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  • 8/8/2019 Satyam Assignment




    Security and portfolio analysis


    M M a a h h i i n n d d r r a a S S a a t t y y a a m m Fundamental and technical analysis

    Submitted By Submitted To

    Dinesh Kumar Mr.krishan gopal Roll no :- RT1901B50 Regd. No :- 10901690

    Class :- MBA-3 sem

    Section :- T1901

    L L o o v v e e l l y y P P r r o o f f e e s s s s i i o o n n a a l l U U n n i i v v e e r r s s i i t t y y P P u u n n j j a a b b

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    I would like to take this opportunity to express mygratitude towards all those people who have helpedme in the successful completion of this term paper,directly or indirectly. I would also like to express my

    sincere gratitude towards ms .sukhwinder kaur (myterm paper guide) for her guidance and help whichshe willingly provided at every step of my termpaper.

    Dinesh Kumar

    MBA-3nd Sem

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    Introduction of sat yam computer service

    On 24th June company was incorporated as a Private Limited Co. for providing Software

    Development and Consultancy Services to large corporations. The company was promoted by B

    Rama Raju and B Ramalinga Raju. The company has set up two software Technology

    Parks,one at Mayfair Centre, Secunderabad and other at Qutuballapur of Ranga Reddy Dist. of

    A.P. The company also developed a software Development center in Bangalore. The company is

    a 100% EOU under the STP scheme of the Dpt. of Electronics Government of India and exports

    software to USA, Canada, Sweden and Germany etc. 1991 - On 26th August it was converted

    into a Public Limited Company. 1992 - The Company went in for a Public Issue of Equityshares. The company has set up facilities at Secunderabad, Hyderabad and Bangalore. The

    Company has created infrastructural facilities consisting of workstations with modern

    communication and networking equipment. Satyam went in for a public issue of equity shares

    with the main objective of setting up a software technology park and a 100 percent export

    oriented unit for software development with a dedicated 64 KBPS satellite link.1993 - During the

    year company has entered into a joint venture agreement with Dun & Bradstrret Corp., U.S.A.

    for development of softwares.1994 - On January 26th a joint venture company called Dun &

    Bradstreet Satyam Software (P) Ltd. was incorporated. 1995- During the year company issued

    37,17,000 12% unsecured fully convertible debentures part A of Rs.100 each on right basis for

    the shareholders in proportion of 1 FCD for every 5 shares held. The company also issued

    37,17,000-12% FCD's-part `B' Rs.60 per debentures in August which can be converted into

    equity shares of Rs.10 each at premium of Rs.50 per share on August 1996. During the year

    Two offices were set up, one in USA and other in Japan. And the company has added new

    business partners in Australia, Canada, Japan and Europe. During the year company promoted 4

    subsidiaries. Viz Stayam Renaissance Consulting Ltd., Satyam Enterprise Solutions Pvt. Ltd.,

    Stayam Infoway Pvt. Ltd and Satyam Infoway Pvt. Ltd.

    1997 - During the year company has added additional space in Secunderabad and Bangalore.

    And new software development centers were opened in Hyderabad, Pune, Chennai and

    Bhubaneswar during the year. The company has established a school at Indian Institute of

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    Information Technology at Hyderabad, joining a select band of global corporations like IBM,

    Microsoft and oracle who are also participating in IIIT's activities. Satyam Computer Services

    Ltd. (SCSL), the Hyderabad-based software company, setting up three more new software

    development centres at Chennai, Pune and Bhubaneshwar. Satyam Infoway (P) Ltd. (SIL), a

    subsidiary of Satyam Computers, has signed an agreement with Sterling Commerce,

    International Group of the U.S. to provide electronic data interchange (EDI) and other value

    added electronic commerce solutions throughout India.

    Two new offices have already been set up in the US, and another in Japan. New business

    partners have been added in Australia, Canada, Japan and Europe.nSatyam Infoway is a 100 per

    cent subsidiary of the Hyderabad-based software major, Satyam Computer Services Ltd. Dun &

    Bradstreet Corp. USA (D&B), is likely to buy out the 24 per cent stake of joint venture partner

    Satyam Computers Services and gain majority control, 76 per cent of the stake is held by D&B.The joint venture was set up to provide software services to D&B clients world wide. Dun and

    Bradstreet Satyam Software is the largest single location software unit for D&B in the world.

    Satyam Computer has four subsidiaries: Satyam Spark Solutions, Satyam Infoways, Satyam

    enterprise Solutions and Satyam Renaissance, Consulting, Spark solutions focuses on software

    products, Infoways operates in the field of electronic commerce and electronic data interchange.

    Satyam Computer Services Ltd announced that it had divested its 24 per cent ownership of Dun

    & Bradstreet Satyam Software Pvt Ltd (DBSS) in favour of Cognizant Software Solutions

    Corporation, a subsidiary of Cognizant Corporation, US. Satyam Computer Services Ltd., has

    been selected by the Switzerland-based World Economic Forum and World Link magazine as

    one of India's most remarkable and rapidly growing entrepreneurial companies.

    2007 Satyam Computer Services Ltd has on March 15, 2007 has announced that it has

    implemented an organization-wide, virtual learning environment called Satyam Learning World.

