players such as
Bharti (Airtel), Reliance, Vodafone and Idea occupying almost an equal share of the pie and
BNSL continuing to dominate the wireline market. Rural competition mirrors the overall
segment, with Bharti leading the rural wireless segment and BSNL dominating the wireline
market.
The telecom sector is going through the growth stage of its life cycle, with penetration in the
rural areas being one of the major areas of opportunity for the next five years. Until March
2006, the rural tele-density of the Indian telecom sector was just 1.86% which has increased
to 33.79% in March 2011. In the next five years, all the major telecom operators will be
focusing on leveraging the opportunities that lie thereabouts.
Barriers to Entry in the telecom industry are high and steady and the level of tax burden is
medium and stable. There is also a considerable amount of assistance provided to the industry
and the trend has been increasing. The industry is highly regulated and the recent spectrum
scam has only lead to an increased scrutiny. The Cost Structure analysis identifies high profit
margins and major costs such as depreciation and network operations expense incurred by theoperators. This further justifies the high Capital Intensity of the telecom industry. The report
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provides us an analysis on such factors which gives us an insight into the conditions of the
telecom industry of India.
The real question to ask is; has the Telecom Industry of India realised its complete potential?
If it has not, then what is to unfold will not only change the great nation but also the world we
live in.
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1.1 INDUSTRY PROFILE
A financial market is a market in which people and entities can trade financial securities,
commodities, and otherfungible items of value at low transaction costs and at prices that
reflect supply and demand. Securities include stocks and bonds, and commodities include
precious metals or agricultural goods.
There are both general markets (where many commodities are traded) and specialized
markets (where only one commodity is traded). Financial markets facilitate:
The raising ofcapital (in the capital markets)
The transfer ofrisk(in the derivatives markets)
Price discovery
Global transactions with integration of financial markets
The transfer ofliquidity (in the money markets)
International trade (in the currency markets
Capital market
Capital market consists of primary market and secondary market . In primary market newly
issued stocks are exchanged and in secondary market buying and selling of already existing
bonds and stocks takes place.So ,the capital market can be divided into bond market and
stock market.Bond market provides financing by bond issuance and bond trading.Stock
market provides financing by shares or stock issuance and by share trading.As a
whole,capital market facilitates raising of capital.
Money market
Money market facilitates short term debt financing and capital. The money market is a
subsection of the fixed income market. Money market securities are essentially IOUs issued
by governments, financial institutions and large corporations. These instruments are very
liquid and considered extraordinarily safe. Because they are extremely conservative, money
market securities offer significantly lower returns than most other securities.
One of the main differences between the money market and the stock market is that most
money market securities trade in very high denominations. This limits access for the
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individual investor. Furthermore, the money market is a dealer market, which means that
firms buy and sell securities in their own accounts, at their own risk. Compare this to the
stock market where a broker receives commission to acts as an agent, while the investor takes
the risk of holding the stock. Another characteristic of a dealer market is the lack of a central
trading floor orexchange. Deals are transacted over the phone or through electronic systems.
Derivatives market
Derivatives market provides instruments which help in controlling financial risk. The
derivative itself is merely a contract between two or more parties. Its value is determined by
fluctuations in the underlying asset. The most common underlying assets include stocks,
bonds, commodities, currencies, interest rates and market indexes. Most derivatives are
characterized by high leverage.
The first leap towards an organized derivatives market came in 1848, when the Chicago
Board of trade, the largest derivative exchange in the world, was established.
Derivatives markets broadly can be classified into two categories, those that are traded on the
exchange and the those traded one to one or 'over the counter'. They are hence known as:
Exchange Traded Derivatives
OTC Derivatives (Over The Counter)
OTC Equity Derivatives
The term "Derivative" indicates that it has no independent value, i.e. its value is entirely
"derived" from the value of the underlying asset.
The underlying asset can be securities, commodities, bullion, currency, live stock or anything
else. In other words, Derivative means a forward, future, option or any other hybrid contract
of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of
a specified real or financial asset or to an index of securities.
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Foreign exchange market
Foreign exchange market facilitates the foreign exchange trading. The foreign exchange
market (forex, FX, or currency market) is a form ofexchange for the global decentralized
trading of international currencies. Financial centers around the world function as anchors of
trading between a wide range of different types of buyers and sellers around the clock, with
the exception of weekends
In a typical foreign exchange transaction, a party purchases a quantity of one currency by
paying a quantity of another currency. The modern foreign exchange market began forming
during the 1970s after three decades of government restrictions on foreign exchange
transactions (the Bretton Woods system of monetary management established the rules forcommercial and financial relations among the world's major industrial states after World War
II), when countries gradually switched to floating exchange rates from the previous exchange
rate regime, which remained fixed as per the Bretton Woods system.
Insurance market
Insurance market helps in relocation of various risk. Insurance is a form ofrisk
managementprimarily used to hedge against the riskof a contingent, uncertain loss.
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another,
in exchange for payment. An insurer is a company selling the insurance; the insured, or
policyholder, is the person or entity buying the insurance policy. The amount to be charged
for a certain amount of insurance coverage is called the premium. Risk management, the
practice ofappraising and controlling risk, has evolved as a discrete field of study and
practice.
The transaction involves the insured assuming a guaranteed and known relatively small loss
in the form of payment to the insurer in exchange for the insurer's promise to compensate
(indemnify) the insured in the case of a financial (personal) loss. The insured receives
a contract, called the insurance policy, which details the conditions and circumstances under
which the insured will be financially compensated.
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Commodity market
Commodity market organizes trading of commodities. Commodity markets are markets
where raw or primary products are exchanged. These raw commodities are traded on
regulated commodities exchanges, in which they are bought and sold in
standardized contracts.
The trading of commodities consists of direct physical trading and derivatives trading.
Exchange traded commodities have seen an upturn in the volume of trading since the start of
the decade. This was largely a result of the growing attraction of commodities as an asset
class and a proliferation of investment options which has made it easier to access this market.
Commodity trading
Spot trading is any transaction where delivery either takes place immediately, or with a
minimum lag between the trade and delivery due to technical constraints. Spot trading
normally involves visual inspection of the commodity or a sample of the commodity, and is
carried out in markets such as wholesale markets. Commodity markets, on the other hand,
require the existence of agreed standards so that trades can be made without visual
inspection.
Forward market
A forward contract is an agreement between two parties to exchange at some fixed future
date a given quantity of a commodity for a price defined today. The fixed price today is
known as theforward price. Early on these forward contracts were used as a way of getting
products from producer to the consumer. These typically were only for food and agricultural
products.
Futures contracts
Futures contract has the same general features as a forward contract but is standardized and
transacted through a futures exchange. Although more complex today, early forward
contracts for example, were used for rice in seventeenth century Japan. Modern forward, or
futures agreements, began in Chicago in the 1840s, with the appearance of the railroads.
