equity analysis and ion of indian markets with international markets by g.p.reddy

8/8/2019 Equity Analysis and ion of Indian Markets With International Markets by G.P.reddY

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Content of this presentation is Strictly Private and Confidential

ANALYSIS OF EQUITY MARKET AND COMPARISION OF INDIAN EQUITYMARKET WITH INTERNATIONAL MARKETS

Presentation

on

Edelweiss Broking Ltd., 14th Floor, Express Towers, Nariman Point, Mumbai 400021SEBI Registration No: NSE (INB/INF231311631) BSE(INB011311637)

By

G. Praneet Reddy09BS0001622IBS-CHD


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Why Warren Buffett is the richest man on Earth?

In his own wordsThe basic ideas of investing are to look at stocks as business,

use the market's fluctuations to your advantage..

How to identify it?

Equity Analysis:


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Equity analysis is basically a combination of twoindependent analyses, namely

1. Fundamental analysis

2. Technical analysis

3


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Fundamental Analysis:

Fundamental analysis is the study of economic, industry and company conditionsin an effort to determine the value of a company s stock. Fundamental analysis typicallyfocuses on key statistics in company s financial statements to determine if the stock priceis correctly valued.

The typical approach to analyzing a company involves three basic steps :1 Determine the condition of the general economy.2 Determine the condition of the industry.3 Determine the condition of the company.


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* It consists of 3 parts

1. Industrial Life Cycle2. SWOT Analysis

3. Industry Specific Index

* Industry life cycle analysis

* What stage of industry eg Start phase,

growth phase, maturity or decline stage

* SWOT Analysis

Strengths

Large domestic market

Sustainable labor cost advantage

Competitive auto component vendor base Government incentives for manufacturing plants

Strong engineering skills in design etc

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Industry (Auto Mobile):


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Weaknesses

Low labor productivity

High interest costs and high overheads make the production uncompetitive

Various forms of taxes push up the cost of production

Low investment in Research and Development

Infrastructure bottleneck

Opportunities Commercial vehicles

Heavy thrust on mining and construction activity

Increase in the income level

Cut in excise duties

Rising rural demand

Threats Rising input costs

Rising interest rates

Cut throat competition

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Industry Specific Index

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Industry specific index also called as sectoral index are those indices, which represent a specific

industry sector. All stocks in a sectoral index belong to that sector only. Hence an index like the BSEauto index is made of auto stocks. Sectoral Indices are very useful in tracking the movement andperformance of particular sector.


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Company:

Difficult to find

relevant information

and views quickly

and easily?

Dont find time to

trade during

market hours?

What is the model

portfolio to suit my

needs?

Strategy for identifying securities:

Intrinsic Value > Market Value Buy

Intrinsic Value < Market Value Sell

Intrinsic Value = Market Value Hold

Where Intrinsic value = NPV = Future Value/(Expected Rate of Return on Investment)2


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Company:

Following are the important parameters for analysis*EPS of the coming years

*Given the growth prospects

*Risk exposure

*characteristics of the firm

For this we need historical data

Of Earnings, Growth, Risk and Valuation

Other important calculations:

Book Value of the share

Paid up capital / number of shares

Earnings per share

PAT / number of Equity shares

Dividend Payout

Equity Dividend / PAT

Dividend per share

Growth performance of sales and EPS(CAGR)

Look out for Beta


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Technical analysis is the art of identifying market turning points at a relatively early stage

Technical analysis refers to the study of market generated data like prices & volume to determinethe future direction of prices movements.

Technical analysis mainly seeks to predict the short term price travels.

Basic premises of technical analysis:

1. Market prices are determined by the interaction of supply & demand forces.

2. Supply & demand are influenced by variety of supply & demand affiliated

factors both rational & irrational.

3. These include fundamental factors as well as psychological factors.

4. Barring minor deviations stock prices tend to move in fairly persistent trends.

5. Shifts in demand & supply bring about change in trends.

6. This shifts can be detected with the help of charts of manual & computerized

action, because of the persistence of trends & patterns analysis of past market

data can be used to predict future prices behaviors.


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Drawbacks / limitations of technical analysis:

1 Technical analysis does not able to explain the reasons behind the

employment or selection of specific tool of Technical analysis.

2 The technical analysis failed to signal an uptrend or downtrend

in time.