    Satyam Computer signs multi-year deal with Applied Materials. Satyam Computer Services Ltd

    on June 04, 2007 has announced that it recently won Computer Associates Vision, Impact,

    Progress (VIP) Award for an internal implementation and optimization of CA's service desk

    platform. Satyam Computer Services Ltd on June 11, 2007 has announced that it has forged an

    alliance with US-based JDA Software Group Inc., the leading provider of supply and demand

    chain solutions to 5,500 of the world's top retailers, manufacturers, and suppliers.Satyam

    partners in developing Hera FxV-India's first Digital Car launched at CII Conclave.

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    2008-Satyam Computer Services Ltd has informed that Satyam BPO, the business process

    outsourcing arm of Satyam, a leading global business and information technology services

    Company, on April 10, 2008 announced that it has won two prestigious Shared Services

    Excellence awards from the International Quality and Productivity Council.-Satyam Computer

    has announced it has inked a pact with Infospectrum to give third-party maintenance, repair and

    overhaul (MRO) and component repair services for the global aviation industry.

    2009 - Tech Mahindra has announced the name change of scam hit Satyam Computers as

    Mahindra Satyam. This rebranding exercise symbolises an amalgamation of the values of

    Mahindra Group with Satyam's fabled expertise, even as it retains that part of Satyam's identity

    which signifies commitment, purpose and proficiency of the organisation and its people,

    according to Anand Mahindra, vice-chairman and managing director of the Mahindra Group. -

    Mahindra Satyam stated that it has secured contracts worth Rs 38 crore in the middle east andnorth america region (MENA) in Q2 of FY 2009-10. Mahindra Satyam appointed Deloitte as


    2010- Mahindra Satyam has inked a new 4 year offshore contract which is worth about mill


    An investor can make more money if his investment decisions are based on actual movement

    of share price measured both in money and percentage terms. It is also very important to predict

    the future movements and also the true value of the securities.

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    Equity analysis is used in order to find the true value of the securities and also to know where

    the prices are moving. It covers many aspects including the calculating various financial ratios

    and charts to extremely sophisticated indicators.

    Equity Analysis is broadly divided into fundamental and technical analysis. Technical

    analysis looks at the price movement of a security and uses this data to predict its future price

    movements. Fundamental analysis, on the other hand, looks at economic factors, known as


    The following are the major differences between fundamental and technical analysis:

    Fundamental analysis focuses on what is ought to happen while technical analysis

    focuses on what has already happened.

    Fundamental analysis analyses the economic indicators and financial statements whiletechnical analysis makes use of the historic market data

    Fundamental Analysis advocates that every security has an intrinsic value which is not

    reflected by the market price while technical analysis advocates that market price

    accounts for everything.

    Fundamental Analysis uses tools like ratio analysis other valuation methods to find the

    intrinsic value while Technical Analysis primarily depends on charts and technical





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    Fundamental Analysis

    Fundamental analysis is the study of a companys financial strength, based on historical data;

    sector and industry position; management; dividend history; capitalization; and potential for

    future growth. It is a stock valuation method that uses financial and economic analysis to predict

    the movement of stock prices. The analysis attempts to find the intrinsic value of a security that

    helps investors to make decisions.

    The fundamental information that is analyzed can include a company's financial reports, and

    non-financial information such as estimates of the growth of demand for products sold by the

    company, industry comparisons, and economy-wide changes, changes in government policies


    The various steps involved in the fundamental analysis are:

    1. Macroeconomic analysis, which involves considering the overall health of the

    economy and its future.

    2. I ndustry analysis, which involves the analysis of the industry in which the company is


    3. S ituational analysis of the company, studying their business model, management,

    products and services, its current position, its future, etc.

    4. F inancial analysis of the company, which involves analyzing the financial statements

    like balance sheets, income statements, cash flows and ratios.

    5. V aluation, which attempts to find the intrinsic value of the securities of the company.

    The approach to fundamental analysis is often referred to as E-I-C Approach. The E-I-C denotes

    the three parts of the fundamental analysis. The three distinctive parts of fundamental analysis


    1. Economic Analysis

    2. Industry Analysis and

    3. Company Analysis

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    Economic analysis is the analysis of forces operating the overall economy a country. It is a

    process whereby strengths and weaknesses of an economy are analyzed and is important in order

    to understand exact condition of an economy.

    INDIAS STRENGTH IN IT SECTOR Large growth potential

    Increasing outsourcing trend

    Export and global outsourcing will drive future growth

    Leveraging India advantages

    Rapidly improving infrastructure

    Indian technology production companies have demonstratedcapabilities to compete in the global market.

    Government Policy

    The duty cuts on telecom hardware and fiber will have a minimum impact.

    The new fringe benefits tax has been introduced at the rate of 30 % of a specified portion of various benefits. Its an irritant as its parable by the employer.

    NASSCOM, MAIT and other research firms such as IDC that suggest that the industry couldgrow at CAGR of 40 % between now and 2008.

    It is estimated that by March 2005 the IT industry will be worth a cool $ 28.2 billion (RS 12080crore) and the industry is expected to by 25- 30 % annually over the next year.

    IT companies are happy at the importance given to the infrastructure development by thegovernment and the announcement that 7 million jobs will be created by the IT sector 2009.


