invst in equity

INVESTMENTS IN EQUITIES

INTROUDCTION

Investment management once seemed a simple process. Well-heeled investors would hold

portfolios composed of stocks and bonds of blue chip industrial companies, treasury bonds, notes

and bills. The choices available to less well-off investors were much more limited, confirmed

primarily to passbook savings accounts. If the investment environment can be thought of as an ice

cream parlor, then the customers of past decades were offered only chocolate and vanilla.

Investment means the sacrifice of current rupees for future rupees. Two different attributes

are involved – “time” and “risk”. The sacrifice takes place in the present and is certain. The reward

comes later and the magnitude is uncertain. In some cases, risk is the dominant attribute. These are

two types of investments. They are:

Real Investments

Financial Investments

Real investments involve some kind of tangible assets such as land, machinery, factories.

Financial investments involve contracts written on pieces of paper such as common stocks and

bonds.

Investment in securities such as shares, debentures and bonds is profitable as well as exciting,

but it involves great deal of risk. Investing in financial securities is considered to be one of the best

avenues for investing one’s savings while it is acknowledged to be one of the most risky avenues of

investment.

PURPOSE OF THE STUDY

The purpose of the study is to know about stock markets in India, how they work, fundamental

requirements before entering the stock market, how to enter the stock market, market design, stock

selection, when to buy or sell a stock, how to invest and knowing about market intermediaries.

OBJECTIVES OF THE STUDY

The objective of the study is to look into the scientific approach for selecting a stock

where Fundamental Analysis and Technical Analysis are looked into.


For that purpose the most happening software sector was taken for study and from that

sector, three stocks were picked up and analyzed.

The study deals with analysis of performance of the company, share price fluctuations

and comparing it with another company from same sector.

The purpose of the study is to locate a stock which gives good returns with minimum

risk.

LITERATURE REVIEW

Investment process

Investment process describes how an investor should go about making decisions.

Fundamental analysis

To determine the intrinsic value of an equity share

Technical analysis

The technical analyst assumes that it is 90 percent psychological and 10 percent logical. It

doesn’t evaluate a large number of fundamental factors relating to the company.

RESEARCH METHODOLOGY

Project is totally based on analytical research. It is prepared on more structured way to find out

problem question. The data are collected from the secondary sources.

Tool: Dow Theory

EXPECTED OUTCOME

Economic liberalizations acceleration in the pace of development in the securities market.

The role of securities markets structural transformation with the introduction of

computerized online trading and interconnected market system.

Identification of profitability on investment on securities such as shares, debentures and

bonds.


BIBLIOGRAPHY:

BOOKS

Security Analysis and Portfolio Management, Prasanna Chandra.

Investments, William, Sharpe

WEBSITES:

en.wikepidia.org

www.ventura1.com

www.about.stocks.com

www.nseindia.com

www.moneycontrol.com

TIME-ACTIVITY CHART

Activity Time-line

Understanding structure, culture and functioning of the organization. April 16th to 30th

Preparation of research instrument for data collection May 1st to 14th

Data Collection May 15th to 11th June

Analysis and finalization of report June 12th to 2nd July

Submission of report July 2nd to 9th

INTRODUCTION ABOUT THE SUBJECTFinance is regarded as the lifeblood of business enterprise. This is

because in the modern money oriented economy; finance is one the basic

foundation of all economic activities. It is the master key, which provides access

to all economic activities. A well knit financial system directly contributes to

the growth of the economy. An efficient financial system calls for the effective

performance of financial institution, financial instrument and financial markets.

Some consider that finance is concerned with acquiring funds on reasonable

terms and conditions to pay bills promptly and some other consider it as that

terms which is concerned with procurement of funds.

http://www.moneycontrol.com/

http://www.nseindia.com/

http://www.about.stocks.com/

http://www.ventura1.com/


NEED FOR FINANCE IN BUSINESS

Finance in business is needed to meet both long term and short term

objective of the organization. Following are some of the avenues where

business finance is developed to meet the firm’s objective.

Acquisition and management of current assets for managing day to

day operations.