3 The technical analysis must be a self defeating proposition. As

more & more people use, employ it the value of such analysis

trends to reduce.

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Charting Stocks

Bar Charts and Japanese Candlestick Charts

Point and Figure Charts

Major Chart Patterns

Price-based Indicators

Volume-based Indicators

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tools & instruments are used to do the technical analysis:


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Drawing Bar (OHLC) Charts:

Each bar is composed of 4 elements:

Open High Low Close

Note that the candlestick body is empty (white) on up days, and

filled (some color) on down days

Open

Close

High

Low

Standard

Bar Chart

Japanese

Candlestick

Open

Close

High

Low

Standard

Bar Chart

Japanese

Candlestick


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Japanese Candlesticks:

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A candlestick is black if the closing price is lower than theopening price. A candlestick is white if the closing price is higher than the opening price.


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Head and Shoulders:

This formation is characterized by two small peaks on

either side of a larger peak.

This is a reversal pattern, meaning that it signifies achange in the trend.

The right shoulder is created as the bulls try to pushprices higher, but are unable to do so. This signifies theend of the up-trend. Confirmation of a new down-trendoccurs when the "neckline" is penetrated.

Head

Head

Left Shoulder

Left Shoulder

Right Shoulder

Right Shoulder

Neckline

Neckline

H&S Top

H&S Bottom


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Double Tops and Bottoms:

A double top occurs when prices rise toa resistance level on significant volume,

retreat, and subsequently return to theresistance level on decreased volume.Prices then decline marking thebeginning of a new down-trend.

A double bottom has the samecharacteristics as a double top except it isupside is down.

Target

Double Top

Double Bottom

Target


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Rounded Tops & Bottoms:

Rounding tops occur as expectations gradually shift from bullish to bearish.The gradual, yet steady shift forms a rounded top. Rounding bottoms occur

as expectations gradually shift from bearish to bullish.

Rounding Top

Rounding

Bottom


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Technical Indicators:

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Few Technical Indicators:

*Moving Average Convergence/Divergence (MACD)

*Relative Strength Index (RSI)*On Balance Volume

*Bollinger Bands


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MACD:

*MACD was developed by Gerald Appel as a way to keep track of a moving average crossover system.

*Appel defined MACD as the difference between a 12-day and 26-day moving average. A 9-day

moving average of this difference is used to generate signals.

*When this signal line goes from negative to positive, a buy signal is generated.

*When the signal line goes from positive to negative, a sell signal is generated.

*MACD is best used in choppy (trendless) markets, and is subject to whipsaws (in and out rapidly with

little or no profit).


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Relative Strength Index (RSI):

*RSI was developed by Welles Wilder as an oscillator to gauge overbought/oversold levels.

*RSI is a rescaled measure of the ratio of average price changes on up days to average price changeson down days.

*The most important thing to understand about RSI is that a level above 70 indicates a stock is overbought ,and a level below 30 indicates that it is oversold (it can range from 0 to 100).

*Also, realize that stocks can remain overbought or oversold for long periods of time, so RSI alone isntalways a great timing tool.


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On Balance Volume:

*On Balance Volume was developed by Joseph Granville, one of the most famous technicians of the1960s and 1970s.

*OBV is calculated by adding volume on up days, and subtracting volume on down days. A running totalis kept.

*Granville believed that volume leads price.

*To use OBV, you generally look for OBV to show a change in trend (a divergence from the price trend).

*If the stock is in an uptrend, but OBV turns down, that is a signal that the price trend may soon reverse.


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Bollinger Bands:

Simple and easy order placing through BUY?SELL page

Auto suggest option for all the stocks and F&O

Same codes for both BSE/NSE stocks

*Bollinger bands were created by John Bollinger (formerFNN technical analyst, and regular guest on CNBC).

*Bollinger Bands are based on a moving average of the closing price.

*They are two standard deviations above and below the moving average.

*A buy signal is given when the stock price closes below the lower band, and a sell signal is givenwhen the stock price closes above the upper band.

*When the bands contract, that is a signal that a big move is coming, but it is impossible to say if it will beup or down.

*In my experience, the buy signals are far more reliable than the sell signals.


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Comparative Analysis:

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COMPARISION OF INDIAN MARKETS WITH INTERNATIONAL MARKETS:

*The Indian stock exchanges hold a place of prominence not only in Asia but also at the global stage.*The Bombay Stock Exchange (BSE) is one of the oldest exchanges across the world.*National Stock Exchange (NSE) is among the best in terms of sophistication and advancementof technology.