    Year Mar Jun Sep Dec Average

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    2010 8.60 8.80 8.702009 5.80 6.00 8.60 6.50 6.732008 8.50 7.80 7.50 6.10 7.48

    India Gross Domestic Product (GDP) expanded 8 .80% in the second quarterof 20 10 from a year earlier . The India Gross Domestic Product is worth 1217 billion dollars or 1.96 % of the world economy . The economy has posted anaverage growth rate of more than 7% in the decade since 1997, reducingpoverty by about 10 percentage points .












    Rate4.50% 8.80% 13.73% 7.32% -13 46.7650


    The Reserve Bank Of India has stated that it had seen an annual growth of 8.5%

    steadily. The main priority of the Reserve Bank is to curb the ongoing inflation,

    which peaked at 11% last month. Interest rates have been increased by the banks to

    contain the inflation, but it could slow down the growth of the Indian economy in

    the coming months. But even thought there has been a rise in the interest rates

    there hasnt been much change in the distribution of loans, the Indian customer is

    hardly affected with the hiked interest rates.

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    F D I

    The huge size of the market in the power sector in India and high returns on

    investment are important factors in boosting FDI inflows to power. 100% FDI is

    permitted to this sector under automatic route in almost all the power sectors in

    India except the Atomic energy. There are huge opportunities of FDI in power

    sector in India.

    Economic Analysis:-

    y The export of the company is good. They receiving huge export orders.

    y The value of Rs. is increase as compare to previous.y The Govt. taking more steps to manipulate the economy. They providing tax

    assumptions to grow of industry. Many schemes have been launched by the

    govt. to increase the GDP of india.

    y The GDP of India increases from last year . it is the good indication for

    investing in Indian market.


    The FDI in IT sector is 100% . so it can be good option for investment.

    The overall economic condition of India is good. it can be a good option to

    invest in Stock market specially in power sector.

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    INDUSTRY ANALYSIS OF ITThe importance of industry analysis is now dawning on the Indian investor as never

    before. It is very important to analyze the health of an industry because no company is

    operating in isolation.


    The Indian software industry has grown rapidly since the 1980s, with revenues increasing

    from less than $ 100 million in 1985-86 to nearly $ 8.4 billion by 2000-01. During this

    period, exports grew even faster, with their share increasing from less than a third to

    nearly three quarters of revenues. This essay will analyze the domestic conditions under

    which this export led industry has grown. Although global demand for software,

    sustained by the PC, networking and internet revolutions of the 1970s, the 1980s and the

    1990s respectively, played an important role in facilitating the growth of the Indian

    industry, it was also available to other countries. Indias main software market, India is

    hardly unique in possessing such labor force characteristics. Indeed, global demand and

    the availability of high skill, low wage workface are necessary, but not sufficient

    condition. If they were sufficient conditions, one must explain why India failed to take

    similar advantage, unlike her East Asian counterparts such as Taiwan, South Korea and

    increasingly China, of the globalization of semiconductor design and manufacturing sincethe 1960s. In other words, the growth of Indias software industry must be explained in

    terms of how shifting domestic policy conditions allowed her to take advantage of global

    demand and her labor force characteristics to become, along with Israel, the leading


    exporter by the end of the millennium.

    Important large software players such as Infosys Wipro, satyam Computer Services

    managed to beat the market expectation and continuously grow. The important thing is

    stay in top of the computer software companys current ranking. Other big fishes Patni

    Computer Systems, Emphasis BFL try to improve its position in industry and win the

    confidence of investors.

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    Through the 107 large and small software companies managed to see an improved sales

    growth in compare to just 34 companies are under expectation and its near about 32%.

    Out of all the 8 large computer software companies managed to see an improved sales

    growth and reach to Rs. 15363.1 crore. Their OPM have just increase from 26.2 % to

    27.0 %. Budget 2006 has all the ingredients for growing the domestic IT market faster,

    the government focus on rationalization of custom duty is positive step to stimulate

    domestic demand. The government decision to hike teledensity across all villages by

    2007 will positively impact connectively, helping rural Indians to be part of the digital

    revolution .

    Industry StructureThe Indian software industry, a high growth sector, is fragmented, with the top 10 Playersaccounting for less than 20 percent of the total industry size in 2001. The IT Services

    industry is characterized by players of varying sizes, providing solutions to Myriad

    verticals, the Indian software and services industry had around 2,810 companies

    Operating within its domain.

    The structure of the industry can be gauged from the followingtable:

    Annual turnover No .of companies Above Rs.1000 crore 5 Rs.500 crore- Rs. 1000 crore 5 Rs.250 crore- Rs . 500 crore 15 Rs.100 crore- Rs . 250 crore 27 Rs.50 crore- Rs . 100 crore 55 Rs.10 crore- Rs . 50 crore 220 Below Rs. 10 crore 2,483

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    Sunrise Industry and the Growth for the Millennium

    A growth of 20.4 % in rupee terms and 28 % in dollar terms in exports

    during 2003- 04

    Achieved a CAGR of 30 % in turnover and 37 % in export during last 5


    IT exports likely to grow by 26-28 % in dollar terms during 2004-05.