Chicago, being centrally located, emerged as the hub between Midwestern farmers and
producers and the east coast consumer population centers.
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Hedging
Hedging, a common practice of farming cooperatives, insures against a poor harvest by
purchasing futures contracts in the same commodity. If the cooperative has significantly less
of its product to sell due to weather or insects, it makes up for that loss with a profit on themarkets, since the overall supply of the crop is short everywhere that suffered the same
conditions.
Delivery and condition guarantees
In addition, delivery day, method of settlement and delivery point must all be specified.
Typically, trading must end two (or more) business days prior to the delivery day, so that the
routing of the shipment can be finalized via ship or rail, and payment can be settled when the
contract arrives at any delivery point.
Stock exchange market
A stock exchange is a form ofexchange which provides services forstock
brokers and traders to trade stocks, bonds, and othersecurities. Stock exchanges also provide
facilities for issue and redemption of securities and other financial instruments, and capital
events including the payment of income and dividends. Securities traded on a stock exchange
include shares issued by companies, unit trusts, derivatives, pooled investment products
and bonds.
History of stock market
It has been suggested by Braudal about the History of Stock Market that during the 11th
century in Cairo, the Jewish and Muslim merchants already had the notion of trade
association and had setup all the methods of credit as well as payments. This claim though
destroys the calls that the History of Stock Market originates with Italy. If we fall back upon
the 12th century France it can be seen that the courtier change was worried about handling
and regulating the debts on the banks behalf of the agricultural professions. As these men
use to deal with debts they can also be called as originators of brokerage business in the
History of Stock Market. During the end of 13th century traders of Bruges commodity
accumulated inside the house of a native named Van der Beurse. During the early 14 th
century they came to be known as the Brugse Beurse. These people institutionalized their
gatherings, which were known to be an informal meeting until then. This concept did spread
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at a rapid pace around the European nations and neighbouring countries. In the countries like
Amsterdam and Ghent its branches known as Beurzen opened.
During the middle of 13th century the bankers of Venice started trading in government
securities. At this very time the government of Venice outlawed airing bruits which were
intentionally used to lessen the price of governmental funds. The bankers from Florence,
Verona, Genova during the 14th century also started trading with government securities. It
were the Dutchs in the History of Stock Market who inaugurated the concept of joint stock
exchanges which led the people to buy shares and become share holders and invest money in
various businesses and get their part of profit and loss. The Dutch East India Company in the
year 1602 brought out first shares on the Stock Exchange of Amsterdam and it was also the
first Stock Exchange to bring out bonds and shares in the history of Stock Market. The Stock
Exchange of Amsterdam is also known to be the first stock exchange in the History of Stock
Market to inaugurate continuous trade during the early part of 17th century. There are Stock
Markets in virtually every part of the world at this moment. Some of the important stock
markets are located in United States, United Kingdom, India, China etc.
Major stock exchanges in various countries over the world are as follows:
o American Stock Exchange
o Australian Stock Exchange
o Colombo Stock Exchange
o Chicago Stock Exchange
o Dhaka Stock Exchange
o Hong Kong Stock Exchange
o
Jakarta Stock Exchangeo Jamaica Stock Exchange
o Kuwait Stock Exchange
o London Stock Exchange
o Nigerian Stock Exchange
o New York Stock Exchange
o Philippines Stock Exchange
o Singapore Stock Exchange
o
The National Stock Exchange ofIndia
o Toronto Stock Exchange
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1.1.1 Indian Stock ExchangesAn Umbrella Growth
Stock Exchange means anybody of individuals whether incorporated or not, consolidated for
the purpose of assisting, regulating and controlling the business of buying, selling and dealing
in securities. It is a market where stocks, shares and other securities are bought and sold and
also to provide avenue for disposal of securities when the owners feel like. It is an essential
component of the economy and indispensable for the proper functioning of corporate
enterprises.
In general, the financial market is divided into two parts, Money Market and Capital Market.
Securities market is an important, organised capital market where transaction of capital is
facilitated by means of direct financing using securities as a commodity. Securities market
can be divided into primary market and secondary market.
The working of stock exchanges in India started in 1875. BSE is the oldest stock market in
India. The history of Indian stock trading starts with 318 persons taking membership in
Native Share and Stock Brokers Association, which we now know by the name Bombay
Stock Exchange or BSE in short. In 1965, BSE got permanent recognition from the
Government of India. National Stock Exchange comes second to BSE in terms of popularity.
BSE and NSE represent themselves as synonyms of Indian Stock Market. The history of
Indian Stock Market is almost the same as the history of BSE.
The 30 stock sensitive index or Sensex was first compiled in 1986. The Sensex is compiled
based on the performance of the stocks of 30 financially sound benchmark companies. In
1990 the BSE crossed the 1000 mark for the first time. It crossed 2000, 3000 and 4000
figures in 1992.
The up-boat mood of the market was suddenly lost with Harshad Mehta scam. It came to
public knowledge that Mr. Mehta, also known as the big bull of Indian stock market diverted
huge funds from banks through fraudulent means. He played with 270 million shares of about
90 companies. Millions of small scale investors became victims to the fraud as the Sensex fell
flat shedding 570 points.
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To prevent such fraud the Government formed The Securities and Exchange Board of India,
through an act in 1992. SEBI is the statutory body that controls and regulates the functioning
of stock exchanges, brokers, sub-brokers, portfolio managers, investment advisors etc. SEBI
oblige several rigid measures to protect the interest of investors. Now with the inception of
online trading and daily settlements the chances for a fraud is nil, says top officials of SEBI.
Sensex crossed the 5000 mark in 1999 and the 6000 mark in 2000. The 7000 mark was
crossed in June and the 8000 mark in September 8 in 2005. Many Foreign Institutional
Investors (FII) are investing in Indian stock markets on a very large scale. The liberal
economic policies pursued by successive Governments attracted Foreign Institutional
Investors to a large scale. Experts now believe that the Sensex can soar past 20000 marks
very soon.
The unpredictable behaviour of the market gave it a tag a volatile market. The factors that
affected the market in the past were good monsoon, Bharatiya Janatha Partys rise to power
etc. The result of a cricket match between India and Pakistan also affected the movements in
Indian stock markets. The National Democratic Alliance led by BJP, during 2004 public
elections unsuccessfully tried to ride on the market sentiments to power. NDA was voted out
of power and the Sensex recorded the biggest fall in a day amidst fears that the Congress-
Communist coalition would stall economic reforms. Later Prime Minister Man Mohan
Singhs assurance of reforms with a human face cast off the fears and market reacted sharply
to touch the mark of 8500.
