`

A PROJECT REPORT
ON

PORTFOLIO MANAGEMENT, LIVE TRADING, EQUITY

RESEARCH & DERIVATIVES

BY

Gargi Verma
18BSPHH01C0410

Aditya Birla Sun life Insurance Private Ltd

 A PROJECT REPORT

ON

PORTFOLIO MANAGEMENT, LIVE TRADING, EQUITY

RESEARCH & DERIVATIVES

By
Gargi Verma
18BSPHH01C0410

Aditya Birla Sun life Insurance Private Ltd

A report submitted in partial fulfillment of the

requirements of MBA Program of

IBS Hyderabad

SUBMITTED TO:
FACULTY GUIDE COMPANY GUIDE
Prof. Shubhagata Roy Mr. Nikesh Ruparel

12th May, 2019

 AUTHORISATION

This is to certify that this is a bonafide report submitted in partial fulfilment of the requirements of MBA
program (Class of 2018-20) of ICFAI Business School, Hyderabad.
This report document titled “A PROJECT REPORT ON PORTFOLIO MANAGEMENT, LIVE
TRADING, EQUITY RESEARCH & DERIVATIVES” is a submission of work done by Gargi
Verma as part of the completion of the Summer Internship Program at Aditya Birla Capital; Birla Sun
life Insurance Company under the guidance of Mr. Nikesh Ruparel, EAP (Executive Associate Partner)
of Aditya Birla Capital; Birla Sun life Insurance Company.

This report has been formally submitted to Prof Shubhagata Roy, IBS Hyderabad.

Gargi Verma
(18BSPHH01C0410)
Date: 12-05-2019
Place: New Delhi

i
 ACKNOWLEDGEMENT

I would like to take this opportunity for extending my gratitude towards Aditya Birla Capital; Birla Sun
life Insurance Company for providing me the chance to undertake this internship study and allowing me
to explore the expertized area of Financial Analysis which was entirely new to me and which will surely
prove to be very beneficial to me in my future assignments, my studies and my career ahead.
No job is a single man’s work as there are different factors, situations and people combine together to
form the background for the accomplishment of any task.

I sincerely extend my gratitude to my company guide, Mr. Nikesh Ruparel (Executive Associate Partner),
Aditya Birla Capital; Birla Sun life Insurance Company who played a pivotal role in the learning and
experience during my Internship. His constant monitoring, guidance and expert knowledge in the
operation and finance domain helped me in enhancing my knowledge and outlook towards the corporate.

I would also like to mention the unconditional help put forth by the entire team member at Aditya Birla
Capital; Birla Sun life Insurance Company, New Delhi.

I am deeply grateful, to my faculty guide Prof. Shubhagata Roy for his invaluable suggestions,
comments, feedback and support throughout the internship.

My heartfelt thanks towards all those people who have helped me in the preparation of this project, which
has been a wonderful learning experience, without any of the above people, this project would not have
seen the light of the day.

Gargi Verma
(18BSPHH01C0410)

ii
 TABLE OF CONTENTS

1. Abstract……………………………………………………………………………4
2. Introduction……………………………………………………..…………………5
2.1 Overview…………………………………………………………………………6
2.1.1 About the Company………………………...………………………………….6
2.1.2 About Life Insurance…......................................................................................9
2.1.3 Products……………………………………………………………..…………11
3. Initial Public Offering…………………………………………………………….12
3.1 Steps in IPO Process ............................................................ ……………………13
4. Mutual Funds……………………………………………………………………..15
4.1 Types of Mutual Funds…………………………………………………………..16
4.2 Steps to choose Mutual Fund…………………………………………………….17
4.3 Systematic Investment Plan (SIP)………………………………………………..21
4.3.1Types of SIP…………………………………………………………………….21
4.3.2 How does SIP works…………………………………………………………...21
5. Live Trading……………………………………………………………………….22
5.1 Index…….………………………………………………………………………..22
5.2 Steps to calculate index………………………………………………………..…23
5.3 Ways of making Profit……………………………………………………………24
6. Fundamental Analysis…………………………………………………………...…25
6.1 Steps for analysis… ................................................................... …………………25
7. Technical Analysis…………………………………………………………………27
7.1 Different charts and their analysis………………………………………………..27
7.2 Candlesticks………………………………………………………………………31
8. Derivatives…………………………………………………………………………39
8.1 Products in Derivatives Market…………………………………………………..39
8.2 Option trading strategies…………………………………………………………41
8.3 Settlement Mechanisms………………………………………………………….44
8.4 Legal & Regulatory Environment………………………………………………..46
9. Project…………………………………………………………………………….47
9.1 Introduction ................................................................................... ………………47
9.2 Work on the project… .................................................................... ………...……47
10. Bibliography………………………………………………………………………57
 EXECUTIVE SUMMARY

The project Portfolio management and equity research explains various aspects related to portfolio
management such as selection of equity shares, making investments in different mutual funds, life
insurance, etc.
The project aims at making a portfolio which can deliver good results to the investors and for doing
this we were thought how to analyse different stocks and predict their future growth movement. To
predict the future of any stocks, the first step is to do its fundamental and technical analysis. Starting
with the training sessions we were thought about different investment options available for an investor
and how to help investor to choose the best alternative so that he can gain maximum from his
investments
We were given training how to analyse different sectors of the economy and what are the things a
portfolio manager should look at while selecting stocks for his portfolio. We were given hand on
training on online trading platform where we learnt how to trade stocks online and how to do analyse
the future performance of stocks using different technical analysis tools such as chart patterns and
candle sticks pattern. Then we learned financial ratios and how these ratios are important in
determining the future of the stock.
Then to get some personal management and convincing skills we were given a task to sell a life
insurance policy where different plans were explained to us and we need to sell those plans in open
market where company checked our time management and personal management skills where I gave
a business of 50,000 in 2 days.
We have been allocated a sector on which our project will be based on and currently I am working on
Retail sector. I have also opened my Demat account on Zerodha. I have also created an Index of the
Retail Sector where my aim is to get more returns than the index so, that we can say that our mutual
fund is better than the index and our stock selection procedure is right.
 ABSTRACT

A mutual fund is an investment vehicle, which is made by pooling of money collected from different
investors for the purpose of investing in securities such as stocks, bonds, money market instruments
and other assets. Mutual funds are operated by professional fund managers, who allocate the funds and
attempt to produce capital gains and/or income for the investors who have provided with the fund. A
mutual fund portfolio is structured in a way to match the investment objectives stated in its prospectus.

The aim of the training is to learn the various analysis so that the fund can be allocated in the portfolio
that we have made for a particular sector or the combination of different sectors large cap stocks so
that the probability of getting the profit and increasing the NAV should increase. The technical and
fundamental analysis has been used to make a better portfolio. Fundamental analysis has been done to
make the portfolio of the stocks of a sector and calculating the NAV and Technical analysis is used
for the trading. The motive is to learn the skills as a financial analyst to improve the probability of
getting the profit from the portfolio.

Learning about the company i.e. Aditya Birla Sun life Insurance has been done and also the research
on its products is completed. Learned about the mutual funds and its types that the company offer.
Also, the main business of the company i.e. insurance is being learned during the training.

Project has been started, in which the allocation of the fund has to be done by making a portfolio using
fundamental analysis and calculating NAV on the daily basis. Till now the analysis has been going on
and the result will be shown at the end of the training.

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Aditya Birla Sun life Insurance Pvt Ltd

5
Overview:
About ABSIL

Formerly known as Birla Sun Life Insurance Company Ltd, Aditya Birla Sun Life Insurance Company
Limited (ABSLI) is a subsidiary of Aditya Birla Capital Ltd (ABCL). It is one of the leading private
sector life insurance companies with nation-wide presence. It offers large range of products which
includes children future plans, wealth protection plans, retirement and pension solutions, traditional term
plans and Unit Linked Insurance Plans (ULIPs). ABSLI has an active customer base of over 16 lacs policy
holders and has over 10,000 employees.

History

Aditya Birla Sun Life Insurance Company Limited was founded on August 4th, 2000 and started its
operations on January 17th, 2001. The company is based in Mumbai, India. It is a joint venture between
Indian Aditya Birla Group and Canadian Sun Life Financial Inc., an International Financial Services
Organizations from Canada. Sun Life Financial increased their stake in Birla Sun Life Insurance to 49%
in April, 2016.

The Aditya Birla Group is an Indian multinational conglomerate, named after Aditya Vikram Birla and
headquartered in the Aditya Birla Center in Worli, Mumbai, India. It works in 35 nations with in excess
of 120,000 employees around the world. The group was established by Seth Shiv Narayan Birla in 1857.
The group interests in diversified segment like viscose staple fiber, metals, cement (largest in India), thick
fiber yarn, branded clothing, carbon black, synthetic compounds, fertilizers, insulators, financial services,
telecom (third largest in India), BPO and IT administrations. The organization offers asset management,
life insurance, housing finance, lending, equity & commodity broking, wealth management and
distribution, online money management portal—Aditya Birla Money My Universe, general insurance
advisory and private equity and health insurance businesses, for retail and corporate consumers. The
group had a revenue of roughly US$44.3 billion in year 2018.

Sun Life Financial

Sun Life Financial, Inc. is a Canada-based financial services company known primarily essentially as a
life insurance organization. It is one of the biggest Life Insurance organizations in the world, and
furthermore one of the oldest, with the history traversing back to 1865. Sun Life Financial has a revenue
of CA$26.997 billion as of 2018. Sun Life has about CA$951.1 billion of Asset under Management as of
2018.