    Indian Industry Grow at over 32 % CAGR between 1999 and 2004.

    Key factors behind growth in exports are: US IT investment boom

    Onsite staff supplementation growth fuelled by major technology waves

    Offshore growth led by anchor MNC customers

    New emerging service lines (R & D services, BPO)

    Significant Strengths in R & D

    175 of the Fortune 500 companies have R&D operation in India

    A vast network of state-owned national research

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    Laboratories Provides world-class support

    IT R&D services currently account for more than 15 % of Total IT


    Opportunity in Software Sector

    YEAR 2008 Market

    IT Service Export $28-30 bn

    Software products $ 8-11 bn

    IT Enabled Service $21-24 bn

    Domestic Market $13-15 bn

    Total $70-80 bn

    Export $57-65 bn

    Strong Performance and Growth Potential

    CAGR: 96-97 to 02-03: 24 % 02-03 to 08-09: 24 % By 2008, India will build a US$ 40 billion Electronics Hardware Industry

    IT industry by the year 2008 IT export 35 % of Indias Total Export in 2008 from21.3 % during 2003-04 Share of IT Software & Services Industry in GDP ITExport Likely to be 7 % of GDP in 2008 From 2.64 % of GDP during 2003-04

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    Company Analysis

    Company analysis is the final stage of fundamental analysis. The economy analysis provides

    the investor a broad outline of the prospects of growth in the economy. The industry analysis

    helps the investor to select the industry in which investment would be rewarding. Now he has to

    decide in which company he has to invest. Company analysis provides the answer to this


    In company analysis the investor tries to predict the future earnings of the company because

    there is strong evidence that the earnings have a strong effect on the share prices. The level, trend

    and safety of earnings of a company, however depend upon a number of factors concerning theoperations of the company.

    The different issues regarding a company that should be examined are:

    The Management

    The Company

    The Annual Report


    Cash flow

    Abount Satyam Computer Service Ltd . Satyam Computer Service Ltd (SCSL) is a leading global service company , offering a wide a

    wide array of solution customized for a key vertical and horizontals. From strategy consulting

    right through to Implementing IT solution for customer , Satyam straddles the entire IT space. Ithas excellent domin competencies in verticals such as Automotive, Banking and Financial

    Service, Insurance and Helthcare, Manufacturing , Telecom-Infrastructure-Media-Entertainment-

    Semiconductors(TIMES). As a driverse end-to-end IT Solutions

    provided, satyam offers a range of expertise aimed at helping customers re-engineer and re-

    invent their business to compete successfully customers ever-changing marktplace. SCSL to

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    report that the company has achieved Net Sales of Rs 20236.51 million in corporate to the one

    year before it was 17319.43 million . The company growth was driven by a double digit offshore

    volume increase and stable prices. Revenue for quarter three in 2004 of Rs 891.26 crore was

    better than the guidencde of Rs 886 crore EPS AT Rs 5.49 was highest than the guidance of Rs

    5.47. At Present , company have 372 active customer including 139 Fortune Globle 500 and

    forture US 500 corporations. Company believe that the proporation of such customer to our total

    customer base is one of the highest in the industy, reflectinthe strong brand. Satyam has been

    ranked amongst the top 10 employers in India by the CNBC.


    With customer IT Budgets expected to grow at a rate higher than last year, thecompany believes that they are in a strong position to garner a larger share of their

    IT spending . In light of the improved prospects and better-than-expected

    performance for the current year . Company revising revenue guidance upwards

    for fiscal 2005. Company expectes revenue between Rs 3429 crore and Rs 3433

    crore , implying an annual growth of Rs 34.9% to 35.1%.

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    Financial analysis

    Directors Report Year End : Mar '08 The directors are pleased to present their report for the financial year 2007-08.

    Financial highlights

    Rs. in croresParticulars 2007-08 2006-07 Growth%

    Income from software services 8,137.28 6,228.47 30.65

    Other income 257.20 181.61 41.62

    Total income 8,394.48 6,410.08 30.96

    Operating profit (PBIDT) 2,085.74 1,710.73 21.92

    Interest 5.94 7.61 (21.94)

    Depreciation 137.94 129.89 6.20

    Profit before tax 1,941.86 1,573.23 23.43

    Provision for tax 226.12 150.00 50.75

    Profit after tax 1,715.74 1,423.23 20.55

    Equity share capital 134.10 133.44 0.49

    Reserves 7,221.71 5,648.07 27.86

    Transfer to general reserve 171.60 142.32 20.57Earnings per share

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    (Rs. Per equity share of Rs. 2 each)

    -Basic (Rs.) 25.66 21.73 18.08

    -Diluted EPS (Rs.) 25.12 21.25 18.21

    Dividend rate(Interim plus Final) (%) 175 175

    OverviewFor the financial year ended March 31, 2008, your Company reported a total income of Rs.

    8,394.48 crores, comprising income from software services of Rs. 8,137.28 crores, and other

    income of Rs. 257.20 crores. Total revenues grew by 30.65% over the previous financial year. The

    company recorded an operating profit of Rs. 2,085.74 crores, and a net profit of Rs. 1,715.74

    crores, representing a growth of 21.92% and 20.55% respectively, over the previous financial year.