Managing mergers, reorganization, expansion, and diversification.

To meet expectation of stake holders.

Acquisition of necessary assets for running the business.

According to Guttmann and Doughall, business finance can be broadly

defined as the activity concerned with planning, raising, controlling and

administrating of the funds used in the business. Finance is the process of

organizing the flow of funds so that a business can carry out in the most

efficient manner and its obligations as they fall due.

TYPES OF FINANCE

Finance can be classified into two types as follows:

1. Public finance

2. Private finance

Public finance deals with the requirement, receipts and disbursement of

funds in the government institution like states, local self- government and

central government.

Private finance is concerned with requirement, receipts and disbursement

of funds in case of individual, a profit seeking business organization and non-

profit organization.

FUNCTIONS OF FINANCE

Although it is difficult to separate finance functions from other functions,

yet their function can be readily identified. The function of raising funds,


investing them in assets and distributing returns earned from assets to

shareholders are respectively known as financing, investment and dividend

decision. While performing these functions, the firms attempt to balance cash

inflow and outflow. This is called liquidity decision and it is taken as one of the

most important finance functions.

In short, finance is concerned with

1. Obtaining funds at the lowest cost.

2. Making the optimal use of these funds.

ISSUES IN FINANCING

Every firm has its own goals aiming at a certain extent of profit

generation. It is not necessary for a firm to have the goals or profit

maximization as the only objective in the short as well as long run. The

management might have its own limitations of efficiency and capacity, level of

satisfaction and appraisal of future, etc. The problems faced by an account

dealing with finance functions are:

1. Type of expenditure to which a firm should get it involved in a

commitment to spend.

2. The volume of funds that should be committed by a firm on various type

of expenditure.

3. The way and means by which the existing funds committed as well as

non-committed could be utilized for getting maximum benefits for the

firm.

4. The course of action to be taken whenever the expectation does not

materialize and a failure is to be averted.

FINANCIAL MANAGEMENT

Financial management is the operational activity of a business that is

responsible for obtaining and effectively utilizing the funds necessary for


efficient operation. Financial management is a subject which deals with

the tools and techniques through which a company’s balance sheet is

constructed. It offers ideas to the executives in building items in liabilities

and assets side of balance sheet. It clearly guides the financial manager to

select both long term and short term and its allocation to capital and

revenue expenditure, hence ultimately used as a communication too, to

convince the investors about the performance of a corporate entity.

SPECEFIC OBJECTIVE

1. Profit maximization.

2. Wealth maximization.

OTHER OBJECTIVES

1. Balanced asset structure

2. Judicious planning of funds

3. Financial discipline

4. Liquidity

5. Efficiency

FINANCIAL ANALYSIS

Financial analysis refers to an assessment of the viability, stability and

profitability of a business, sub-business or project.

It is performed by professionals who prepare using ratios that make use of

information taken from financial statement and other reports. These reports are

usually presented to top management as one of their bases in making business

decisions. Based on these reports management may:

1. Continue or discontinue its main operation or part of its business.

2. Make or purchase certain materials in the manufacture of its products;

Acquire or rent/ lease certain machineries and equipments in the

production of its goods.


3. Issue stocks or negotiate for bank loan to increase its working capital.

4. Make decision regarding investing or lending capital; make other

decision that allows management to make an informed selection on

various alternatives in the conduct of its business.

FINANCIAL STATEMENT

The financial are composed of data which are the result of a combination of

recorded facts concerning the business transaction, conventions adopted to

facilitate the accounting technique, postulates or assumptions made to and

personal judgment used in the application of the conventions & postulates. It is

prepared for the purpose of presenting a periodical view of reports on progress

by the management.

Two basic financial statements prepared for the purpose of external reporting

to owners, investors and creditors are

Balance sheet

Profit and loss account.

It is the most significant financial statement. It indicates the financial

conditions or the state of affairs of a business at a particular moment of

time; balance sheet contains information about resources and obligations

of a business entity and its owner’s interest in the business at a particular

point of time.