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 Growth

ABSLI is the first Indian Insurance Company to introduce "Free Look Period", by which consumer
can return the policy to an insurance agency within this period after receiving the policy. "Free Look
Period" was later made compulsory by Insurance Regulatory and Development Authority of India for
all other life insurance organizations in 2013. Moreover, ABSLI spearheaded the launch of Unit
Linked Plan. ABSLI has a strategy of revealing their portfolio on a monthly basis. On 5 February
2015, ABSLI signed an IT outsourcing deal with International Business Machines Corporation (IBM)
with the end goal of utilizing mobility and cloud solutions created by IBM Research and the IBM
India Software Lab.
Total AUM of ABSLI remained at Rs. 389,548 million, as of 31st Dec 2018. In Q3 FY 2018-19,
ABSLI recorded a gross premium income of Rs. 18,599 million and a y-o-y development of 68% in
Individual First Year Premium and currently positioned 7th in Individual Business (Individual FYP
adjusted for 10% single premium).

Awards and accolades

 Media Abby Awards at Goa Fest Advertising Agencies Association of India

 'Gold Trophy' for Financial Reporting by the (ICAI) in 2012.

 Grand Midas at the Midas Awards 2013 in Public Service Category for work titles as 'Death Track'.
 Gold Midas Awards 2013 in Direct Mail/Collateral competition for work titled as 'Karva Chauth'
 Awarded as Best Fund House Overall by Annual Morningstar India in 2018.

Key Peoples of Organization

Board of Directors:-

• Mr. Kumar Mangalam Birla- Chairman

• Mr. Sushil Agarwal- Non-Executive Director

• Mr. Santrupt Misra- Non-Executive Director

• Mr. Arun Adhikari- Independent Director

• Mr. P.H. Ravi Kumar- Independent Director

• Mrs. Vijayalakshmi R Iyer- Independent Director

• Mr. S.C. Bhargava- Independent Director

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 Investment Committee:-
• Mr. B. N. Puranmalka

• Mr. Eugene Lundrigan

• Mr. Ajay Srinivasan

• Mr. Vikram Mehmi

• Mr. Mayank Bathwal

• Mr. Fabien Jeudy

• Mr. Vikram Kotak

• Ms. Keerti Gupta

Competitors:-
• Life Insurance Corporation

• ING Vysya Life Insurance

• Max network Life Insurance

• Met Life Insurance

• Aviva Life Insurance

• Bharathi Axa Life Insurance

• Bajaj Allianz Life Insurance

• Tata AIG Life Insurance

• ICICI Prudential Life Insurance

• Reliance Life Insurance

• Kotak Mahindra Life Insurance

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Vision:
To be a world class provider of financial security to individuals and corporates and to be amongst the
top three private sector life insurance companies in India.

Mission:

To be the first preference of our customers by providing innovative, need based life insurance and
retirement solutions to individuals as well as corporates.

About Life Insurance

Life insurance is a contract between you and an insurance company in which the insured transfers a
risk to the insurer. The insured pays a premium and gets a policy in exchange. The risk assumed by
the insurer is the risk of death of the person who is being insured.

There are three parties in a life insurance transaction; the insurer, the insured, and the owner of the
policy known as proposer, although the proposer and the insured could be the same person. The
beneficiary or nominee is the person or persons who will receive the life insurance payout, called the
death benefit. In case of suicides or any misrepresentation on the application by the proposer or
insured, the policy would be nullified. These contracts have a contestability period, which is usually
a two-year period and if the insured dies within this period, the insurer has a legal right to contest the
claim and request additional information before deciding to pay or deny the claim. The amount paid
when the policy matures is known as face amount of the policy. The policy matures when the insured
dies or attains a specified age.

How a Life Insurance works-

Proposer agreed to pay for the policy on a regular basis, and the insurer agrees to pay a sum of money
to the beneficiaries if insured dies. Within those parameters are several types of life insurance. There
are few options for paying premiums, such as paying monthly, quarterly, semi-annually or annually.

Life insurance companies make money by investing the premiums, hoping to make more than they’ll
have to pay in claims. Companies also receive profit from those policyholders who stop paying for
their policies, causing the policies to lapse and leaving the insurer with the money that has already
been paid. Beneficiaries will be designated by the insured or proposer, who will receive the death
benefit. This can be used for funeral expenses, mortgage payments or anything else. It is important
that beneficiaries know that your life insurance exists. They don’t need the policy with them to make
a claim later, but they do need to know which company holds the policy. Once beneficiaries submit a
life insurance claim, they’ll generally get the cheque within a week or two.

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 Need of a Life Insurance Policy-

The most common reason to buy a life insurance policy is to protect the financial interests of the
owner of the policy in case of the insured's demise. So, one must buy life insurance and be a step
ahead so that the financial goals set for his/her family can be accomplished even when he/she isn’t
around. Other reasons are:
 Financial Cushion- It provides financial support to insured’s family which is much-needed, by
compensating for the loss of income.
 Debt-Proof Future- In case of sudden demise of the sole earner of the family, it provides financial
support. With the help of life insurance, any outstanding debt, such as a motor loan, personal loan, a
home loan, etc. can be paid.
 Accomplishment of Retirement Goals- While life plan is a perfect option to accomplish long-term
goals, it helps accomplish retirement goals as well. Life insurance plans offer both diverse investment
opportunities as well as performance-based dividends.
 Tax Benefits- A policyholder also gets tax-benefits regardless the type of life insurance he/she
purchases. As per section 80 C of the Income Tax Act, person is eligible for tax benefits up to Rs.1.5
lac.
 Savings Tool- In case a person chooses a traditional/unit-linked plan, he/she pays an enhanced
insurance premium. This extra amount of money is invested in the insured’s preferred fund, either
equity or debt fund and consequently acts as a savings tool.
 Children’s Future Expenses- A life plan takes care of all the future expenses of a policyholder’s
children, like education and wedding expenses.
 Business Security- There are some insurance plans available in the market that offer support to the
insured’s business. It also enables a business partner to buy the share of his/her deceased business
partner.

Contribution of life insurance in the development of economy-

➢ Flow of Insurance Industry in India

➢ Structure of insurance industry: Snap Shot Industry

➢ Aggregation of long-term savings

➢ Spread of financial services in rural Areas

➢ Provides Long-term funds used for development of Capital Markets or Economic Growth.

➢ Employment generation

➢ Growth Potential

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 Products-

Insurance planning helps you to smooth out the uncertainties and adversities that life might send your
way, so that you can secure the future of your loved ones in the best possible way. ABSLI offers a
complete range of insurance products. Some of the well-known products are:
1. Life Term Solutions

2. Savings with Protection

3. Child Plan

4. Wealth Plan

5. Retirement and Pension Solution Plans

6. ULIP Solution Plans

7. Rural Plans

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 Initial Public Offering

An IPO is stands for an Initial Public Offering. It is when a company offers its shares to the public for
the first time. It is also called "going public." An IPO is the first time when promoters of the company
give up part of their ownership to stockholders. IPOs are issued by smaller companies or start-ups
seeking capital to expand their business, as well as by large private companies looking to expand &
become publicly traded. In case of IPOs, when a company lists its securities on a public exchange, the
money paid by investors for the newly-issued shares goes directly to the company (unlike, trading of
shares later on the exchange where the money passes between investors). An IPO, therefore, permits
a company to tap a wide pool of investors to provide it with capital for future development, repayment
of debt or working capital. This ability to quickly raise large amount of capital from the market is a
key reason many companies seek to go public.

Benefits for being a public company are as follows:

1. Diversifying the equity base.

2. Enabling cheaper access to capital.
3. Exposure, prestige and public image of the company.
4. Attracting and holding better management and employee’s retention.
5. Encouraging acquisitions.
6. Making various financing opportunities: equity, convertible debt, cheaper bank loans, etc.

Procedure to apply for an IPO –

You can apply for an IPO through online as well as offline mode:
 Online Mode
To apply in IPO's online, an investor has to open a Demat account / trading account with financial
institution that provide this type of facility. Once a Demat & trading account is opened, one should
follow these steps to apply online:
1. First login in your trading a/c and select the IPO you wish to invest in.
2. Transfer funds from your bank account to your trading account.
3. Select the number of shares you want to apply for and the price you want to bid for (or use cut off
option) and then press submit button.
 Offline Mode
You can also apply through your bank account. You just need to fill the information such as your Name,
PAN number, Demat a/c number, bid quantity, bid price and other details and submit the ASBA
application form to the banking branch which has been designated to provide ASBA services. Once
you submit the application, the bank will upload the details of the application in the bidding platform.

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 ASBA (Application Supported by Blocked Amount)-

ASBA means “Application Supported by Blocked Amount”. ASBA is an application that has the
authority to block the money mentioned in the application in the bank account, for subscribing to an
issue. If an investor is applying through ASBA, his application money shall be debited from the bank
account only if shares are allotted to him/her, after the basis of allotment is finalized. It is a
supplementary process of applying in Initial Public Offers (IPO), right issues and Follow on Public
Offers (FPO) made through book-building process and exists together with the present procedure of
using cheque as a mode of payment and submitting applications.

Steps in IPO Process-

The whole process is regulated by the 'Securities and Exchange Board of India’ (SEBI), to prevent the
fraudulent activities and safeguard the interest of the investor.

Selection of an Investment Banker-

The first thing that company management must do to go public is to find an investment banker that will
act as underwriters on behalf of the company. Underwriter buys the shares of the company and resell
them to the general public. Some companies also sell their shares directly through the stock market,
but most prefer going through the underwriters.

1. Preparation of Registration Statement- To begin an IPO process, the first step is to submit a
registration statement to the SEBI by the company, which includes a detailed report of its fiscal health
and business plans. SEBI critically examine this report and also does its own background check of the
company. It must also see that registration statement must fulfil all the mandatory requirements and
satisfy all rules and regulations.