    North America,

    Europe and rest of the world accounted for 60.35%, 20.58% and 19.07% of the revenues,

    respectively. Offshore revenue during the year was 51.84%, while onsite was 48.16%.


    Directors recommended a final dividend of Rs.2.50 per share for your approval. This, coupled

    with the interim dividend of Re.l per share already paid, raises the total dividend for the year to Rs.

    3.50 per share.

    Increase in the share capital

    During the year under review, the paid-up share capital of the Company increased from Rs.

    133.44 crores divided into 667,196,009 equity shares of Rs. 2 each to Rs.134.10 crores divided

    into 670,479,293 equity shares of Rs. 2 each, consequent to issue of 3,283,284 equity shares of Rs.

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    2 each to Associates upon exercise of options under the stock option plans of the Company

    Listing on Euronext

    In a path-setting initiative, your Company listed its existing ADSs with Euronext Stock Exchange

    (NYSEs European trading platform). With this move, Satyam became the first Indian company to

    list on three major trading platforms around the world, making it a truly globally-tradeable entity.

    The listing was also the first of its kind globally, under the fast-track mechanism. Europe is a

    dynamic and growing market for your Company and our listing will demonstrate our continued

    and growing commitment to the region.

    Human resources

    The total number of Associates on March 31, 2008 was 45,969, against 35,670 on March 31,

    2007. The attrition rate for the year 2007-08 was 13.09%.

    Balance Sheet of Mahindra

    Satyam------------------- in Rs. Cr. -------------------

    Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

    12mths 12 mths 12 mths 12 mths 12 mths

    Sources Of Funds

    Total Share Capital 63.25 63.85 64.89 133.44 134.10

    Equ ity Share Capital 63.25 63.85 64.89 133.44 134.10

    Share Application Money 0.19 0.45 1.78 7.85 1.83

    Preference Share Capital 0.00 0.00 0.00 0.00 0.00Reserves 2,517.52 3,153.17 4,268.75 5,648.07 7,221.71

    Reval uation Reserves 0.00 0.00 0.00 0.00 0.00N etworth 2,580.96 3,217.47 4,335.42 5,789.36 7,357.64

    Sec ured Loans 7.30 9.87 12.57 13.79 23.67

    Unsec ured Loans 0.00 0.00 0.00 0.00 0.00T otal Debt 7.30 9.87 12.57 13.79 23.67T otal Liabilities 2,588.26 3,227.34 4,347.99 5,803.15 7,381.31

    Mar '04 Mar '05 Mar '06 Mar '07 Mar '08

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    12 mths 12 mths 12 mths 12 mths 12 mths

    Application Of FundsG ross Block 847.16 937.70 1,153.16 1,280.40 1,486.53

    Less: Acc um. Depreciation 597.76 685.41 803.74 930.45 1,062.04N et Block 249.40 252.29 349.42 349.95 424.49

    Capital Work in Progress 22.17 64.68 76.84 290.05 458.63Investments 74.75 78.48 155.74 201.15 493.80

    Inventories 0.00 0.00 0.00 0.00 0.00

    S undry Debtors 592.82 765.17 1,122.81 1,649.86 2,223.41

    Cash and Bank Balance 346.20 558.92 1,144.18 593.16 1,143.10

    Total C urrent Assets 939.02 1,324.09 2,266.99 2,243.02 3,366.51

    Loans and Advances 187.34 155.06 298.12 394.07 766.04

    Fixed Deposits 1,469.16 1,804.38 1,908.15 3,366.66 3,318.58

    Total CA, Loans & Advances 2,595.52 3,283.53 4,473.26 6,003.75 7,451.13

    Deffered Credit 0.00 0.00 0.00 0.00 0.00

    Current Liabilities 194.53 262.87 435.71 621.30 896.46

    Provisions 159.06 188.77 271.56 420.45 550.28

    Total CL & Provisions 353.59 451.64 707.27 1,041.75 1,446.74N et Current Assets 2,241.93 2,831.89 3,765.99 4,962.00 6,004.39

    Miscellaneo us E xpenses 0.00 0.00 0.00 0.00 0.00T otal Assets 2,588.25 3,227.34 4,347.99 5,803.15 7,381.31

    Contingent Liabilities 8.68 38.22 134.45 267.20 623.28

    Book Val ue (Rs) 81.60 100.76 133.57 86.65 109.71

    Interpretation company balance sheet reflect that companys financial positionis strong and its current assets are increasing every year as well as current assetsalso .due to high transaction of business its current liabilities are also increasing.

    EPS-Earnings Per Share 17.57 23.50 38.21 21.33 25.59

    The earning per share is show the amount per share which a investor gets on itsinvested money .company is able to provide increasing rate of per share return everyyear. It measures the investors confidence in the firms future. The higher the ratio,the larger is the investors confidence in the firms future.

    Intrinsic valueThe actual value of a company or an asset based on an underlying perception of its true valueincluding all aspects of the business, in terms of both tangible and intangible factors. This valuemay or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of findinginvestments where the true value of the investment exceeds its current market value.

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    Technical analysis is a security analysis technique that claims the ability to

    forecast the future direction of prices through the study of past market data,

    primarily price and volume. In its purest form, technical analysis considers only

    the actual price and volume behavior of the market or instrument.