FINANCIAL ANALYSIS

It refers to the process of determining financial strengths and weakness of

the firm by establishing strategic relationship between the items of the balance

sheet, profit and loss account and other operative data. The term financial

analysis is also known as analysis and interpretation of financial statement. The

purpose of financial analysis is to diagnose the information contained in the


financial statement so as to judge the profitability and financial soundness of the

firm.

DEVICES OF FINANCIAL ANALYSIS

1) COMPARATIVE STATEMENT

The comparative financial statements are statements of the financial

position at different periods of time. The elements of financial position are

shown in a comparative form so as to give an idea of financial positions at two

or more periods. Any statement prepared in a comparative form will be covered

in comparative statement. Comparative balance sheet analysis is the study of

the trend of the same items, groups of items and computed items in two or

more balance sheets of the sane business enterprise on different dates.

2) TREND ANALYSIS

The financial statements may be analyzed by computing trends of

series of information. This method determines the direction upwards or

downwards and involves the computation of the percentage relationship that

each items bears to the same in the base year.

3) COMMON SIZE STATEMENTS

The common size statements, balance sheet and income statement are

shown in analytical percentages. The figures are shown as percentage of total

assets, total liabilities, and total sales.

4) RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial

statement. It is the process of establishing and interpreting various ratios for

helping in making certain decisions.

5) FUND FLOW STATEMENT ANALYSIS


The fund flow statement is a statement which shows the movement

of funds and is a report of financial operations of the business undertakings.

It indicates various means by which funds were obtained and employed

during a particular year.

6) CASH FLOW STATEMENT ANALYSISCash flow statement is a statement which describes the inflow

(source) and outflow (uses) of cash and cash equivalents in a enterprise

during a specified period of time.

Part-B

GENERAL INTRODUCTION TO THE BANKING

In the past, economic advancement was unknown. Consequently the use

of money for buying and selling was very much restricted. With the

development of communications, economic progress and the spread of science,

and the growth of economic and political institution, the use of money also

expanded. Along with the use of money, the use of credit instrument also

developed. The origin of modern financial institution can be traced to antiquity,

where the individuals used to accept money in the form of deposits and lend it

to people who needed for meeting their requirements which may be economic

or social. As times advanced, the character of economic transaction also

changed. Old order of borrowing and lending underwent metamorphic changes.

Finance became a powerful instrument for any change. In fact, the innovations

in the fields of transport and communication, development of energy and

manufacturing have resulted in innovations in the sphere of banking.

ABOUT BANKING SYSTEM


The development of Banking is evolutionary in nature. There is no single

answer to the question of what is banking. Because a bank performs a multitude

of functions and services which cannot be comprehended into single definition,

for a common man, a bank means a storehouse of money for a business, it is an

institution of finance and for a worker it may be a depository for his savings.

EVOLUTION OF BANKING

Initially, the bankers, the Jews in Lombardy carried out their

business on benches in the market place resembled the banking counter.

If the banker failed, his banque (bench) was broken into pieces by the

people; hence the word bankrupt came into existence. In simple term

bankrupt means a person who has lost all his money, wealth, or financial

resources.

THE ORIGIN OF THE WORD ‘BANK’

Bank— German(joint stock fund)

Banco— Italian (heap of money)

Baucus/banque— French (bench/chest a place where valuables are kept)

Bank— English (common meaning prevalent today)

Meaning of banking

The term banking is defined as accepting for the purpose of lending

or investment of money from the public repayable on demand or

otherwise and withdrawal by cheques, drafts and orders.

Importance of Banks

The importance of bank cannot be denied at all. Banks play an important

and significant role in economic development of a country.


The economic importance of bank is as follows:

1. Banks mobilizes the small scattered and idle saving of people.

2. Banks plays a vital role in development of a country.

3. Banks provides safety and security to surplus money and deposits.

4. Banks influence the rate of interest in the money market.

5. Banks direct the flow of the funds into productive channels.

6. It mobilizes funds from surplus to deficit places.

7. Banks serve as the best financial intermediary between savers and

investors.

8. Banks facilitates trade and commerce, industry and agriculture by

meeting their financial requirements.