India, after United States hosts the largest number of listed companies. Global investors now
ardently seek India as their preferred location for investment. Once viewed with scepticism,
stock market now appeals to middle class Indians also. Many Indian working in foreign
countries now divert their savings to stocks. This recent phenomenon is the result of opening
up of online trading and diminished interest rates from banks. The stock brokers based in
India are opening offices in different countries mainly to cater the needs of Non Resident
Indians. The time factor also works for the NRIs. They can buy or sell stocks online after
returning from their work places.
The bullish run of the stock market can be associated with a steady growth of around 6% in
GDP, the growth of Indian companies to MNCs, large potential of growth in the fields of
telecommunication, mass media, education, tourism and IT sectors backed by economicreforms ensure that Indian stock market continues its bull run.
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Primary Market
The primary market is that part of the capital market that deals with the issue of new
securities. Companies, governments or public sector institutions can obtain funding through
the sale of a new stock or bond issue. This is typically done through a syndicate of securities
dealers. The process of selling new issue to investors is called underwriting. In the case of a
new stock issue, this sale is an Initial Public offering (IPO). Dealers earn a commission that is
built into the price of the security offering, though it can be found in the prospectus. Primary
market creates long term instruments through which corporate entities borrow from capital
market.
Features of primary market:
This is the market for new long term equity capital. This primary market is the market
where the securities are sold for the first time. Therefore it is also called the new issue
market (NIM)
In a primary issue, the securities are issued by the company directly to investors.
The company receives the money and issue new security certificates to investors.
Primary issue are used by companies for the purpose of setting up new business or for
expanding or modernising the existing business.
The primary market performs the crucial function of facilitating capital formation in
the economy.
The new issue market does not include certain other sources of new long term
external finance, such as loan from financial institutions. Borrowers in the new issue
market may be raising capital for converting private capital into public capital; this is
known as gong public.
The financial assets sold can only be redeemed by the original holder.
Methods of issuing securities in the primary market are:
Initial public offering
Right issue ( for existing companies)
Preferential Issue
Secondary Market
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The secondary market is an ongoing market, which is equipped and organised with a place,
facilities and other resources required for trading securities after their initial offering. It refers
to a specific place where securities transaction among many and unspecified persons is
carried out through intermediation of the securities firms, i.e. a licensed broker, the
exchanges, a specified traditional organisation in accordance with the rules and regulations
established by the exchanges.
With regard to the history of stock exchanges, they say it was under a tree when it was started
back in the year 1875. Bombay Stock Exchange (BSE) was the major exchanges in India till
1994. National Stock Exchange (NSE) started operations in 1994. NSE was floated by major
banks and financial institutions. It same as a result of Harshad Mehta scam of 1992. Contrary
to popular belief the scam was more of a banking scam than a stock market scam.
The old methods of trading in BSE were people assembling on what was called a ring in the
BSE building. They had a unique language to communicate apart from all the shouting.
Investors were not allowed access and the system was opaque and misused by brokers. The
shares were in physical form and prone to duplication and fraud.
NSE was the first stock exchange to introduce screen based trading. BSE was forced to
follow suit. The present day trading platform is transparent and gives investors prices on a
real time basis. With the introduction of depository and mandatory dematerialisation of
shares chances of fraud reduced further. The trading screen gives top 3 buy and sell quotes on
every scrip. A typical trading day starts at 10 and ends at 3:30 during week days. BSE has 30
stocks which makes the Sensex. NSE has 50 stocks in its index called Nifty. FIIs, banks,
financial institutions and mutual funds are biggest players in the market. Then there are the
retail investors and speculators. The last ones are the ones who follow the market from
morning till evening. Market can be very addictive like blogging through stakes are higher in
the former.
1.1.2 Origin of Indian Stock Market
The origin of stock market in India goes back to the eighteenth century when long term
negotiable securities were first issued. However for all practical purposes, the real beginning
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occurred in the middle of nineteenth century after the enactment of the Companies Act in
1850, which introduced the features of limited liability and generated investor interest in
corporate securities.
An important early event in the development of stock markets in India was the formation of
the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the
present day Bombay Stock Exchange. This was followed by the formation of
associations/exchanges in Ahmedabad (1894), Calcutta (1908) and Madras (1937). In
addition, a large number of ephemeral exchanges merged mainly in buoyant periods to recede
into oblivion during depressing times subsequently.
Stock exchanges are intricacy inter-woven in the fabric of a nations economic life. Without a
stock exchange, the saving of the community the sinews of economic progress and
productive efficiency would remain underutilised. The task of mobilisation and allocation of
savings could be attempted in the old days by a much less specialised institution than the
stock exchanges. But as business and industry expanded and the economy assumed more
complex nature, the need for permanent finance arose. Entrepreneurs needed money for
long term whereas investors demanded liquiditythe facility to convert their investment into
cash at any given time. The answer was a ready market for investments and this was how the
stock exchanges came into being.
Stock exchange means any body of individuals, whether incorporated or not, constituted for
the purpose of regulating or controlling the business of buying, selling or dealing in
securities. These securities include:
a. Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate;
b.
Government securities; and
c. Rights or interest in securities
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two
primary exchanges in India. In addition there are 22 Regional Stock Exchanges. However the
BSE and NSE have established themselves as the two leading exchanges and account for
about 80 percent of the equity volume traded in India. The NSE and BSE are equal in size in
terms of daily traded volume. The average daily turnover at the exchanges has increased form
Rs. 851 crore in 1997-98 and further to Rs. 2273 crore in 1990-2000 (April August 1999).
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NSE has around 1500 shares listed with a total market capitalization of around Rs. 9, 21,500
crore.
The BSE has over 6000 stock listed and has a market capitalization of around Rs. 9, 68,000
crore. Most key stocks are traded on both the stock exchanges and hence the investor could
buy them on either exchange. Both exchanges have a different settlement cycle, which allows
investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex
comprising 30 stocks. NSE has the S&P NSE 50 index (Nifty) which consists of fifty stocks.
The BSE Sensex is the older and more widely followed index.
Both these indices are calculated on the basis of market capitalization and contain the heavily
traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the
exchanges have switched over from the open outcry trading system to a fully automated
computerised mode of trading known as BOLT (BSE Online Trading) and NEAT ( National
Exchange Automated Trading) system.
It facilitates more efficient processing, automatic order matching, faster execution of trades
and transparency; the scrips traded on BSE have been classified into A, B1, B2, C, F
and Z groups. The A share represents those, which are in the carried forward system
(Badla). The F group represents the debt market (fixed income securities) segment. The Zgroup scrips are the blacklisted companies. The C group covers the odd lot securities in A,
B1 & B2 groups and rights renunciations. The key regulator governing Stock Exchanges,
Brokers, Depository participants, Mutual Funds, FIIs and other participants in Indian
secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd.