2. Preparation of Prospectus - While awaiting the approval, the company, with assistance from the
underwriters, must create a preliminary 'Red Herring' prospectus. It includes detailed information
about the financial records, future plans or projects and the specification of expected share price range.
This prospectus is meant for forthcoming investors who would be interested in buying the stock. It
likewise has a lawful cautioning about the IPO pending SEBI approval.

Red Herring Prospectus- A red herring prospectus may refer to the first prospectus filed with the
SEC as well as a variety of subsequent drafts created prior to obtaining approval for public release. A
red herring is a preliminary prospectus filed by a company with the Securities and Exchange
Commission (SEC), usually in connection with the company's (IPO) and most important it does not
include key details of the security issue, such as its price and the number of shares offered.

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3. SEBI Approval - Once SEBI is satisfied with the registration statement, it declares the statement to be
effective, giving a go ahead for the IPO to issue. Sometimes it asks for changes to be made before
giving its approval. The prospectus cannot be given to the public without the changes suggested by
SEBI. The company needs to choose a stock exchange where it wants to sell its shares and get listed.

4. Deciding the Price Band & No. of shares - After the SEBI approval, the company, with assistance
from the underwriters decide the number of shares to be sold and the final price band of the shares.

There are two ways to decide the Price: Fixed Price and Book Building

Fixed Price – In Fixed price issue, company decides the price of the shares issued and also the number
of shares being sold. Ex: XYZ Ltd issues 20 lakh shares of face value 100/- each at a premium of 10/-
each to the public thereby generating 22 crores.
Book Building – A Book building is a process which helps the company to decide the price of the issue.
The company decides a price band for the issuance of the shares.
Ex: XYZ Ltd issue of 10 lakh shares of face value 10/- each at a price band of 60 to 70 is available to
the public thereby generating up to 7 crores.

5. Available to public for purchase - On the dates mentioned in the prospectus, the shares are available
to public. Investors can fill out the IPO form and specify the price at which they wish to make the
purchase and submit the application.

6. Issue Price Determination& share allotment - Once the subscription period is over, members of the
underwriting banks, share issuing company etc. will meet and determine the price at which shares are to
be allotted to the prospective investors. The price would be directly determined by the demand and the
bid price quoted by investors. Once the price is finalized, shares are allotted to investors based on the
bid amounts and the shares available.
Note: In case of oversubscribed issues, shares are not allotted to all applicants.

7. Listing & unblocking Funds- The last step is the listing in the Stock Exchanges. Investors who have
applied through ASBA & to whom shares were allotted would get the shares credited to their DEMAT
accounts & their funds getting debited from their bank account or else for those investors to whom the
shares were not allotted, funds would get unblocked in their bank account.

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 MUTUAL FUNDS

A mutual fund is a venture vehicle comprised of a pool of money gathered from numerous investors to
invest in securities, such as stocks, bonds or shares. Both gains and rewards earned over the time of
investment and losses are shared equally in proportion of contribution to the corpus by all the investors.
Mutual funds are registered with SEBI.

Mutual fund units, or shares, can regularly be acquired or redeemed as needed at the fund's current net
asset value (NAV) per share, which is sometimes expressed as NAVPS. A fund's NAV is derived by
dividing total value of the securities in the portfolio by the total amount of outstanding shares.

Net Asset Value (NAV) - Net asset value tells the net value of an entity which is calculated by net
assets – net liabilities. It is most commonly used in the mutual funds and represents per share/unit price
of the funds registered with the US securities & exchange commission.
Formula for Mutual fund’s NAV calculation is-
Net assets- Net liabilities / Total number of shares.

How does Mutual Fund Companies Work?

Mutual fund are virtual organizations that purchase pools of stocks as well as securities as suggested by
a speculation advisor and fund manager. The fund manager is procured by a governing body and is
lawfully committed to work to the best interest of mutual fund shareholders. Most fund managers are
additionally owner of the fund however some are definitely not.

There are very few other employees in a mutual fund company. The speculation advisor or fund
manager may employ a few analysts to help pick investments or perform market surveying. A fund
accountant is kept on staff to calculate the fund's net asset value (NAV), or the daily value of the mutual
fund that determines if share prices go up or down.

Mutual funds need a consistence officer or two, and probably an attorney, to stay aware of government
guidelines.
Most mutual funds are part of a much larger investment company apparatus; the biggest have hundreds
of separate mutual funds. A portion of these fund companies are names well-known to the overall
population, for example, Fidelity Investments, the Vanguard Group, T. Rowe Price and Oppenheimer
Funds.

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Types of Mutual Funds

1. Equity Fund: These are the funds which are invested in the equity shares of the different companies.
They provide higher return, that’s why they are considered as high-risk funds.
Equity fund are of following types-

(i) Large Cap Fund: It is a type of equity mutual fund that invests a large portion of their
Corpus in companies with market capitalization of more than 20,000 crore.
Example- Aditya Birla SL Focused Equity Fund

(ii) Mid Cap Fund: Mid Cap Mutual Fund scheme invest in stocks of mid-size companies or
Stocks with market capitalization of 10,000-20,000 crore. Example- L&T mid Cap Fund

(iii) Small Cap Fund: They invest in stocks of small companies that have potential of growth. The
Market capitalization of these companies are less than 10,000 crore. Ex- SBI Small Cap Fund

(iv) Multi Cap Fund: Investment in stocks of all Large Cap, Mid Cap and Small Cap companies.
These are less risky fund and therefore, returns are also low.

(v) Sector Fund: It invests solely in business that operates in specific sectors of economy.
Portfolio is built from stocks of different sectors that can be IT, FMCG, Banking. The main
Aim is to benefit from sectors that are performing well based on the investment objective of
The scheme. Example- Financial Services Sector Fund

(vi) Contrarian Fund: It has contrary view to market view. In this, underperformed companies are
identified where investment is done with conviction to create Long-term capital appreciation.
They mostly give negative returns during bear market. Example- SBI Contra Fund

(vii) Index Fund: In this, movement of fund is in accordance to movement in market index in order to
monitor the returns. Charges of Index Funds are less. Ex- Purchasing shares from BSE Sensex.

(viii) Foreign Funds: Foreign Fund invests in firms in countries other than the one they reside. It is
also called overseas or international mutual funds. Investing in them means more exposure,
but also chances of higher returns.

(ix) Fund of Funds: It is a mutual fund scheme that invests in other mutual fund schemes. In this,
the fund manager holds portfolio of other mutual funds instead of directly investing in equity
Or debt fund. The fund may choose to invest in scheme of the same fund house or some other
Fund house.

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 2. Debt Mutual Fund: These funds are invested in debt instruments like government bonds, company
debentures and fixed income assets. As they provide fixed returns, they are known to be a safe
investment instrument with negligible or no-risk. On the basis of duration of maturity period, they are
of 3 types-
i. Short-term Debt Fund: It is a Mutual Fund scheme with a shorter holding or maturity period less
than three years.
ii. Mid-term Debt Fund- It has a holding or maturity period of 3-5 years.
iii. Long-term Debt Fund- It has a holding or maturity period of more than 5 years.

3. Balanced or Hybrid Fund: Balanced funds invest in both equity and debt mutual fund i.e. in stocks
and bonds with the aim of reducing risk of exposure to one asset class or another. Another name for this
type is "asset allocation fund." An investor may expect to find the allocation of these funds among asset
classes relatively unchanging, though it will differ among funds. Though their goal is asset appreciation
with lower risk, these funds carry same risk and are subject to fluctuation as per classifications of funds.

STEP TO CHOOSE THE MUTUAL FUNDS-

Mutual fund companies provide various ways to investors to select the type of fund they want to invest
in by considering their risk appetite and hence providing them with different investment opportunities,
which help investors to diversify their portfolio and reduce the risk.
Following are the steps to choose any mutual fund-

I. Risk Profiling Questionnaire- The risk profiling questionnaire is used to measure the risk
tolerance as well as time horizon in investing. It is designed to show which type of investment
approach may suit you best. Each answer would be given a point. Based on your point, an
investor could be-
1. Very Cautious- 100% Debt
2. Cautious – 30% Equity and 70% Debt
3. Moderate or Balanced- 50% Debt and 50% Equity
4. Aggressive- 70% Equity and 30% Debt
5. Very Aggressive- 100% Equity
This questionnaire will help an investor to determine his investment attitude.

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 RISK PROFILING QUESTIONNAIRE

Name- ……………………………………………..

Gender
• Male
• Female

Income Age
• Below 5 Lac per annum • 22-35 • 36-45
• Above 10 Lac – Below 20 lac per annum • 46-55 • 55 & above
• Above 20 Lac

1. How much part of your total income would you invest in your overall investment?
• Less than 10%
• Between 10% and 25%
• Between 25% and 35%
• Between 35% and 50%

2. What is your primary objective of investment?

• Tax benefit
• Appreciation of capital
• Retirement benefit
• Education plans
• Other- specify

3. In case of emergency, would you withdraw funds from your investment made?
• I would withdraw funds as I have no other alternative.
• I would partially withdraw funds.
• I have savings, in case of emergency.

4. If you have investment portfolio of Rs.100000. If due to market conditions, your portfolio fell to
Rs.95000 would you:
• Sell all the investment and do not intend to take risk.
• Sell a portion of your portfolio
• Hold the investment and sell nothing
• Invest more funds to decrease investment price

5. If you have investment portfolio of Rs.100000, If due to market conditions, portfolio fell to Rs. 70000,
would you:
• Sell all the investment and do not take risk.
• Sell a portion of your portfolio.
18
• Hold the investment and sell nothing.
• Invest more funds, to decrease investment price.