9. Banks provide a convenient and economical means of payment.

10.They create credit by lending several times the cash deposits they

receive.

11.Banks influence employment, income and the general price level.

Banks are useful in several ways and can be concluded that a strong and

sound banking system is indispensable for economic development of any

country.

Traditional services of banks

The Goldsmith:

The goldsmiths by virtue of dealing in gold facilitates for the safe keeping

of valuables. A person largely because of the danger of theft started to leave

their precious bullion and coin in the custody of goldsmith. Goldsmith began

imposing charges for safe keeping.

The moneylender:


The moneylenders were men of means and reputations. They used to lend

their surplus funds to the needy at high rates of interest and earned large

income. The moneylenders borrowed money at lower rates of interest and lent it

to the needy at higher rate of interest. The difference between the two interests

constituted the profits.

The merchant bankers:

These people are originally traders in commodities. They were engaged

in trade, internal as well as external. In course of time besides trading, they

undertook the financing trade, especially the foreign. Thus the merchant who

started as traders in goods slowly developed as financier of foreign trade or

banker.

It is clear that merchant bankers, money lenders and goldsmith were

largely responsible for the development of modern banks.

Modern banks possess the characteristics of all these ancestors like the

merchant bankers, modern banks finance foreign trade and use bills of exchange

in their financing of foreign trade. Like the money lenders, modern banks accept

deposits from those who have surplus money to spare and lend the same to the

needy for productive purposes.

Like the goldsmiths modern banks provide to the depositors and a

convenient means of payment in the form of cheques and create money.

History of banking in India:

Banking was existence in India from very early times. The writing Manu

and Kautilya contained references to banking. But, banking on western lines

started in India only from the beginning of the 19th century.

The Indian commercial banking system had to pass through a series of

financial crisis and reforms; its growth was slow during the first half of the 20th


century. Further many banks during this period went through a series financial

crisis. It is only after independence the Indian banking system has made a

rapid progress. Today, the Indian banking system is one the sophisticated and

well developed commercial banking systems in the world.

Meaning of the term Bank:

The term ‘BANK’ is derived from the German word ‘PACKS’ which

means joint stock fund or a common fund that is a Heap of money raised from a

large number of the public.

They contended that the early European bankers raised a common fund or

heap of money from the public for the purpose of financing the need as, banks

deal in common funds or heaps of money raised from the public.

Definition of the term Bank:

The Indian Banking Companies Act of 1949 defines the term Banking

Company as “any company which transacts the business of banking in India, as

accepting foe the purpose of lending or investment of deposits of money from

the public repayable on demand or otherwise and withdraw able by cheques,

draft order or otherwise”.

Classification of banks

Banks are classified into several types based on the functions they perform.

Generally banks are classified into:

Commercial banks

Investment banks (or) Industrial banks

Exchange banks

Land mortgage bank

Central bank

Co- operative banks

Commercial banks:


Commercial banks perform all the business transaction of a typical bank.

They accept three types of deposits viz current deposit, fixed deposits,

saving deposits which are re payable on demand.

Since commercial banks are expected to meet immediate requirements of

depositors, they cannot invest credit overdrafts. They provide cheque facility

and bank draft for transfer of funds, safeguarding the valuables, discounting the

bills of exchange, collecting customer’s stocks and shares etc.

Investment / Industrial banks

Investment banks are those banks which are mainly concerned with

underwriting new securities. They underwrite new issued shares and debentures

of industrial companies and also purchase entire issue of new securities and

later sell it to the public at higher price.

Industrial banks are those banks which are socialized in providing long

term loans to industries with a view to buy plant and machinery and other

capital assets that require huge capital outlay. These banks play major role in

economic development of a country.

Exchange bank:

Exchange banks are known as foreign banks or foreign exchange banks,

which provide foreign exchange for import trade. Their main function is to

make international payment through the purchase and sales of exchange bills.

They convert home currency into foreign currency and vice versa. They

discount foreign exchange bills, which are used in foreign trade. These banks

function like commercial banks accepting deposits and lending funds for

investment.

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