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

    Technical analysts do not attempt to measure a security's intrinsic value, but

    instead use charts and other tools to identify patterns that can suggest future


    The basic assumptions of technical analysis are:

    The market discounts everything: technical analysis assumes that, at any

    given time, a stock's price reflects everything that has or could affect the

    company - including fundamental factors. This only leaves the analysis of

    price movement for a particular stock in the market.

    Price moves in trends: In technical analysis, price movements are believed

    to follow trends. This means that after a trend has been established, the

    future price movement is more likely to be in the same direction as the trend

    than to be against it. Most technical trading strategies are based on this


    History tends repeats itself: Another important idea in technical analysis is

    that history tends to repeat itself, mainly in terms of price movement. Therepetitive nature of price movements is attributed to market psychology; in

    other words, market participants tend to provide a consistent reaction to

    similar market stimuli over time. Technical analysis uses chart patterns to

    analyze market movements and understand trends.

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    Price Charts

    A chart is simply a graphical representation of a series of prices over a set time

    frame. Technical analysis uses various kinds of charts to show the movement of

    prices over a period of time. The charts that are most commonly used for technicalanalysis are:

    Line Charts

    Bar Charts and

    Candlestick Charts

    Line Chart:

    Line Chart is the most common and simple charts as it considers only the closing prices of the

    stocks and ignores other values such as open, close, etc. The line chart is drawn by connecting

    the closing prices of a stock over a period of time. The above figure shows the line chart for the

    satyam computer Limited for 2 year period (April to June 2010)

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    B ar Chart:

    The chart is made up of a series of vertical lines and two small horizontal lines, one to the left

    and another to the right. The vertical line represents the high and low for the trading period,

    along with the small horizontal line on the left to show the open price and another on the right

    side to show the closing price. The above figure shows the bar chart for sat yam computer

    service limited for 3 months period (April- June 2010).

    Ca ndles t ick Chart:

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    Similar to a bar chart the candlestick chart also shows all the information like high, low, open

    and close prices of the stock the only difference being the way it is visually constructed. Usually

    traders feel that candlestick charts are easy to read because it clearly shows the relationship

    between the opening and closing prices of a security. If the closing price is more than the

    opening price the candle is shaded white. Conversely the candle is shaded black if the closing

    price is less than the opening price. The above figure shows the Candlestick price chart of

    satyam Industries Limited for a period of 2year(2008-2010) and also the patterns of candle


    Head and ShouldersThis is one of the most popular and reliable chart patterns in technical analysis. Head and

    shoulders is a reversal chart pattern that when formed, signals that the security is likely to move

    against the previous trend.

    V SHAPE:-

    Volume is simply the number of shares or contracts that trade over a given period of time,usually a day. The higher the volume, the more active the security. To determine the movementof the volume (up or down), chartists look at the volume bars that can usually be found at theBottom of any chart. Volume bars illustrate how many shares have traded per period and showtrends in the same way that prices do

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    Volume refers to the number of shares or contracts that are traded over a given period of time.

    Usually a price chart is presented along with the volume which is represented by volume bars.

    The higher the volume, the more active the security is. Volume is an important aspect of

    technical analysis because it is used to confirm trends and chart patterns. Any price movement up

    or down with relatively higher volume is seen as stronger and more relevant move than a similar

    move with weak volume.

    Technical indicators:

    Technical indicators are mathematical formulas that, when applied to security prices, clearly

    flash either buy or sell signals. Price data includes any combination of the open, high, low or

    close over a period of time and most of the indicators use only the closing prices. For analysis

    purposes, technical indicators are usually shown in a graphical form above or below a security's

    price chart. Once shown in graphical form, an indicator can then be compared with the

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    corresponding price chart of the security. Sometimes indicators are plotted on top of the price

    plot for a more direct comparison. A technical indicator offers a different perspective from which

    to analyze the price action.

    Some, such as moving averages, are derived from simple formulas and are relatively easy to

    understand while some such as MACD uses complex formulas and are difficult to understand.

    Technical indicators offer many uses such as:

    y To confirm the trends

    y To generate Buy/Sell Signals

    y To predict the direction of future prices.

    The technical indicators can be broadly classified into leading indicators and lagging indicators.

    The leading indicators are those indicators which are designed to lead price movements. The

    most common leading indicators are RSI and ROC. Lagging indicators are those indicators

    which follow price action and are commonly referred to as trend following indicators. Some of

    the most common lagging indicators are Moving Averages and MACD.

    Some of the most common technical indicators that are used in this project are:

    1. Moving Averages

    2. Moving Average Convergence Divergence (MACD)

    3. Relative Strength Index (RSI)

    4. Rate of Change (ROC)

    1. Moving Averages:

    The moving averages are the most common and widely used technical indicators because of their

    simplicity. Moving averages are formed by calculating the average price of a security over a

    period of time. Moving averages smooth the price data to form a trend following indicator. They

    do not predict price direction, but rather define the current direction with a lag. Moving averages

    form the building blocks for many other technical indicators including MACD.