6. Assuming that higher risk gives higher returns, what are the chances of you investing in particular
company?
• 100%
• 80%
• 60%
• 40%
• 20%

7. If the expected returns did not match the actual returns, how would you feel?
• Not at all concerned
• Less concerned
• Somewhat concerned
• Concerned
• Highly concerned

8. If you win a lottery worth 10 Lacs, what it the most probable thing you will do out of it ?
• Invest the whole amount i.e. 100% investment
• 70% investment and save 30% of it.
• Invest and save the equal amount
• 30% investment and save 70% of it
• Save the whole amount.

9. How long are you willing to invest your money?

• Less than 1 year
• 1-3 years
• 3-5 years
• 5-10 years • More than 10 years

10. How long are you willing to wait for your investment to meet your expected rate of return?
• Less than 1 year
• 1-3 years
• 3-5 years
• 5-10 years • More than 10 years

(NOTE: This is a sample Risk Profiling Questionnaire prepared by the whole group during
Internship under the guidance of our mentor. By using this questionnaire, an investor can check
which Investment approach may suit him best.)

19
 II. Based on the Risk profile, you will get different funds. Fund should be chosen based on their
returns. (Check 5-year return of the given funds.)
III. Charges or Expense Ratio should be checked while selecting the fund to invest in. Lower the
charges, better the fund is.

The following is a list of some of the funds from which an investor can choose to invest by taking
into consideration the above-mentioned steps.

FUNDS RETURNS CHARGES AUM NAV

(5 Years) (EXPENSE (in Crores)
RATIO)
I. LARGE CAP MUTUAL FUND

i. Reliance Large Cap Fund (Dr) 17.9 1.20% 1371.15 34.71

ii. ICICI Pru Nifty Next 50 Index (Dr) 17.1 0.85% 106.23 24.2

II. MID CAP MUTUAL FUND

i. Axis Midcap Fund (Dr) 20.3 2.39% 1464.34 35.21

ii. Invesco India Midcap (Dr) 20.3 1% 211.43 47.45

III. SMALL CAP MUTUAL FUND

i. Kotak Small Cap Fund (Dr) 16.7 0.97% 82.7 74

ii. Franklin Small Cap Fund (Dr) 17.8 2.02% 5259 52.2

IV. MULTI CAP FUND

i. Invesco India (Dr) 19.9 0.69% 47.6 38.3

ii. Kotak Standard (Dr) 19.8 0.65% 5011.31 135.34

V. CONTRARIAN FUND
i. SBI Mutual Fund (Dr) 12.61 1.64% 1470 105.42

ii. TATA Mutual Fund (Dr) 19.93 0.93 5029 129.17

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Systematic Investment Plan

Systematic Investment Plan, commonly referred to as SIP, allows you to invest regularly a fixed sum
in any of the mutual fund scheme/s. SIP allows you to invest in small amounts at fixed intervals (weekly,
monthly or quarterly) instead of doing a one-time investment.
In SIP, a fixed amount is deducted from your savings account every month and directed towards the
mutual fund you choose to invest in and no. of units are assigned on the basis of NAV. In SIP, money
is invested on the basis of average NAV so that it can cover both falling and rising price.

Types of SIP-
1. Top-Up SIP- This type of SIP allows you to increase your investment amount periodically. You can
increase your investment amount as your income increases.
2. Flexible SIP- This SIP allows you to increase as well as decrease your investment amount as per
Cash flow you have. This way you can skip one or more payments when you face cash – crunch and
accordingly large investment can be made when you receive bonuses.
3. Perpetual SIP- SIP investments are generally for a fixed period of 1 yr. 3 yr. & 5 yrs. SIP is referred
to as perpetual SIP if you do not mention the end date. This SIP allows you to redeem your funds
whenever required.
4. Trigger SIP- This SIP is ideal for investors with limited knowledge of financial market. You are
allowed to set NAV, index level etc.

How does SIP work

Investment in SIP is very simple. Steps are as follows:
 You apply for one or more SIP plans.
 Amount is automatically debited from your bank account.
 Based on NAV, you are allocated certain no. of units
 Every time you invest, you choose to invest in best SIP plans.
 Now additional units are added to your account based on current market rate.
 So, when prices are high, investor buy more units and vice-versa.

21
 LIVE TRADING

Live trading is basically the act of buying or selling of financial products through an online trading
platform. These platforms are normally provided by internet-based brokers and are available to every
single person who wants to make money from the market. It is also known as e-trading or self-directed
investing.

INDEX
Stock market indexes measure the value of a segment of a country’s stock market by the method of
weighted average of selected stocks. These indexes help investors and analysts describe the market and
compare different investments. Stocks in numerical terms. As the stocks within an index change value,
the index value also changes accordingly.
The stocks could be selected on the basis of the type of industry, market capitalisation or the size of the
company. The value of the stock market index is calculated using values of the underlying stocks. Any
change taking place in the prices of underlying stock impact the overall value of the index. If the prices
of most of the underlying stocks rise, then the index will rise and vice-versa.
In this way, a stock index reflects overall market sentiment and direction of price movements of products
in the financial, commodities or any other markets.

22
Steps to calculate Stock Market Index (RETAIL SECTOR):
1. Closing price of the stocks and percentage change in price of stocks of a particular company is noted
down on a daily basis.
2. Market capitalization is to be calculated by multiplying total no. of outstanding shares
floated by company with share price of stock.
3. The stocks are assigned weightage based on their market capitalization as compared to the total market
capitalization of the index.
4. Change in weightage is calculated by multiplying change in price with M Cap weightage.
5. Final value is calculated by taking 1000 as base value and multiplying it with change in weightage.

Some of the indices in India are as follows:

a. Benchmark indices like NSE Nifty and BSE Sensex.

b. Broad-based indices like Nifty 50 and BSE 100.
c. Indices based on market capitalization like the BSE Small-cap and BSE Midcap.
d. Sectorial indices like Nifty FMCG Index and CNX IT.

23
 Some of the World indices are as follows-

The trading in the internship is mostly in Nifty 50. And for sectorial fund analysis, sector wise indexes
have been taken. The trading is being done on TRADE TIGER by SHAREKHAN.

WAYS OF MAKING PROFIT IN STOCK MARKET-

1. First way is a basic BUY-SELL situation in which we buy the stock at a lower pricing predicting that
its price will increase in future and sell it at a higher price to make profit.

2. In second case we do SHORT SELLING. Short selling is the sale of a security which is not owned by
the seller or that the seller has borrowed from the broker. Short selling is motivated by the belief that a
security's price will decrease in future, enabling it to be bought back at a lower price to make a profit. In
simple words, we sell the share at a higher price predicting that it will decline in the future and buy it at
a lower price to make profit.

24
 FUNDAMENTAL ANALYSIS

Fundamental analysis is a technique for evaluating a security to quantify its intrinsic value, by examining
related economic, financial and other qualitative and quantitative variables. Fundamental analyst studies
every element that can influence the security's value, including macroeconomic factors, for example, the
general economy and industry conditions, and microeconomic factors, for example, financial conditions
and company management. The true objective of fundamental analysis is to create a quantitative value
that an investor can compare with security's current price, thus indicating whether the security is
undervalued or overvalued. Fundamental analysis uses real, public data in the assessment of a security's
value. Although most analysts use fundamental analysis to value stocks, this method of valuation can be
used for any type of security.

For stocks and equity instruments, this technique utilizes revenues, profits, future development, return
on equity, profit margins and other information to decide an organization's underlying data and potential
for future development. As far as stocks, fundamental analysis centers on the financial statements of the
company being evaluated.

STEPS FOR DOING SECTORIAL FUNDAMENTAL ANALYSIS:-

1. Select any sector for doing the analysis (for e.g. Pharma, Retail and Telecom etc.).
2. As the investment in mutual funds is for long term, therefore take large cap stocks from that sector
and some mid cap stocks also if there’s less no. of large cap stocks.
3. Check the last closing share price of every stock in the list and note it down.
4. Get the P/E value of every stock. It can be calculated or can be seen in the company details.
[P/E = Price / EPS (Earnings per share)]
5. Calculate Industrial P/E by taking the average of the P/E’s of the stocks in the list.
6. Calculate EPS by multiplying P/E by Price of the stock.
7. By comparing the P/E value of the stock by the Industrial P/E, we can see if the stock is
Overvalued or undervalued. If the value is above Industrial P/E then it is overvalued and if below
then Undervalued.
8. Overvalued stock shows that there are chances that its value will decrease in future and undervalued
shows that its price can increase in future. So, it is considered to buy the U.V. stock and sell
O.V.stock.
9. We can also calculate the future price i.e. LTPT (long term price target) by multiplying the industrial
P/E with the EPS of that particular stock.

25
 Finding the value pick stocks:

1. Next step is to take all the undervalued stocks and analyze their topline (revenue) and bottom-line
factors (profit).
2. The motive is to see whether both of them are increasing or decreasing.
3. If both revenue and profit is increasing or either of them is increasing then we will definitely take that
stock. If both have decreased then it will be rejected
4. We will reject some stocks after this analysis and the left one will be value pick stocks, which are hidden
gems as they have the potential of increasing in the future.

Finding the growth pick stocks:

1. We will take all the Overvalued stocks and calculate their PEG value.
[PEG = P/E / EPS growth]
2. The EPS growth is the percentage growth in the EPS of the company compared to last financial year.
3. The value that we will put in the EPS growth should be the percentage value. For e.g. If the EPS has
increased by 20% then we will right the value 20, not 0.2.
4. If the EPS has decreased then the stock is removed. If PEG value is 1 or below, that stock would be
considered and all the other stocks with PEG value more than 1 would be rejected.
5. We will be having the list of growth pick stocks after this analysis.