1.1.3 Brief History of Stock Exchanges
The worlds foremost marketplace, New York Stock Exchange (NYSE), started its trading
under a tree ( now known as 68 Wall Street) over 200 years ago. Similarly, Indias premier
stock exchange Bombay stock Exchange (BSE) can also trace back its origin to as far as 125
years when it started as a voluntary non-profit making association.
News on the stock market appears in different media every day. We hear about it every time
it reaches a new high or new low, and we also hear about it daily in statem ents like The BSE
sensitive Index rose 5% today. Obviously, stocks and stock markets are important. Stocks of
public limited companies are bought and sold at a stock exchange. But what really are stockexchanges? Known also as the stock market or bourse, a stock exchange is an organised
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market place for securities (like stock, bonds, options) featured by the centralization of
supply and demand for the transaction of orders by member brokers, for institutional and
individual investors.
The exchange makes buying and selling easy. For example, we do not have to really go to an
exchange, say, BSE we can contact a broker, who does business with the BSE, and he or
she will buy or sell his stock on our behalf.
Trading Pattern of the Indian Stock Market
Trading in Indian Stock Exchange is limited is limited to listed securities of public limited
companies. They are basically developed into two categories namely, specified securities
(forward list) and non specified securities (cash list). Equity shares of dividend paying,growth oriented companies with a paid up capital of at least Rs. 50 million and market
capitalization of at least Rs. 100 million and having more than 20,000 shares are normally put
in the specified group and balance in non-specified group.
Two types of transactions can be carried out on the Indian Stock Exchanges
Spot delivery Transaction
For delivery and payment within the time or on the date stipulated when entering into the
contract which shall not be more than 14 days following the date of the contract.
Forward Transaction
Delivery and payment can be extended further by a period of 14 days each so that the overall
period does not exceed 90 days from the contract. The latter is permitted only in the case of
specified shares.
Stock Exchanges in India
National Stock Exchange (NSE)
National Stock Exchange (NSE) of India commenced its operation in the Indian Capital
Market on 3rd November 1994 in Mumbai. The recommendations of Pherwani committee led
to the beginning of NSE.
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Players in NSE
Trading members
Participants
The recognised members of NSE are called trading members who trade on behalf of
themselves and their clients. Participants include trading member and large players like bank
who take direct settlement responsibility.
Promoters of NSE
IDBI, ICICI, LIC, GIC, SBI, Canara Bank, Corporation Bank, Indian Bank, Orient Bank ofCommerce, Union Bank of India, Punjab National Bank, Infrastructure leasing and financial
services and SBI.
Trading system of NSE
The software used in the NSE trading system is known as National Exchange for Advanced
Trading. The trade takes place through computers. The trading members computer is
connected with the central computers at the NSE through leased lines and VSAT. The price at
which the buyer and the seller are willing to transact will appear on the screen. When the
price match the transaction will be completed and a confirmation slip will be printed at the
office of the trading member.
OTC Exchange of India (OTCEI)
The OTC e of India (OTCEI) has been setup to provide a cost effective and convenient plat
forms for raising finance from the capital market. OTCEI was promoted by a consortium of
financial institutions sated its operations in 1992. It is a ring less, electronic, nation wider
stock exchange committed to providing entrepreneurs with a smooth economical vehicle for
going public and investors with a fair, sable and efficient market. Thus the OTCEI brings
investors and promoters closer together.
Bombay Stock exchange (BSE)
The stock exchange, Mumbai is popularly known as BSE. It is oldest one in 1875 as The
Native Share and sock Brokers Associations of People (AOP) and is engaged in the process
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of converting itself into demutualised and corporate entity. It has evolved over the years into
its present status as the premier Stock Exchange in the country to have obtained.
Permanent recognition in 1956 from the Govt. of India under the securities contracts
(Regulation) Act, 1956.
Market Size and Characteristics:
The Indian retail brokerage is showing phenomenal growth. The total trading volume of
brokerage companies has increased fromUS$1239.1 billion in 2004 to US$1492.1 billion in
2005, and is expected to reach US$6535.7 billion by 2015. Some of the main characteristics
of the brokerage industry include growth in e-broking; growing derivatives market, decline in
brokerage fees etc.
Today, as per NSDL statistics, we have only 2.4million investors with demat account in the
country. Considering various investor combinations that are holding accounts, we can
presume the country has roughly 5-7.5 lakh active investors now. This figure is unbelievably
small compared to the potential number of investors, which is anything between 200 million
and 250 million. When we take into consideration the way transaction risk and cost in the
Indian capital market is coming down, there will be a massive surge in the number of
investors and also in volumes. The only way to manage this kind of potential growth is to
adopt state-of-the-art trading techniques.
The growth of the Internet-based trading as a mass trading technique in the country is
unstoppable, going by the indicators available and the signals for the future. When it
ultimately gathers momentum, the biggest beneficiary will be the investor, who will be able
to trade with greater speed and transparency, and at lower costs.
Major players in Indian share broking industry are follows
ICIC Securities Ltd.
Kotak Securities Ltd
Indiabulls Financial Services Limited
India Infoline
IL&FS investmart Limited
SSKLI Ltd.
Motilal Oswal securities
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Fortis Securities
Karya securities
Geojit BNP Paribas
HDFC Securities Hedge equities
JRG Securities
India Infoline
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1.2 COMPANY PROFILE
Hedge equities ltd is one of the leading retail stock broking house which is running
successfully in the country. Hedge offers its customers a wide range of equity related services
including trade execution on BSE,NSE, derivatives, depository services, online trading,
investment advice etc. The firm has online trading and investment site-
www.hedgeequities.com. The site gives access to superior content and transaction facility to
retail customers across the country. Known for its jargon-free, investor friendly language and
high quality research, the site has registered base of over thousands of customers. The content
rich and research oriented portal has stood out among its contemporaries because of its
steadfast dedication to offering customers best-of-breed technology and superior market
information. The objective has been to let customers make informed decisions and to simplify
the process of investing in stocks. Hedge equities have always believed in investing in
technology to build business.
About Hedge Equities
Hedge equities is one of the leading Financial services company in India, specialized in
offering a wide range of financial products, tailor made to suit individual needs. As a first
step to make their presence Global, Hedge equities have initiated operations iin Middle Eastto cater to the vast Non Resident Indian (NRI) population in that region. Ever since their
inception, they have spanned their presence all over India through their Meticulous Research,
High Brand awareness, Intellectual Management and Extensive Industry knowledge. Hedge
believe in creating a new breed of investors who take judicious decisions through them.
Team Hedge is a balanced mix of more than 15 years experience cutting across various
industries with a strong background in the financial markets. The board comprises of six
power houses in their respective fields- FedEx Securities, Baby Marine Exports, Thakker
Developers, Smart financial, SM Hedge (CFO, Videocon Industries) and Padmasree Mohan
Lal.
FedEx Securities
Managed by a team of ex-bankers, FedEx is a SEBI registered category I merchant banker.