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    The most popular moving averages are:

    i. Simple Moving Average (SMA)

    ii. Exponential Moving Average (EMA)

    S imple Mov ing Avera ge (SM A): A simple moving average is formed by computing the average

    price of a security over a specific number of periods. Most moving averages are based on the

    closing prices. A 2year simple moving average is the 2 year sum of closing prices divided by

    five. As its name implies, a moving average is an average that moves. Old data is dropped as

    new data comes available. This causes the average to move along the time scale.

    Ex ponen t i a l moving Avera ge (EM A): Exponential Moving Average is the moving average that

    is formed by applying weight to the recent price changes. This reduces the timem lag. This

    makes the EMA to respond faster to the price changes than SMA. There are three steps to

    calculating an exponential moving average. First, calculate the simple moving average. An EMA

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    has to start somewhere so a simple moving average is used as the previous period's EMA in the

    first calculation. Second, calculate the weighting multiplier. Third, calculate the exponential

    moving average. The formula for calculating EMA is In the above diagram the SMA (15) and

    EMA (15) are plotted where we can see that the EMA responds faster to recent price changes

    than SMA. The length of the moving average depends on the analytical objectives. Short moving

    averages (5-20 periods) are best suited for short-term trends and trading. Chartists interested in

    medium-term trends would opt for 20-60 period moving averages. Long-term investors

    will prefer moving averages with 100 or more periods.

    U ses of Mov ing Avera ges :

    The direction of the moving average conveys important information about prices. A rising

    moving average shows that prices are generally increasing. A falling moving average indicatesthat prices, on average, are falling. A rising long-term moving average reflects a long-term

    uptrend. A falling long-term moving average reflects a long-term downtrend. Two moving

    averages can be used together to generate crossover signals. A bullish crossover occurs when the

    shorter moving average crosses above the longer moving average. This is also known as a golden

    cross. A bearish crossover occurs when the shorter moving average crosses below the longer

    moving average. This is known as a dead cross. Moving averages can also act as support in an

    uptrend and resistance in a downtrend. A short-term uptrend might find support near the 20-day

    simple moving average. A long-term uptrend might find support near the 200-day simple moving


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    Calculation of 7 days moving average of sat yam Mahindra

    DATE CLOSING PRICE31-102008 304.830-112008 243

    31-122008 170.1531-1-2009 54.0528-2-2009 41.531-3-2009 38.530-4-2009 46.6 128.3731-5-2009 53.4 358.4230-6-2009 70.9 67.8731-7-2009 103.7 58.3730-8-2009 113.85 66.9231-9-2009 119.05 78

    30-102009 102.2 87.130-112009 101.65 94.9631-122009 96.45 101.131-1-2010 99.55 105.228-2-2010 95.55 10431-3-2010 92.6 10130-4-2010 94.5 97.531-5-2010 86.5 95.2530-6-2010 91.5 93.831-7-2010 86.4 92.37

    30-8-2010 80.85 89.731-9-2010 90.1 88.9230-102010 78.9 86.96

    The closing prcice of satyam computer service show a falling trend in price of its share .up

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    3. Relative Strength Index (RSI):

    J. Welles Wilder developed the Relative Strength Index (RSI) and introduced it in the June 1978

    article for Commodities magazine. RSI is an extremely popular momentum indicator.

    RSI is a momentum oscillator that measures the speed and change of price movements. RSI

    oscillates between zero and 100. The most popular is the 14 days RSI where the RSI is calculated

    based on 14 days values. Traditionally the stock is considered to be overbought when RSI is

    above 70 and oversold when RSI is below 30. Signals can also be generated by looking for

    divergences and centerline crossovers.

    Ca lcul at i on :

    The very first calculations for average gain and average loss are simple 14 period averages.

    First Average Gain = Total of Gains during the past 14 periods / 14. First Average Loss = Total of Losses during the past 14 periods / 14

    The second, and subsequent, calculations are based on the prior averages and the current gain


    Average Gain = [(previous Average Gain) x 13 + current Gain] / 14.

    Average Loss = [(previous Average Loss) x 13 + current Loss] / 14.

    RS I S ign a ls:


    The stock is considered to be overbought if RSI goes above 70. Since the stock isovervalued, it is the right time to sell the stock and make profits

    y Conversely, a stock is considered to be oversold if RSI falls below 30. Since the stock

    is undervalued, it is the right time to buy the stock.

    y A RSI reading above 50 is bullish as the average gains are more than the average

    losses. On the other hand a reading below 50 is considered to be bearish.

    y A bearish divergence occurs when stock makes a higher high and the RSI makes a

    lower high

    y A bullish divergence occurs when stocks makes a lower low while RSI makes a

    higher low.