RANKING AND ALLOCATION OF FUND

The ranking is done by comparing the important financial ratios of the sector in which the companies are lying.
Ranking is given to all the value pick stocks and the growth pick stocks. The lowest ranked stock will get the
highest investment i.e. the lower, the better. As a mutual fund manager, we will allocate the fund according to
the ranking of the stocks.
After the allocation of the funds, the daily NAV (net asset value) is calculated of the portfolio according to
the change in the price of the stocks.

NAV= AUM (Asset under Management) / No. of units

26
 TECHNICAL ANALYSIS

Technical Analysis is the anticipating of future monetary value movements dependent on an

examination of past price fluctuations. Like weather forecasting, technical analysis does not result
in total expectations about the future. Rather, technical analysis can enable investors to envision
what is "likely" to happen to price over time. Technical Analysis utilizes a wide range of charts
that show price over time.

Technical Analysis is appropriate to stocks, lists, commodities, futures or any tradable instrument
where the price is affected by the market forces i.e. demand and supply of product. Price here
means any mix of the open, high, low, or close for a given security over a particular time period.
The time allotment can be founded on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-
minutes or hourly), every day, week by week or month to month value information and last a couple
of hours or numerous years. Also, some technical analysts incorporate volume or open interest
figures with their analysis of price movement.

Different charts and their analysis in long term

Technical Analysis helps in identifying long term trend by analyzing the change in price over a
period of time. There are different shapes and curves that are formed while doing this analysis and
these curves help us to predict bid and ask point.
Money can be easily made using these indicators as per the market situations. There are 3 types of
trends known as uptrend, downtrend and sideways. And we need to figure out the trend reversal
point in order to choose our buying and selling position.
Different types of chart patterns & graphs are used for analysing the trends. Most frequently used
chart patterns are mentioned below-

a) Rounding bottom
b) Cup with handle
c) Bump and Run reversal
d) Head & Shoulder (Top and Bottom)
e) Double Top
f) Double Bottom

a) Rounding bottom: Rounding bottom is a long-term reversal pattern that is mostly used for
weekly charts. It is also known to as a saucer bottom, and depicts a long consolidation period that
change from a bearish bias to a bullish bias. A rounding bottom could be thought of as a head and
shoulders bottom without readily identifiable shoulders. The head shows the low and is fairly central
to the pattern. The patterns of volume are same and confirmation comes with a resistance breakout.
While symmetry is preferable on the rounding bottom, the left and right side do not have to be equal
in time or slope.

27
b) Cup with Handle: A Cup and Handle chart represents a bullish continuation pattern in which
the upward trend has paused but will follow an upward direction once the pattern is confirmed.
Pattern of the price shows what looks like a cup, which is preceded by an upward trend. The handle
follows the cup formation and is formed by a generally downward/sideways movement in the
security's price. After the price movement pushes above the resistance lines formed in the handle,
the upward trend can continue. There is a long-time frame for this type of pattern, with the span
ranging from several months to more than a year.

c) Bump and Run Reversal: The Bump and Run Reversal (BARR) is a type of reversal pattern that
takes shape, after excessive speculation drives prices up too far, too fast. There are three main stages
to the pattern: lead-in, bump and run.

Lead-in Stage: The first part of the pattern is a lead-in phase that can last 1 month or longer and
forms the basis from which to draw the trendline. During this phase, prices advance in an orderly
manner and there is no excess speculation. The trendline should be moderately steep. If it is too
steep then the ensuing bump is unlikely to be significant enough.

Bump Stage: The bump forms with a sharp advance, and prices move further away from the lead-
in trendline. Ideally, the angle of the trendline from the bump's advance should be about 50% greater
than the angle of the trendline extending up from the lead-in phase.

28
Run Stage: The run phase begins when the pattern breaks support from the lead-in trendline. Prices
will sometimes hesitate or bounce off the trendline before breaking through. Once the break occurs,
the run phase takes over and the decline continues.

d) Head and Shoulder (Top & Bottom): One of the most popular and reliable chart patterns in
technical analysis is head and shoulder. Head and shoulders is a reversal chart pattern that when
formed, shows that the stock is likely to move opposite as compared to the previous trend. There
are two sub types of the head and shoulders chart pattern. Head and shoulders top is a chart pattern
that is formed at the high of an upward movement and shows that the upward trend is about to end.
Head and shoulders bottom, also referred as inverse head and shoulders is the lesser known of the
two, but is used to show a reversal in a downtrend.
Two of these head and shoulders patterns are similar as there are four main parts: two shoulders, a
head and a neckline. The reaction lows of each peaks & troughs can be connected to form support,
or a neckline. Also, each individual head and shoulder is comprised of a high and a low. Take into
consideration that an upward trend is a time of successive rising highs and rising lows. The head
and shoulders chart pattern, therefore, shows a weakening in a trend by showing the deterioration
in the successive movements of the highs and lows.

29
e) Double Top: Double top is a major reversal pattern that are formed after an extended uptrend.
As the name suggests, the pattern is drawn up of two consecutive peaks that are roughly equal, with
a moderate trough in between. Although there can be variations, the classic double top marks at
least an intermediate change, if not long-term change, in trend from bullish to bearish. Different
double tops can form along the way up, but until key support is broken, a reversal cannot be
confirmed.

f) Double Bottom: Double bottom is a type of reversal pattern that forms after an extended
downtrend. As the name implies, this pattern is made up of two consecutive troughs that are roughly
equal, with a moderate peak in between. Although there can be variations, the classic double bottom
usually marks an intermediate or long-term change in trend. Many potential double bottoms can
form along the way down, but until key resistance is broken, a reversal cannot be confirmed.

30
 CANDLE STICKS

Candlesticks are formed using the open, high, low and close. Without opening prices, candlestick
charts are not possible to draw. If the close is above the open, then a hollow or white candlestick is
formed. If the close is below the open, then a filled or black candlestick is formed. The hollow or
filled portion of the candlestick is referred to as body. The long thin lines above and below the body
represent the high/low range and are referred to as shadows. The high is represented by the top of
the upper shadow and the low by the bottom of the lower shadow.
Long white candlesticks show strong buying pressure. If the close is above the open with a large
gap then body of white candlestick would be longer. This indicates that prices gained significantly
from open to close and buyers are aggressive and buying pressure is high. While long white
candlesticks are generally bullish but much depends on their position in the technical chart.
Long black candlesticks show sellers are aggressive and selling pressure is high. If the close is below
the open with a large gap then body of black candlestick would be longer. This shows that prices
declined significantly from the open and sellers were aggressive.

31
 DOJI

Doji is formed when a security's open and close price are virtually equal. The length of the upper
and lower shadows can vary and the resulting candlestick looks like an inverted cross or plus sign.
Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and
future confirmation. Doji convey a sense of indecision between buyers and sellers. Prices move
above and below the opening level during the session, but close at or near the opening price level.
The result is neutral. Neither bulls nor bears are able to gain control and a turning point could be
developing.

After a long white candlestick, a doji signals that buying pressure may be declining and the uptrend
would be ending soon. Continued buying pressure is required to sustain an uptrend, otherwise
security will decline from a lack of buyers. Therefore, a doji may be more significant after an uptrend
or long white candlestick. Even after the doji forms, further downside is required for bearish
confirmation. After a long white candlestick and doji, traders should be ready for a potential evening
doji star.

32
After a decline or long black candlestick, a doji indicates that selling pressure may be declining and
the downtrend would be ending soon. Even though the bears are starting to lose control of the
decline, further strength is required to confirm any reversal. Bullish confirmation could come from
a gap up or a long white candlestick above the long black candlestick's open. After a long black
candlestick and doji, traders should be readyfor a potential morning doji star.

Star position:

It tells us how candlesticks are positioned with respect to one another. Depending on the previous
candlestick, the star position candlestick gaps up or down. It appears isolated from previous price
change. The two candlesticks could be any combination of white and black.

Harami Position:

A candlestick which is formed within the body of the previous candlestick is in Harami position.
The first candlestick usually has a large real body and the second candlestick has a smaller real body
than the first. Doji can form in the Harami position as well as doji has small real bodies.

33
Hammer and Hanging man:
The Hammer and hanging man, are candlesticks with small bodies and long lower shadows.

The hammer is a bullish reversal pattern that forms after a decline. With a potential trend reversal,
hammers can also mark bottoms or support levels. After a decline, hammers signal a bullish pattern.
The low of the long lower shadow indicates that selling pressure is high during the trading session
but buyers are able to regained their footing at the end of the session on a strong note. Hammers
require further bullish confirmation which could come up from a gap up or long white candlestick.
The hanging man is a bearish reversal pattern that can also mark a top or resistance level. Hanging
man signals that selling pressure is starting to increase as it forms after an advance. The low of the
long lower shadow confirms that sellers pushed prices lower during the session. A hanging man also
requires bearish confirmation before action which could come as a gap down or long black
candlestick on heavy volume.

Inverted Hammer and Shooting Star:

Inverted Hammer and Shooting Star have small real bodies (black or white), long upper shadows
and small or non-existent lower shadows.

The shooting star is a bearish reversal pattern that forms after an advance and in the star position,
hence its name. It can indicate a potential trend reversal or resistance level. The candlestick forms
when prices gap higher on the open, advance during the session and close well off their highs. The
resulting candlestick has a long upper shadow and small black or white body. After the upper
shadow, the selling pressure or bears forces prices down to raise the yellow flag. The upper shadow
34
 should be relatively long and at least 2 times the length of the body to show substantial reversal.
Bearish confirmation is required after the shooting star and can take the form of a gap down or long
black candlestick on heavy volume.
The inverted hammer is a bullish reversal pattern and forms after a decline. After a decline, the long
upper shadow indicates buying pressure during the session. However, the bulls were not able to
sustain this buying pressure and prices closed well off of their highs to create the long upper shadow.
Bullish confirmation is required which is followed by a gap up or long white candlestick, which
could act as a bullish confirmation.