*The Indian stock market is the world third largest stock market on the basis of investor baseand has a collective pool of about 20 million investors. There are over 9,000 companies listedon the stock exchanges of the country.

*The Bombay Stock Exchange, established in 1875, is the oldest in Asia.

*National Stock Exchange, a more recent establishment which came into existence in 1992, isthe largest and most advanced stock market in India is also the third biggest stock exchangein Asia in terms of transactions.

*It is among the 5 biggest stock exchanges in the world in terms of transactions volume.

Country Stock exchange name Indices name

India National Stock Exchange S & P Nifty

India Bombay Stock Exchange SensexHong Kong Hong Kong Stock Exchange Hang Seng

USA New York Stock Exchange NYSE

Korea Korean Stock Exchange KRX 100

Russian Russian Stock Exchange RTS Index


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The main objective of this study is to capture the trends, similarities and patterns in theactivities and movements of the Indian Stock Market in comparison to its internationalcounterparts. The aim is to help the investors (current and potential) understand the impact ofimportant happenings on the Indian Stock exchange.

Methodology:

*For the comparative analysis of the different stock exchanges, the period chosen is from 1stJanuary 1995 to 31st July, 2006. This period is divided into different sets of years, like 1995-97,

1999-01, 2001-03, and 2003-06, in order to capture the effect and movement of stock*exchanges with each other during different periods.*The economic situation changes during different times.

*1995-1997 period represents the East Asian miracle and crisis period.*1999- 2001 represents technology boom and tech bubble bursting period.*2001-2003 represents the slow global recovery from the recession.*2003-2006 period represents the investment boom period especially in the developingand emerging markets.

*The world is divided into four main regions, namely, the US, Euro region, India and Asianregion. Stock exchanges representing various regions used in this study includes-

*NSE (India),*NYSE (USA),* Hang Seng (South East Asia),*Russian Stock Exchange (Russia),* Korea (Asia).

* The number of sample units for this study is five.


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This is the main part of the study wherein the various stock exchanges of the sample have been

compared on certain parameters

1. Qualitatively2. quantitatively.

Qualitative Analysis:In this section the various stock exchanges have been compared on the followingparameters;1. Market Capitalization2. number of listed securities

3. listing agreements4. circuit filters5. settlement

Market Capitalization:Market capitalization gives an idea

about the size of the respective

exchanges.

Market capitalization is the measure of

corporate size of a country.

It is commonly referred to as

Market cap.


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Listed Securities:

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The number of listed securities acts as an indicator for the volume and liquidity of any exchange.

Listing in a stock exchange refers to the admission of the securities of the company fortrade dealings in a recognized stock exchange.

Securities of any company are listed in a stock exchange to provide liquidity to the securities, tomobilize savings and to protect the interests of the investors.


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Circuit filters:

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The circuit filters give an insight into the risk management framework of the said

exchange

Stock Markets have the dubious reputationof crashing without a warning taking withthe savings of numerous investors.

As a counter measure to the instability ofthe stock market, various measures wereintroduced by to avoid huge losses. Onesuch solution is circuit breakers.Circuit Breakers are a point at which astock market will stop trading for a periodof time in response to substantial drops invalue. They are also referred to as tradingcurb is certain stock markets like DJIA andNYSE.This was first introduced after BlackMonday.Black Monday is the name given to Monday,October 19, 1987,


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Settlement Cycles of various stock exchanges:

The efficiency of a stock exchange has been measured in terms of its settlement

process.


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Quantitative Analysis

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1. Price Relationship2. Stock Price Correlation3. Risk and Return

The hypothesis that the exchanges impact each other has been tested through various statisticalmethods with data on price, returns collected from the exchanges.

Mainly the following methods will use for quantitative analysis

Price Relationship


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Stock Price Correlation among Stock Exchanges:

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Risk and Return:

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Investors should not follow the advisors suggestions blindly, they shouldanalysis the market and should able to interpret the future trend.

We observed that there is a correlation between Indian markets and otherInternational markets after 1996.

So Globalization will help to raise up collectively

Conclusion:

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Thank You

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equity analysis and ion of indian markets with international markets by g.p.reddy

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