The company concentrates on non fund based activities like structuring, tie up of project
financing, financial restructuring, investment banking, corporate and advisory services. Thecore management team consists of bankers with rich experience of decades and exposure to
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volatile situations in commercial and investment banking. With offices at Nariman point and
Vile Parle East, Mumbai, state of the art infrastructure and qualified manpower to conduct the
business, FedEx Securities envisages phenomenal growth in this sector of clients.
Baby Marine Exports
Baby Marine Group, started its operations in 1977 from Kozhikode and through innovation
and hard work has grown into three units and related industries spanning both the west and
east coast of Indian. Baby Marine Exports, B.M products, and Baby Marine (Eastern) Exports
are efficiently aided by pre processing units, ice factories and a fleet of insulated and
refrigerated trucks for sea food transportation. Due to constant upgrading of machinery,statement of the art infrastructural facilities, better links with raw materials suppliers, and an
established network of purchasers have obviously made Baby Marine Group a leading
Exporter of processed marine products to various international markets.
Smart Financial
Smart Financial entered the financial market only in 1992 but over this brief span has covered
a niche for itself by becoming leading financial service provider. The company offersguidance to investors as to equities, commodities, mutual funds, portfolio management
services and insurance. It offers complete range of financial solutions that encompasses
every sphere of life.
Thakker Group
Starting of as a land developer and builder in 1962, Thackers group diversified into
commercial production of agricultural and horticultural products, housing real estate
marketing, plantations etc. They have provided shelter to more than 40000 families by
offering residential plots and premises. A Thakker developer is the flagship company of the
group. It was established as private limited in 1987 and later went on to become the only
public limited company in North Maharashtra engaged in housing, commercial construction
and land development.
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S. M. Hedge
Mr S. M. Hedge, a chartered accountant by profession is the Chief Finance Officer of the
Indian Multinational Videocon International and has been at the helm of affairs for the last 20
years.
Padmashree Bharat Mohanlal
Mohanlal, the south Indian movie superstar has become a legend, a brand and cultural
ambassador owing to various factors. Versatility and a natural flair for donning complex
characters have won him numerous accodales not to speak of some unforgettable films
contributed by him. A multifaced personality, he has some business ventures also which
include Vismaya Max Film Post production studio, college for dubbing artists at the Kinfrafil and video park, Trivandrum. He is also the director of Uni Royal Marine Exports; a
Kozhikode based major Seafood Export Company.
Intelllectual and knowledge arbitrage is the face of modern day business. The same holds true
for the financial markets. With the breathy and depth of knowledge of modern day business
that the board of hedge brings to the table, you can be rest assured that some of the business
minds in the business are taking care of your investments.
Mission
To create an ethical and sustainable financial services platform for our customers and
partner them to build business, to provide employees with meaningful work, self-
development and progression, and to achieve a consistent and competitive growth in profit
and earnings for our shareholders and staff.
Vision
Ever since its inception, Hedge equities has been a household name among the masses
owing our success to timely Professional financial assistance to our clients. This aptly
articulates our vision of Evolving into a financial supermarket which will be a one stop shop
for all financial solutions.
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systems ensure service up time and speed, making internet broking through Hedge equities
hassle-free.
Using the easiest facility provided by NSDL, our clients can transfer the shares sold by them
online without delivery instruction slips. Additionally, digitally signed contract notes can be
sent to clients through E-mail.
Depository Services
Hedge offers trading in the futures and options segment of the National Stock Exchange
(NSE). Through the present derivative trading an investor can take a short term view on the
market for up to a three months perspective by paying a small margin on the futures segment
and a small premium in the options segment. In the case of options, if the trade goes in theopposite direction the maximum loss will be limited to the premium paid.
Knowledge Centre
Knowledge centre activities are intended to provide systematic and structured services mainly
to new investors and also to young aspirant aiming for a career in financial markets. The
centre has three functional areas: the publication division, the training center, and wealth
management advisory service which provides complete investment solutions to investmentsthrough knowledge based personalized services.
Equity Research
Hedge equities constantly strive to deliver insightful research to enable pro-active investment
decisions. The research department is broadly divided into two divisions- Fundamental
Analysis Group (FAG) and Technical Analysis Group (TAG) . Our fundamental analysts are
continuously scanning the entire economy for discovering what they call the hidden gems in
stock market terminology and present it to our clients for profitable investments. A good
fundamental analysis team has the capability to identify emerging businesses before such
businesses become the talk of the street and we are proud to say we have one such
fundamental analysis team. Timing the market has always been the most difficult task for all
analysts and our Technical Analysis Group has merged to predict the market movements well
in advance using complex analytical methods including Elliot Wave Theory. We are
equipped with cutting-edge technologies for technical charting which assist our technical
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analysts to predict both upside and downside movements efficiently for the benefit of our
clients.
Portfolio Management Services (PMS)
Hedge equity is a SEBI-approved portfolio manager offering discretionary and non-
discretionary schemes to its clients. Hedge equities portfolio management team keeps track
of the markets on a daily basis and is exposed to a lot of information and analytic tools which
an investor would not normally have access to. Other technicalities pertaining to shares like
dividends, rights, bonus, buy-back, Mergers and Acquisitions and are also taken care of by
us. Maximize your returns by opting for our PMS scheme.
Commodity Trading
One can trade in futures like gold, silver, crude oil, rubber etc and take advantage of the
extended trading hours (10 am to 11 pm) in commodities trading.
Mutual Funds, Bonds etc
Hedge equities also offer Mutual funds and bonds. One can select from a wide range of
Mutual funds and bonds available in the market today.
Currency Trading
Currency derivatives can be described as contracts between the sellers and buyers, whose
values are to be derived from the underlying assets, the currency amounts. These are basically
risk management tools in force and money markets used for hedging risks and act as
insurance against unforeseen and unpredictable currency and interest rate movements.
Any individual or corporate expecting to receive or pay certain amounts in foreign currencies
at future date can use these products to opt for a fixed rate- at which the currencies can
exchanged now itself. Currency derivatives serve the purpose of financial risk management
encompassing various market risks. An upfront premium is payable for buying a derivative.
Currency6 futures will bring in more transparency and efficiency in price discovery,
eliminate counterparty credit risk, provide access to all types of market participants, offer
standardized products and provide transparent trading platform.
Competitors
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Geojit BNP Paribas
JRG Securities
Religare
Karvy Stock Brokers Muthoot Securities
Sharewealth
Motilal Oswal
Anandrathi
1.2.2 Functional departments
Client relation Department
The client relation department assists the client or customer to open an account in Hedge
equities. This department is also known as the front office. A client has to open two types of
accounts to trade and own securities in the NSE & BSE. They are:
Finance Department
Thus a department, to organize financial activities may be created under the direct control of
the board of directors. Finance manager will decide the major financial policy methods.