Blending Candlesticks:

Candlestick patterns are made up of one or more candlesticks and these can be blended together to
form one candlestick. This blended candlestick defines the essence of the pattern and can be formed
using the following:
 The open of first candlestick
 The close of the last candlestick
 The high and low of the pattern

By using the open of the first candlestick, close of the second candlestick and high/low of the pattern,
a bullish engulfing pattern blends and forms a hammer. The long lower shadow of the hammer
indicates a potential bullish reversal. The bullish engulfing requires bullish confirmation with the
hammer.
Blending the candlesticks of a bearish engulfing pattern forms a shooting star. The long upper
shadow of the shooting star signals a potential bearish reversal. Bearish engulfing pattern requires
bearish confirmation with the shooting star.

35
 CANDLESTICKS AND SUPPORT

Candlestick patterns and single candlesticks can be used to confirm or mark support levels. This
support levels could be new after an extended decline or confirm a previous support level within a
trading range. Candlesticks helps to choose entry points for buying near support in a trading range.
Bullish reversal candlesticks and patterns depicts that early selling pressure is declining and buying
pressure is rising for a strong finish.

Doji Marks Support/Resistance:

Electronic Data Systems (EDS) traded in a range of 58 and 75 for about 4 months at the start of
2000. Support at 58 was first established in early January and resistance at 75 in late January. The
stock fell down to its previous support level in early March, forming a long legged doji and later a
spinning top (black circle).

Hammer Marks Support:

Medtronic (MDT) established support around 46 in late February with a spinning top (first arrow)
and early March with a Harami. The stock declined sharply in April and formed a hammer to confirm
support at 46 (second arrow). After a reaction rally to resistance around 57, the stock again declined
sharply and again found support around 46 (third arrow). The black candlestick with the long lower
shadow marked support, but the body was too big to qualify as a hammer.

36
 CANDLESTICKS AND RESISTANCE

Single candlesticks and candlestick patterns can be used to confirm or mark resistance levels. Such
a resistance level could be new after an extended advance, or an existing resistance level confirmed
within a trading range. Candlesticks can help identify entry points to sell near resistance in a trading
range.
Bearish reversal candlesticks and patterns suggest that buying pressure is increasing and selling
pressure prevailed.

Doji Marks Resistance:

In late May, Veritas (VRTS) increased from 90 to 140 in about two weeks. The final jump came
with a gap up and two doji. These doji marked a sudden stalemate between buyers and sellers, and
a resistance level subsequently formed. After a resistance test in mid-june, another doji formed to
indicate that buyer pressure is decreasing. This led to a decline and subsequent reaction rally in early
July. The advance carried the stock from 105 to 140, where another doji formed to confirm
resistance set in early June.

MORNING STAR

The morning star consists of three candlesticks:

1. A long black candlestick.
2. A small white or black candlestick that gaps below the close of the previous candlestick. If the
candlestick is doji, in that case the pattern would be a morning doji star.
3. A long white candlestick.

The black candlestick confirms that the decline remains in force and selling dominates. When
the second candlestick gaps down, it provides further evidence of selling pressure. However, the
decline slows down significantly after the gap and a small candlestick form. The small
candlestick tells indecision and a possible reversal of trend. The chances of a reversal increase in
case of doji. The third long white candlestick provides bullish confirmation of the reversal.
The following image shows the formation of Morning Doji Star-

37
EVENING STAR

The evening star consists of three candlesticks:

1. A long white candlestick.
2. A small white or black candlestick that gaps above the close (body) of the previous candlestick.
If candlestick is a doji, then pattern would be a evening doji star.
3. A long black candlestick.

The long white candlestick confirms that buying pressure remains strong and the trend is up. When
the second candlestick gaps up, it provides further evidence of residual buying pressure. However,
the advance ceases or slows down significantly after the gap and a
small candlestick forms, indicating indecision and a possible reversal of trend. If the small
candlestick is a doji, the chances of a reversal increase. The third long black candlestick provides
bearish confirmation of the reversal.
The following image shows the formation of Evening Star-

38
 DERIVATIVES

Derivative is an instrument or a product whose value is derived from the value of underlying asset.
Derivatives depend on wide range of underlying asset. These include:
 Metals, for example, Gold, Silver, Aluminium, Copper, Zinc, Nickel, Tin, Lead etc.
 Energy resources, for example, Oil (unrefined petroleum, items, breaks), Coal,
Electricity, petroleum gas etc.
 Agri-commodities, for example, wheat, Sugar, Coffee, Cotton, Pulses and so on and
 Financial assets, for example, Shares, Bonds and Foreign Exchange.

Importance of Derivatives
Like different portions of Financial Market, Derivatives Market serves following functions-
 Improvement in price discovery dependent on actual valuations and desires is done with the help
of derivatives market.
 Derivatives market helps in transfer of different risk from those who are exposed to risk but have
generally low risk appetite to members with high risk appetite. For instance hedgers need to give
away the risk whereas merchants are eager to take risk.
 Shifting of speculative trades from unorganized market to organized market is also done through
derivatives. Risk management mechanism of various participants in organized market provide
stability to the financial system.

Products in Derivatives Market

Forwards
 It is a legally binding contract between two parties to buy/sell an underlying asset at a specific
future date, at a specific cost that is pre‐decided on the date of agreement.
 Both the contracting parties are committed and are obliged to execute the transaction regardless
of price of the underlying asset at the time of execution of the contract.

Futures
A futures contract is like a forward, except that the agreement is made through an organized and
managed exchange instead of being negotiated directly between the parties. So, futures are
exchange traded forward contracts.

Options
An Option is an agreement that gives the right, yet not an obligation, to buy or sell the underlying
on or before a stated date and at a stated price. While buyer of option pays the premium and
purchases the right, seller of options gets the premium with obligation to sell/buy the underlying
asset, if the buyer exercises his right.

Swaps
A swap is an agreement made between two parties to exchange cash flows on as per a prearranged
formula. Swaps are, comprehensively, arrangement of forward contracts. Swaps help market
participants manage risk related with unpredictable or volatile interest rates, currency exchange
rates and commodity prices.
39
 FUTURES CONTRACT
Futures markets were come to beat the limitations of forwards. A future contract is an agreement
made through an organized exchange to buy or sell a fixed amount of a commodity or a financial
asset on a future date at a pre-decided cost. The clearinghouse related with the exchange ensures
settlement of these trades. A trader, who buys futures contract, takes a long position and the one,
who sells futures, takes a short position. The words purchase and sell are metaphorical simply
because there is no physical exchange of cash or underlying asset between buyer and seller.

Features of futures contract

In futures market, exchange decides all the agreement terms of the contract other than price.
Futures contracts have following highlights:
 Contract between two parties through Exchange
 Centralized exchanging platform i.e. exchange
 Price discovery through free interaction of buyers and sellers
 Margins are payable by both the parties
 Quality & Quantity decided today (standardized)

OPTIONS CONTRACT
An Option is an agreement that gives the right, however not an obligation, to purchase or sell the
underlying asset on or before a fixed date/day, at a stated price, for a price. The party taking a long
position i.e. purchasing the option is called buyer/holder of the option and the party taking a short
position for example selling the option is known as the seller/writer of the option.
The option buyer has the right however no obligation with respect to buying or selling the
underlying asset, while the option seller has the obligation in the contract. Therefore, option buyer/
holder will exercise his option only when the situation seems favourable to him, but, when he
decides to exercise, option writer would be legally bound to honour the contract. Options may be
categorized into two main types: ‐
 Call Options
 Put Options
Options, which gives buyer a right to purchase the underlying asset, is called call option and the
option which gives buyer a privilege to sell the underlying asset, is called put option.

Different participants in derivatives markets-

Hedgers
Organizations, Investing Institutions, Banks and Governments all use derivatives in order to
reduce their risk exposure to market factors, for example, interest rates, share values, bond price,
exchange rates and commodity prices.
Example- A farmer who sells futures contracts to fix the price for delivering a crop on a future
date. The buyer may be a food‐processing organization, which wishes to fix a price for taking
delivery of the crop later on. Another case is of a company that has to receive a payment in foreign
currency on a future date. In both the examples, buyer and seller are reducing their risk by entering
into a derivative contract.
40
 Speculators/Traders
Derivatives are very appropriate to trade on the prices of commodities and financial assets and on
key market factors, for example, interest rates, stock market indices and currency exchange rates.
It is significantly less costly to create a speculative position using derivatives than actually buying
in the equity markets and as a result, potential returns are also much greater.
Example- A trader who believes that increasing demand or decreasing production is likely to
increase the price of a commodity. He has two options ‐ first option is to buy and store the physical
commodity whereas other option is to go long futures contract. Trader chooses the second option
to go long futures contract on the underlying asset. If commodity price increases, the value of the
contract will also increase and he can reverse back position to book his profit.

Arbitrageurs
An arbitrage is a deal that produces risk free profits by exploiting the mis-pricing in the market. It
happens when a buyer purchases an asset at a lower price in one exchange/market and sell it at a
higher price at another exchange/market. But these opportunities do not persist for too long and
therefore, arbitrageurs do not keep the asset for too long as it will reduce the chances of making
large profits.
There are three players in the derivative market – Hedgers, Speculators, and Arbitrageurs. Hedgers
are there to hedge their risk, traders take the risk which hedgers intend to offload from their
exposure and arbitragers make profits by exploiting mis-pricing prevailing in markets.