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    Calculation of RSI of satyam computer GAIN LOSS


    31-102008 304.8 61.8

    30-112008 243 72.85

    31-122008 170.15 116.1

    31-1-2009 54.05 12.55

    28-2-2009 41.5 3

    31-3-2009 38.5 8.1

    30-4-2009 46.6 6.8

    31-5-2009 53.4 17.5

    30-6-2009 70.9 32.8

    31-7-2009 103.7 10.15

    30-8-2009 113.85 5.2

    31-9-2009 119.05 16.85

    30-102009 102.2 0.55

    30-112009 101.65 5.2

    31-122009 96.45 3.1

    31-1-2010 99.55 4

    28-2-2010 95.55 2.95

    31-3-2010 92.6 1.9

    30-4-2010 94.5 8

    31-5-2010 86.5 5

    30-6-2010 91.5 5.1

    31-7-2010 86.4 5.55

    30-8-2010 80.85 9.25

    31-9-2010 90.1 11.230-10-201 78.9

    99.8 263.9

    4.15 10.99

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    RSI= 100 - ( 100/ 1+ RS)Where RS = Avg . Gain /month(4 .15 )

    Avg loss/month( 10.99 )

    RS= O .3776

    Hence , RSI = 2 7.41

    . Rate of Change:The Rate-of-Change (ROC) indicator, which is also referred to as simply Momentum, is a

    pure momentum oscillator that measures the percent change in price from one period to the

    next. The value of ROC oscillates around a central zero-point level. To calculate ROC a set

    period is used to compare with todays price. The most popular periods used are 10, 12 and

    25 days.

    The figure above shows the prices and Rate of Change for a period of 7 months.

    Ca lcul at i on :

    ROC = [(Close - Close n periods ago) / (Close n periods ago)] * 100

    Where n=10, 12 or 25 days.

    ROC Indic ator s:

    y ROC indicator which is at a high peak and starting to move down is an indication of a

    sell signal, whereas an ROC at a low peak, but staring to move upward, is a buy


    y A movement toward the zero line indicates that the existing trend is losing


    y ROC moving from above zero to below zero level is an indication of sell while ROC

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    moving from below zero to above zero level is an indication of buy.

    RUNS TESTRuns test is used to find out whether the series of price movements have occurred by chance. Arun is an uninterrupted sequence of the same observation. When the sequence of the observationschange we count it as a run.

    Runs Test Z = (R-X) / o _

    R = (n 1 + n2) / 2

    X = (2n 1n2 / n1+ n2) +1

    o-2 = {2n 1n2 (n1n2-n1-n2)} / {(n 1n2)2 (n1n2-1)}

    n1 + n2 = number of observations in each categoryo- = standard deviationZ =standard normal variateDATE CLOSING PRICE

    31-102008 304.8 -61.830-112008 243 -72.8531-122008 170.15 -116.131-1-2009 54.05 -12.5528-2-2009 41.5 -331-3-2009 38.5 8.130-4-2009 46.6 6.8

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    31-5-2009 53.4 17.530-6-2009 70.9 32.831-7-2009 103.7 10.1530-8-2009 113.85 5.231-9-2009 119.05 -16.85

    30-102009 102.2 -0.5530-112009 101.65 -5.231-122009 96.45 3.131-1-2010 99.55 -428-2-2010 95.55 -2.9531-3-2010 92.6 1.930-4-2010 94.5 -831-5-2010 86.5 530-6-2010 91.5 -5.131-7-2010 86.4 -5.55

    30-8-2010 80.85 9.2531-9-2010 90.1 -11.230-10-2010 78.9

    N1=10 ,n2=14

    R = (10 + 14) / 2= 12

    X = (2*10*14/ 24) + 1= 12.67

    o-2 = {2*10*14 (2*10*14 10 14)} / {(10 + 14) 2 (10 + 14 - 1)}= {280*256}/ {576* 23}

    o-2 = 5.43o- = 2.33

    RUNS TEST Z = R-X / o-= (12-12.67) / 2.33 = -2.88

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    CORRELATION:- Serial correlation or auto-correlation measures the correlation co-efficient in a series of numberswith the lagging values of the same series. Price changes in period t + 1 are correlated with the

    price changes of the preceding period. If there is correlation between the price of t and t + 1 period, the points plotted in the graph would from a straight line.

    Correlation formula:-

    r 2 = (ay + b (xy) nY 2) / (y 2 nY2)

    b = (xy nXY) / (x 2 nX2)

    a = Y bx

    DATE 2008-200 2009-10

    correlation value

    30-11 243 101.65 0.204325

    31-12 170.15 96.45

    31-1 54.05 99.55

    28-2 41.5 95.55

    31-3 38.5 92.6

    30-4 46.6 94.531-5 53.4 86.5

    30-6 70.9 91.5

    31-7 103.7 86.4

    30-8 113.85 80.85

    31-9 119.05 90.1

    30-10 102.2 78.9


    KHAN M Y, JAIN P K., 2010. Management Accounting . New Delhi: Tata McGraw Hill

    Education Private Limited.

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    GREWAL T S., 2005. Analysis of F inancial S tatements . New Delhi: Sultan Chand & Sons (P)


    Available from: [Accessed between 1 st June 2010 and 6 th June

    2010] Available from: [Accessed between 6 th June 2010 and 10 th June


    Available from: [Accessed between 6 th June 2010 and 12 th June


    Avaiable from: [Accessed between 10 th June and 20 th June


    Available from [Accessed between 10 th June 2010 and 16 th June 2010]

    Available from [Accessed between 10 st June 2010 and 16 th June 2010]

    Available from [Accessed between 1st July 2010 and 5 th July 2010]

    Available from [Accessed between 1st July and 10 th July]

    Available from [Accessed on 1 st July 2010] control .com

    www.nse in


    Security and portfolio analysis parsana chandra