Lower levels can delegate the other routine activities.
Marketing Department
The major functions of marketing department are:
a) Business associate development: the company takes up the marketing activities of the
various branches . It ensures an efficient marketing arena at its various branches. The
company encourages better relations in its branches and promotes for the development
of various marketing strategies.
b) Brand promotion: An important function of marketing department is to promote the
name of the company. Hedge equities do it through the different promotional activities.
The name of Hedge equities as a stock broking firm is made known to the outside
world.
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c) Investment promotion: The main clients of Hedge equities were its investors. Hence the
marketing department tries to capture as many as possible to encourage them to invest.
d) Delivery promotion: Intraday trading is not always profitable and might involve a lot of
risk hence Hedge equities promotes for delivery where the shares are kept to be sold
for a later date after analyzing the profitability factors.
Systems Department
The systems department is playing a vital role in the day to day operations of the company.
It is through the systems department that the clients can avail the facilities of Internet
trading. Optic fibre cables and high bandwidth connections from the Hedge equities office
to the ISP, a dedicated server and back-up ISDN connections were maintained directly by
the systems department. For the purpose of trading they have made use of two software
namely ODIN (Open Dealers Integrated Network)
Human resource Department
Human resource is often considered as the back of an organization even in this age of
advanced automation & mechanization. Since virtual organizations are not very much
popular in our part of the world, it is very important to any organization to have a HR
department. The presence of an excellent HR department increases the efficiency of an
organization considerably. Human resource management is defined as asset of practices,
policies and programmes designed to maximize both personal and organizational goals.
a) Training & Induction
The selected employees will undergo three days continuous induction. During this period,
he will undergo training with all the department of Hedge equities. There will also be
classroom induction also within three months.
b) Wages and Salary Administration
The wages and salaries of the employees were fixed and granted by the HR department with
consent of the finance department
c) Performance appraisal
It was human resources department which gives the promotions to all employees, makingtransfers and taking disciplinary actions if needed.
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D) Grievance Handling
The grievances of the employees were received only through proper channels i.e, through the
particular department heads. The HR department will make as per the rules and regulations
of the company.
Trading Department
The department deals with the trading related activities of the company. The trading refers to
the buying & selling of shares. This department is the most important part of the
Organization. There are two types of trading. They are:
a)Online Trading
These are the trading terminal of the organization. The each computer of the department is
termed as trading terminal. The each terminal is assigned with NCFM certified dealers, who
is in charge of each portal will do the trade according to the client request. The terminal is
managed by either NEAT (National Exchange for automated trading) software or ODIN
(Open Dealers Integrated Network) software. The client can also place his through written
request or through the telephone, in this the order will be placed by the dealer.
b) Internet Trading
The internet trading is a facility provides by the company in order to trade the securities from
his convenient place like his office, home etc, the order will be placed by the client itself, and
he can make changes before the trade is done for changing the price, cancellation of the
order.
Delivery & Depository Department
Delivery refers to the shares that bought on a particular day are not sold on that day itself and
holding of the shares for an appreciation in the value of the security and to trade it on a future
date. Deliver instruction slip: it is a slip the client should fill and gave to the dealer regarding
the purchase of the share. There are two procedures to move the shares namely,
a)Power of attorney
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This is which the client signs at the time of opening a trading account and depository
participant account. If the client has given the power of attorney, HEDGE EQUITIES (P)
LTD will have the power to transact the clients stocks without pay-in slips.
b) Easiest
It is secured internet enabled service which means Electronic Access to Securities
information and Execution ofSecured Transaction. This is facility where in the clients
can give delivery instructions via internet. Easiest is a facility provided by CDSL.
The activities related with the depository department.
Depository function
Dematerialization
Pledging
Equity Research Department
The function of the department is to study the details regarding the share or security and to
make predictions regarding the future performance of the company.
The types of approaches done in the department
a) Fundamental analysis b) Equity Analysis
There are five analysts in the department. The fundamental analysts are continuously
scanning the entire economy for discovering what they call the hidden gems in stock
markets terminology and present it to the clients for profitable investments. Timing the
market has always been the most difficult task for all analysts and their Technical Analysis
Group has emerged to predict the market movements well in advance using complex
Analytical methods. They are equipped with cutting-edge technologies for technical charting
which assist the technical analysts to predict both upside and downside movements efficiently
for the benefits of clients.
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1.2.3 Research Department Structure and Functions
(Head Research
& Strategies)
(Sr.
Fundamental
Analyst)
(Fundamental
Analyst)
(Economic &
Fundamental
Analyst)
(Sr. Technical
Analyst)
Controlling the
Department
Fundamental
analysis and
report
Fundamental
analysis and
report
Company results
& news tracking
Intraday stock
calls
Morning report-
video
Company results
and news
tracking
Company results
and news
tracking
Company
snippets
(prep/updates)
Intraday futures
calls
Data mining Research
presentations
Derivative
reports
Fundamental
analysis and
report
Position calls
Customer
portfolio review
on request
Company
snippets
(prep/updates)
Research
presentations
Research
presentations
Daily technical
report
Mentoring team
members
Marketing of
reports
Company
snippets
(prep/updates)
Daily economic
report
Investor meets &
branch visits
Attending
management
meetings
MIS-
performance of
calls
Marketing of
reports
Economic news
track and reports
Chat system- for
query handling
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Presentation to
group investor
circles
Auto monthly
sales report
Daily report
(oversight)
Daily currency
report
Articles in Ohari
magazine
Investor meets &
branch visits
Tracking
international
markets
Articles and data
input to medias
(TV Channels,
Newspapers,
Magazines)
Daily
commodity
report
Investor meets &
branch visits
Tracking
international
commodity
markets
Preparing special
commodity
reports
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SECTION II
PROBLEM CENTERED STUDY
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CHAPTER I
PROBLEM FORMULATION
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Title of the study:
A study on risk return analysis of selected Telecom companies at Hedge Equities Pvt. Ltd.,
Ernakulam.
Statement of the problem:
The Indian telecom sector has achieved a phenomenal growth during the last few years,
telecom sector has continued to emerge as the prime engine of economic growth, contributing
to nearly 2.3% of the Indian GDP. Indias teledensity has improved from under 4% in March
2001 to around 73.07% by the end of January 2013. The mobile subscriber base has growth
from under 41 million at the end of March 2000 to touch 893.15 million at the end of January
2013. In this situation, this study aims to analyze riskreturn and financial performance of
companies in telecom services sector is suitable for investment. And provide suggestion
based on this analysis.
Need of the study:
Investment decisions are influenced by various motives. Some people invest in a business to
acquire control and enjoy the prestige associated with it. Some people invest in expensive
yachts and famous villas to display their wealth. Most investors however are largely guided
by the pecuniary motive of earning a return on their investment.