OPTION TRADING STRATEGIES

Following option trading strategies are:

1. Option spreads
2. Straddle
3. Strangle
4. Covered call
5. Protective Put
6. Collar
7. Butterfly Spread

OPTION SPREADS
It involves combining options on the same underlying and of same type (call/ put) but with
different strikes and maturities. These are limited profit and limited loss
positions. They are mainly categorized into three sections as:

 Vertical Spreads
 Horizontal Spreads
 Diagonal Spreads

41
Vertical Spreads
These spreads are formed by using options having same expiry but different strike prices. Further,
these can be created by the combination of either calls or puts. These can be further classified as:

1. Bullish Vertical Spread

a. Using Calls
b. Using Puts
2. Bearish Vertical Spread
a. Using Calls
b. Using Puts

Horizontal Spread
Horizontal spread is formed using options having same strike, same type but different expiry
options. This is also known as time spread or calendar spread. Here, it is not possible to draw the
payoff chart as the expiry of the underlying the spread are different. This is essentially a play on
premium difference between two
options prices squeezing or widening.

Diagonal spread
Diagonal spread is formed using combination of options having same underlying but different
expiries as well as different strikes. Again, as the maturities are different, it is not possible to draw
pay offs here as well. These are much more complicated in nature and in execution. These
strategies are more usually for the OTC market rather than the exchange traded markets.

STRADDLE
A Straddle is a volatility strategy and is used when the stock price/index is expected to show longer
movements. It involves two options of same strike prices and same maturity at ATM i.e. at the
money.

Long Straddle
In long straddle, a person buys both call and put option at same strike price and same expiry at
ATM. If a person buys both a call and a put, then his maximum loss will be
equal to the sum of these two premiums paid i.e. limited loss. And, price movement from here in
either direction would first result in that person recovering his premium and then making profit.
This strategy is used when investor’s view is that price/index will experience volatility in near
term.

Short Straddle
It is exact opposite of long straddle. Here, according to trader’s view, the price of underlying
would not move much or remain stable. So, the investor sells a call and a put so that he can profit
from the premiums. As position of short straddle is just opposite of long straddle, the pay-off chart
would be just inverted, so what was loss for long straddle would become profit for short straddle.

42
STRANGLE
It is similar to straddle in outlook but different execution, aggression and cost.

Long Strangle
It involves simultaneous buying of OTM put and OTM call. As both the options are at OTM, so
premium paid is very low. In case of a strangle, the strikes are different. If a trader goes on long
for these options then his maximum cost will be equal to the sum of the premium paid. However,
strangle would make money when there is greater movement on the upside or downside of the
stock price.

Short strangle
This is exactly opposite to the long strangle with simultaneous selling of two out‐of‐the‐money
options (call and put). In this, risk is unlimited but return is limited to the premium received. Pay
offs for this position would be opposite to that of a long strangle.

COVERED CALL
It is used when market is neutral to moderately bullish. This strategy is mainly used to generate
extra income from existing holdings of the investor in the cash market. If an investor has bought
shares and wants to hold them for some time, then he would like to earn some income on that
asset, without selling it, thereby reducing his cost of acquisition.
In this, investor sells an OTM call option. Call option would not get exercised unless stock price
would increase above the strike price, till then his premium becomes his income.
For Example: Suppose an investor buys a stock in the cash market at Rs. 1490 and also sells a call
option with a strike price of 1500, thereby earning Rs. 10 as premium. If the stock price moves up
from 1490 level, he makes profit in the cash market but starts losing in the option trade. For
example, if Stock goes to 1540,
Long Cash: Profit of 1540 – 1490 = 50
Short Call: – 1540 + 1500 + 10 = ‐30
Net Position: 50 – 30 = 20

PROTECTIVE PUT
If an investor takes long in the cash market, he always runs the risk of a fall in prices and thereby
reduction of portfolio value and MTM losses. A mutual fund manager, who is predicting a fall,
can either sell his entire portfolio or short futures to hedge his
portfolio. The fund manager is effectively taking a bearish view on the market by buying put
options and if his view turns right, he will make profits on long put, which is then used to nullify
the MTM losses in the cash market portfolio.
Let us say an investor buys a stock in the cash market at 1500 and at the same time buys a put
option with strike of 1500 by paying a premium of Rs. 20.
Now, if prices fall to 1430 from here:
Long Cash: Loss of 1500 – 1430 = ‐ 70
Long Put: Profit of – 20 – 1430 + 1500 = 50
Net Position: ‐20
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 COLLAR

It is used when the investor is conservatively bullish. The collar is used if the investor is writing
covered calls to earn premiums but wishes to protect himself from an unexpected sharp drop in
the price of the underlying security. To decrease his loss downside, he long a put option, which
essentially negates the downside of the short underlying/futures (or the synthetic short put). In
this, risk is unlimited and reward is limited.
For example- Assume that a trader longs a stock at 1490 and shorts a call
option with a strike price of 1500 and receives Rs. 10 as premium. In this case, the BEP was 1480.
If price fell below 1480, loss could be unlimited whereas if price rose above 1500, the profit was
capped at Rs. 20.

BUTTERFLY SPREAD

Butterfly spread is an extension of short straddle. In short straddle, downside is unlimited if market
moves significantly in either direction. So, to put a limit to this downside, along with short
straddle, trader buys OTM call and one OTM put.
Long Call Butterfly is used when the investor is neutral on market direction and bearish on
volatility. This strategy will limit the loss. In this, investor will buy 1 ITM Call, 1 OTM Call and
sell 2 ATM Calls.
Short Call Butterfly is used when the investor is neutral on market direction and bullish on
volatility. So, he will sell 1 ITM and 1 OTM and buy 2 ATM.

Settlement Mechanism

In India, settlement mechanism is decided by the SEBI-

 Cash settlement (settlement by payment of differences) for both stock options and stock futures;
 Physical settlement (settlement by making physical delivery of underlying stock) for both stock
options and stock futures; or
 Cash settlement for stock options and physical settlement for stock futures; or
 Physical settlement for stock options and cash settlement for stock futures.

A Stock Exchange may introduce physical settlement in a proper manner. Physical settlement for
all stock options and/or all stock futures, as per the case, must be completed within six months.
The settlement mechanism is to be decided by the Stock Exchanges in consultation with the
Depositories.
On expiry / exercise of physically settled stock derivatives, the risk management framework (i.e.
margins and default) of the cash segment shall be applicable. There should be separate settlements
of cash and equity derivative segments.
The Stock Exchanges interested to introduce physical settlement should:
 Organize proper systems and procedures for smooth implementation of physical settlement.
 Necessary amendments should be introduced to the relevant bye‐laws, rules and regulations for
implementation of physical settlement.
44
 Bring the provisions of this circular to the notice of all categories of market participants, including
the general public, and also to disseminate the same on their websites.

The Stock Exchanges interested to offer physical settlement should submit to SEBI for approval,
a detailed framework for implementation of physical settlement of stock derivatives. After opting
for a particular mode of settlement for stock derivatives, a Stock Exchange may change to another
mode of settlement after seeking prior approval of SEBI.

Settlement Schedule
The settlement of trades is on the basis of T+1 working day. Members with a funds pay‐in
obligation are required to have clear funds in their primary clearing account on or before 10.30
a.m. on the settlement day. The pay-out of funds is credited to the primary clearing account of the
members thereafter.

Settlement of Futures Contracts on Index or Individual Securities

Both the parties to the contract have to deposit margin money in future contract, which is called
as initial margin. There are two types of settlements in future contract, MTM settlement which
happens on a continuous basis at the end of each day, and the final settlement which happens on
the last trading day of the futures contract.

Mark to Market (MTM) Settlement

Mark to Mark settlement is a process by which margins as well as profits & losses are adjusted on
daily basis. The profits/ losses are calculated as the difference between:

 The trade price and the day's settlement price for contracts executed during the day but not squared
up.
 The previous day's settlement price and the current day's settlement price for brought forward
contracts.
 The buy price and the sell price for contracts executed during the day and squared up.

The clearing member who suffers a loss is required to pay the MTM loss amount in cash which is
in turn passed on to the clearing member who has made a MTM profit. The pay‐in and pay‐out of
the mark‐to‐market settlement are affected on the day following the trade day (T+1) where trading
member is responsible to collect/ pay funds from/ to clients by the next day. Clearing Members
are responsible to collect and settle the daily MTM profits/losses incurred by the TMs and their
clients clearing and settling through them. After completing day’s settlement process, all the open
positions are reset to the daily settlement price. These positions become the open positions for the
next day.
Final Settlement
At the expiry of the futures contracts, when trading hour is closed, all positions of a clearing
member is marked by the clearing corporations to the final settlement price and the resulting profit/
loss is settled in cash. Final settlement loss/profit amount is

45
 Debited / credited to the respective clearing member’s clearing bank account on next day
following expiry day of the contract. All long positions are automatically linked with short
positions in option contracts with the same series, on a random basis.

Legal and Regulatory Environment

Securities and Exchange Board of India Act, 1992

SEBI Act, 1992 provides for establishment of Securities and Exchange Board of India (SEBI) with
statutory powers for the purpose of (a) protecting the interests of investors in securities (b)
promoting the development of the securities market and (c) regulation of the securities market. Its
regulatory jurisdiction extends over corporate in the issuance of capital and transfer of securities,
in addition to all intermediaries and persons associated with securities market. SEBI has been
obligated to perform the aforesaid functions by such measures as it thinks fit. In particular, it has
powers for:

 Business in stock exchanges and any other securities markets are regulated by the SEBI.
 Working of stock brokers, sub–brokers etc. is also regulated by the SEBI.
 Promotion and regulation of self‐regulatory organizations is also in the hand of SEBI.
 Prohibiting fraudulent and unfair trade practices.
 Inspection, enquiries and audit of the stock exchanges and other person related to stock exchanges
is regulated by the SEBI.
 Performing such functions and exercising according to Securities Contracts
(Regulation) Act, 1956, as may be delegated to it by the Central Government.