Relevance of the study:
ROE is important to every organization: for-profit, not-for-profit, educational
Institutions, government agencies, and more. There are variations in how they define value,
however, all organizations want value for the investments they make. What makes ROE
important is it provides leaders with an important way of deciding in which programs to
invest and which programs to delay or reject.
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CHAPTER II
RESEARCH PROCESS
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Objectives of the study:
1. To analyze risk return relation of selected companies of telecom service sector.
2. To suggest/recommend the best company out of selected companies.
3.
To make suggestions and recommendations based on analysis.
Scope of the study:
The scope of the study is confined to only five selected companies viz. Bharti Airtel, MTNL,
Idea cellular, RCOM and TATA Communications Ltd., of telecom service sector of India.
Research Methodology:
This project is based on exploratory research with both qualitative analysis as well as
quantitative analysis. The research methodology adopted is based on secondary data. The
various sources include:
Internet
Share prices of different NSE index companies
Information provided by Hedge Equities Pvt. Ltd
Articles
Tools for data collection:
The tools used for analysing the risk and return of five companies are as follows:
Capital yield
Current yield
Rate of return
Beta
Standard deviation
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CHAPTER III
PRESENTATION AND ANALYSIS OF
DATA
INTRODUCTION
Most of the telecommunications forms in India are as prevalent or as advanced as those in
modern Western countries, and the system includes some of the most sophisticated
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technology in the world and constitutes a foundation for further development of a modern
network. Telecom Regularity Authority of India (TRAI) is the sole authority empowered to
take binding decisions on fixation of tariffs for provision of telecommunication services.
India has the world's second largest mobile phone users with over 903 million as of January
2012. It has the world's third largest Internet users with over 121 million as of December
2011. India has become the world's most competitive and one of the fastest growing telecom
markets.
Key developments
Telecom Regulatory Authority of India (TRAI) has revealed that the country's mobile
subscriber base has increased from 893.84 million in December 2011 to 903.73 million inJanuary 2012
Telecom operators added 9.88 million mobile subscribers in January 2012
The overall tele-density reached 77.57 per cent
Broadband subscriber base increased from 13.30 million at the end of December 2011
to 13.42 million at the end of January 2012
Telecom users in rural areas have grown at a faster pace compared to their urban
counterparts in the last five years, a CAG report said
India added around 20 million subscriptions of the estimated 140 million net additions
in mobile subscriptions across the world during the April-June quarter in 2012, said a
report by Ericsson
The Indian telecom sector is a very capital intensive sector and involves high value
investments. Correspondingly, the mobile phone industry is also experiencing a parallel
upward surge, and a parallel enhancement in technologies used. With the liberalization of theIndian economy, the telecom sector has become very attractive for mergers and acquisitions
latest being SingTel increasing its stake in Bharti telecom.
I. BHARTI AIRTEL
Bharti Airtel Limited is a leading global telecommunications company with operations in 20
countries across Asia and Africa. Headquartered in New Delhi, India, the company ranks
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amongst the top 4 mobile service providers globally in terms of subscribers. In India, the
company's product offerings include 2G, 3G and 4G wireless services, mobile commerce,
fixed line services, high speed DSL broadband, IPTV, DTH, enterprise services including
national & international long distance services to carriers. In the rest of the geographies, it
offers 2G, 3G wireless services and mobile commerce. Bharti Airtel had over 269 million
customers across its operations at the end of March 2013.
II. IDEA CELLULAR
Idea Cellular is an Aditya Birla Group Company, India's first truly multinational corporation.
Idea is a pan-India integrated GSM operator offering 2G and 3G services, and has its own
NLD and ILD operations, and ISP license. With revenue in excess of $4 billion; revenue
market share of nearly 15%; and subscriber base of over 121 million in FY 2013, Idea is
Indias 3rd largest mobile operator. Idea ranks among the Top 10 country opera tors in the
world with a traffic of over 1.5 billion minutes a day.
Ideas robust pan-India coverage is built on a network of over 100,000 2G and 3G cell sites,
spread across over 55,000 towns in India.
Using the latest in technology, Idea provides world-class service delivery through the most
extensive network of customer touch points, comprising of nearly 4,500 exclusive Idea
outlets, and over 7,000 call centre seats. Ideas customer service delivery platform is ISO
9001:2008 certified, making it the only operator in the country to have this standard
certification for all 22 service areas and the corporate office.
Idea is listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE)
in India.
III. MTNL
MTNL was setup on 1st April, 1986 by the Government of India to upgrade the quality of
telecom services, expand the telecom network, introduce new services and to raise revenue
for telecom development needs of India is key metro cities of Delhi & Mumbai. MTNL is the
principal provider of fixed-line telecommunication service in the two Metropolitan Cities
of Delhi and Mumbai. It offers mobile services in the city of Delhi including four peripheral
towns Noida, Gurgaon, Faridabad & Gaziabad and the Mumbai city along with the areas
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falling under the Mumbai Municipal Corporation, New Mumbai Corporation and Thane
Municipal Corporation.
The authorized capital of the Company is Rs. 800 crores. The Paid up Share Capital is Rs.
630 crores divided into 63 crore share of Rs. 10 each. At present, 56.25% equity shares are
held by President of India & her nominees and remaining 43.75% shares are held by FIIs,
Financial Institutions, Banks, Mutual Funds and others including individual investors. MTNL
has been given Navratna status in 1997 and was listed in New York Stock Exchange in
2001.
IV. TATA Communications LTD
Tata Communications is a leading global provider of a new world of communications. With a
leadership position in emerging markets, Tata Communications leverages its advanced
solutions capabilities and domain expertise across its global and pan-India network to deliver
managed solutions to multi-national enterprises, service providers and Indian consumers.
The Tata Global Network includes one of the most advanced and largest submarine cable
networks, a Tier-1 IP network, with connectivity to more than 200 countries and territories
across 400 PoPs, and nearly 1 million square feet of data centre and collocation space
worldwide.
Tata Communications' depth and breadth of reach in emerging markets includes leadership in
Indian enterprise data services, leadership in global international voice, and strategic
investments in South Africa (Neotel), Sri Lanka (Tata Communications Lanka Limited) and
Nepal (United Telecom Limited) Tata Communications Limited is listed on the Bombay
Stock Exchange and the National Stock Exchange of India and its ADRs are listed on the
New York Stock Exchange (NYSE: TCL).
V. RELIANCE Communications
RCOM is an Indian broadband and telecommunications company headquartered in Mumbai,
India. RCOM is the worlds 15th largest mobile phone operator with over 150 million
subscribers and Indias one of the largest telecom operator in India, only after Bharti Airtel
and Vodafone India. Established on 2004, a subsidiary of the Reliance Group. The company
has five segments: Wireless segment includes wireless operations of the company; broadband
segment includes broadband operations of the company; Global segment include national
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long distance and international long distance operations of the company and the wholesale
operations of its subsidiaries; Investment segment include investments activities of the Group
companies; and Other segments consists of the customer care activities and direct-to-home
(DTH) activities.
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Is the industry attractive in terms of long term potential?
Short term profitability (based on demand & supply) - Hyper-competition is good for
natterers, of course: prices have fallen to a level the poor can afford. Firms have become
leaner, too. Bharti outsources furiously. Most companies share radio towers and have learned
how to compress traffic.
Yet the industry is right to fret about returns. Only one of the big four firms was close to
recouping its cost of capital last year (see chart 1), as the price war hit margins and an
expensive 3G spectrum auction in 2010 bloated balance-sheets. Vodafone has a rich parent
company but the others are now uncomfortably indebted. Middle-sized operators, meanwhile,
are thought to be bleeding badly. Of the small fry, only two disclose figures: Uninor, run by
Telenor, a Norwegian firm; and Russian-backed Sistema. Together they lost almost $2 billion
of cashflow last year. Both say they are in India for the long haul.
Longterm Profitability - Weak returns are bearable if the market grows and the rules are
clear. Long-term growth seems certain, but India's spectrum regime, once admired, is now an
embarrassment. A roundtable with the new telecoms minister and mobile-phone executives in
March revealed a fog of confusion about vital issues: the fees on existing spectrum, the terms
on which old licences are renewed and corruptly awarded ones relinquished (if at all), new
spectrum grants and the rules on mergers and acquisitions. It is also unclear whether non-
voice 4G licences, originally intended for data only, some of which are in the hands of
Mukesh Ambani, India's richest man, will have their terms tweaked to allow voice services,
creating even more new entrants into the mobile market.
Is it a Fragmented or concentrated one? - If the market is too fragmented, consolidation is
the only plausible cure. From Brazil to America, places with mosaics of technologies,
operators and regional licences have cleaned themselves up. In India this process may not
correct past injustices, but by allowing unviable firms and their spectrum to be acquired, a
scarce resource could be allocated more efficiently and customers could be saved the
annoyance of having their carrier go bust. Most executives expect a cull. After the scandal
erupted last year, says one boss, banks cut off credit to the industry, making life hardest for
the small firms that have yet to break even. The big operators have stepped back from price
cuts, allowing industry revenues, which had stalled despite the boom in customers, to growagain.
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Entry Barriers - Barriers to Entry in the telecom industry are high and steady and the level
of tax burden is medium and stable. There is also a considerable amount of assistance
provided to the industry and the trend has been increasing. The industry is highly regulated
and the recent spectrum scam has only lead to an increased scrutiny. The Cost Structure
analysis identifies high profit margins and major costs such as depreciation and network
operations expense incurred by the operators. This further justifies the high Capital Intensity
of the telecom industry. The report provides us an analysis on such factors which gives us an
insight into the conditions of the telecom industry of India.
Life Cycle - The telecom sector is going through the growth stage of its life cycle, with
penetration in the rural areas being one of the major areas of opportunity for the next five
years. Until March 2006, the rural tele-density of the Indian telecom sector was just 1.86%
which has increased to 33.79% in March 2011. In the next five years, all the major telecom
operators will be focusing on leveraging the opportunities that lie there about.
Opportunities - This portentous growth of the Indian Telecom sector in the past ten years
has opened up numerous opportunities, with only traces of these being felt by rural India. The
total telecom density of the country is about 71%, but only 33% of the rural India, which
occupies over 70% of the countrys population, has realized the access and benefits of the
industry.
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3.1. RETURN ANALYSIS
Return : The gain or loss of a security in a particular period. The return consists of the
income and the capital gains relative on an investment. It is usually quoted as a percentage.
Tools Used:
Current Yield - The earnings per share for the most recent 12-month period divided by the
current market price per share. The earnings yield (which is the inverse of the P/E ratio)
shows the percentage of each dollar invested in the stock that was earned by the company.
The earnings yield is used by many investment managers to determine optimal asset
allocations.
Formula: Current yield= Annual EPS/ Beginning price *100
Capital Yield - The formula for the capital gains yield is used to calculate the return on a
stock based solely on the appreciation of the stock. The formula for capital gains yield does
not include dividends paid on the stock, which can be found using the dividend yield. The
capital gains yield and dividend yield is combined to calculate the total stock return.
The capital gains yield formula uses the rate of change formula. Calculating the capital gains
yield is effectively calculating the rate of change of the stock price. The rate of change can be
found by subtracting an ending amount from the original amount then divided by the original
amount
Formula: Capitl Yield= End PriceBeginning Price/Beginning Price
Rate of Return - The gain or loss on an investment over a specified period, expressed as a
percentage increase over the initial investment cost. Gains on investments are considered to
be any income received from the security plus realized capital gains.
Formula:ROR = [Annual Income + (End priceBeginning price)]/ Beginning Price *100
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1. BHARTI AIRTEL
Beginning
Price
Closing Price EPS Income (lakhs)
Mar 09 830.00 625.75 40.80 33076.82
Mar 10 626.40 312.55 24.82 21334.76
Mar 11 312.60 357.40 20.32 29900.53
Mar 12 354.60 337.90 15.09 13269.16
Mar 13 338.90 291.75 13.42 13007.01
(Data obtained from nseindia.com website)
Table 3.1.1 - Current Yield, Capital Yield and Rate of Return of Bharti Airtel for
following years:
Current Yield Capital Yield ROR
2009 4.915 -0.246 3960.55
2010 3.962 -0.501 3355.82
2011 6.500 0.143 9579.44
2012 4.255 -0.047 3734.05
2013 3.959 -0.139 3824.09
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Chart 3.1.1Current Yield, Capital Yield and Rate of Return of Bharti Airtel
for following years
0
2
4
6
8
2009 2010 2011 2012 2013
CURRENT YIELD
CURRENT YIELD
-0.6
-0.4
-0.2
0
0.2
2009 2010 2011 2012 2013
CAPITAL YIELD
CAPITAL YIELD
0
2000
4000
6000
8000
10000
12000
2009 2010 2011 2012 2013
ROR
ROR
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2. MTNL
Beginning Price Closing Price EPS Income (lakhs)
2009 97.60 69.00 2.67 409.80
2010 69.50 73.20 -48.63 410.33
2011 73.50 45.35 -44.47 485.18
2012 46.00 27.40 -65.23 423.63
2013 27.45 18.40 -84.46 117.76
Table 3.1.2 - Current Yield, Capital Yield and Rate of Return of MTNL for
following years:
Current Yield Capital Yield ROR
2009 2.735 -0.29 390.57
2010 -69.97 0.053 595.72
2011 -60.50 -0.382 621.80
2012 -141.80 -0.40 880.5
2013 -307.686 -0.329 396.02
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