46
 PROJECT
The project that I have started working on is the Portfolio management of the different stocks by
doing Fundamental analysis of a particular sector in which the company’s shares lies. I have
chosen RETAIL SECTOR for my analysis. The project was given 3 weeks ago by company
mentor and progress on report till date is as follows:

Objective of the study:

To observe the rate of stock fluctuation of selected companies.
To make your own Mutual funds and beat the benchmark.
To do the Fundamental and Technical Analysis of the stocks of the chosen sector.

Methodology:
Primary Research: Primary research is new research which is carried out to answer specific
questions. This type of research is mainly done through questionnaires, surveys or interviews
with individuals or small groups. There was no primary research conducted for doing equity
research.

Secondary Research: Secondary research (also known as desk research) involves the study or
analysis of existing research rather than primary research and data is collected from research
papers or experiments. To understand the stock behavior which includes data from various
sources such as News channels, Business Magazines, Government websites, and Company’s
official websites, we collected secondary data from websites such as
https://www.moneycontrol.com/, https://in.finance.yahoo.com/ and then analyzing the market
from that given data and performed all the calculations.

INTRODUCTION
The Indian retail industry has developed as a standout amongst the most powerful and quick
growing businesses because of the entrance of few new players. Total consumption expenditure
is expected to reach almost US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It
represents more than 10 percent of the nation's Gross Domestic Product (GDP) and around 8
percent of the work. India is the world's fifth-biggest worldwide destination in the retail space.

Market Size
India's retail market is expected to increase by 60% to reach US$ 1.1 trillion by 2020, on account
of components like rising income & lifestyle changes in middle class and expanded digitalization.
Online retail deals are required to develop at the rate of 31% y-o-y to reach US$ 32.70 billion till
2018.

47
 India is relied upon to turn into the world's quickest developing online business showcase, driven
by robust investment in the sector and fast increment in the number of internet users.

Luxury market of India is expected to grow to US$ 30 billion before the finish of 2018 because
of the developing introduction of worldwide brands among Indian youth and higher buying
intensity of the upper white-collar class in tier 2 and tier 3 urban cities.

Investment Scenario

The Indian retail trading has gotten Foreign Direct Investment (FDI) inflows of around
US$ 1.42 billion amid April 2000– June 2018, as indicated by the Department of Industrial
Policies and Promotion (DIPP).
With the expanding requirement for consumer products in various parts including consumer
electronics and home appliances, numerous organizations have put resources into the Indian retail
space to increase immense benefits.
• Beccos, a South Korean planner brand is set to enter the Indian market with a speculation of
about Rs 1.00 billion (US$ 14.25 million) and open 50 stores by June 2019.
• Walmart Investments Cooperative U.A has contributed Rs 2.75 billion (US$ 37.68 million) in
Wal-Mart India Pvt Ltd.

SECTORIAL ANALYSIS-
 Retailing in India represents over 10% of the nation's Gross Domestic Product (GDP) and around
8% of the employment.
 The retail segment in India is ruled by the unorganized retail trade, where unorganized trade
forms to 93% of the overall trade. This is in contrast with the developed nations where the
organized retail industry represents around 80% of the complete retail exchange. This features a
great deal of extension for further penetration of organized retail in India.
 The sector can be extensively partitioned into two segments: Value retailing, which is ordinarily
a low margin-high volume business (primarily food and groceries) and Lifestyle retailing, a high
margin-low volume business (clothing, footwear, and so on). The sector is additionally
partitioned into different categories, depending on the types of items offered.
 Transition from traditional retail to organized retail is taking place because of changing buyer
expectations, growing middle class, higher disposable income, inclination for luxury goods, and
change in the demographic mix, and so on. This is additionally escalated with the accommodation
of shopping with online stores (online shopping), variety of decision under one rooftop (Shop-
in-Shop), and the expansion of shopping center or mall culture, and so on. These variables are
expected to drive organized retail development in India over the long run.
 The overall retail market in India is expected to grow at 12% growth rate per annum, driven by
developing urbanization, rising income, more young generation and rising desires of the middle
class. Modern trade will extend as twice as fast at 20% per annum and traditional trade is expected
to grow at 10%.
48
 PORTER Five Force Model for research on Retail Sector-

 Demand & Supply: The retail industry is currently utilizing the digital retail channels (e-
commerce), which enables them to spend less on real estate while connecting with more clients
in Tier 2 and Tier 3 cities. Supply is likewise impacted by some worldwide players entering
domestic markets. Growing urbanization, expanding disposable income, changing consumer
tastes and preferences are some of the factors that are driving interest in retail market in India.
 Barriers to entry: Lack of quality, financial background, regulatory issues are some of the
components acting as an obstacle to the spread of organized retail in India. Since it is capital-
intensive industry, access to capital has a critical influence for expansion.
 Bargaining power of suppliers: The bargaining power of suppliers differs depending on the target
segment, the format followed, and items on offer. The unorganized sector has a dominant position
in the total retail market in India. There are not many players who appreciate an edge over others
by virtue of being built up players and enjoying brand distinction. In general, the bargaining
power of suppliers is low as retailers have low switching costs.
 Bargaining power of customers: High because of wide accessibility of choice and less expensive
options available over different channels. Likewise, low switching costs, price sensitiveness, and
effectively open information of a product and its price gives customers high bargaining power.
 Competition: With India being an appealing retail market, there is a high level of competition.
Competition is described by numerous factors, including variety, items, price, quality,
administration, location, reputation, credit, comfort offered, etc.

FINANCIAL YEAR 2018

 Financial year 2017-18 stood as one more year of mixed trends. The retail sector in India saw
some improvement in buyer notions and business confidence.
 Collective efforts of financial houses and banks with retailers are empowering customers to go
for durable products with easy credit.
 The introduction of Goods and Services Tax (GST) and the demonetization move bolstered the
development of organized retail industry.
 With the rising requirement for consumer products in various segments including customer
electronics and home appliances, many organizations invested in the Indian retail space in FY18.
 Department of Industrial Policy & Promotion (DIPP) approved three foreign direct investments
(FDI), Mountain Trail Food, Kohler India Corporation, and Merlin Entertainments India in the
single brand retail sector and two FDI proposition of over Rs 4 billion (US$ 62.45 million) inside
the retail sector.
 2018 was a fruitful year for herbal- ayurvedic brands. With the growing requirement for natural
items, numerous new Indian organizations were seen entering this segment.
 The year saw development of online market places over an entire scope of categories with
aggressive discounting strategies funded by overseas investors.

49
 PROSPECTS
 Retail industry has been on a growth trajectory in the course of recent years. Indian retail market
industry is expected to be worth US$ 1.1 trillion by 2020.
 Another pattern rising in retail sector is the increase in sales during discount seasons. It has been
seen generally that sales numbers in discount seasons are significantly higher than at different
times. This is prompting retailers to start discounts earlier and have longer than usual sale season.
Likewise, concepts, such as, online retailing and direct selling are becoming increasingly popular
in India, in this way boosting development of retail division.
 E-commerce business is most likely said to make a revolution in the retail industry in the years
to come. With the rapid expansion of online business, there can be seen a pattern of consistently
increasing choice of items at lowest rates.
 One of the major areas supporting the retail growth in India is the E-commerce industry.
According to India Brand Equity Foundation, India is expected to turn into the world's fastest
growing e-commerce market, driven by robust investments in the sector and fast increment in the
number of internet users. E-commerce deals in India are expected to reach US$ 120 billion by
2020 from US$ 30 billion in FY16. Further, India's online business showcase is expected to reach
US$ 220 billion as far as gross merchandise value (GMV) with 530 million customers by the
year 2025. This will come on the back of faster speeds on dependable telecom systems, faster
adoption of online services, variety of decision, comfort, etc.
 There is likewise an upward trend found in present day retailing. Driven by western culture and
urbanization, it has become an important part of everyday life. There are in excess of 500
operational shopping malls in India having a large number of brands across food, design and
lifestyle which are putting forth best of national and international brands to better educated
customers.
 The new trendy expression in retail is Omni-channel. Omni-channel offers a seamless experience
to the customers across various channels, whether brick & mortar, online stores, etc. The strategic
objective here is to merge different channels (departmental stores, online stores) and link them
to a multichannel retailer. This system makes a brand constantly accessible to the client and gives
an impetus to sales by increasing visibility, customer base across different geographies. It
likewise optimizes inventory holding costs, working expenses and real estate cost. With present
day retail making progress in India, there remains a great deal of extension for omni-channel to
extend.
 With rising income, favorable demographics, entry of foreign players and expanding
urbanization, the long-term outlook for the retail business in India is positive.
 Goods and Services Tax (GST) is required to simplify the distribution structure and diminish the
operational complexities of overall supply chain in the retail business. The entry of GST will
likewise turn out as a positive advancement for the retail Industry in India.

50
 Fundamental Analysis of Retail Sector:

1. Started the fundamental analysis in Retail Sector. As I have to manage and allocate the fund, I
have given 10cr. (not real) for the investment.
2. Firstly, I chose the large cap and mid cap stocks in the sector. One can find it from number of
sources, I used money control for this.
3. Then P/E Analysis has been done to find the Overvalued and Undervalued stocks.
4. The U.V. stocks were further analyzed by seeing Top-line (Revenue) and Bottom-line (Sales)
and value picks stocks were selected.
5. The O.V. stocks were further analyzed by finding the PEG value and growth pick stocks were
selected.
6. The ranking was done according the values of the important financial ratios of the sector of the
stocks.
7. The fund allocation was done according to the ranking of the stocks.
8. Daily NAV was calculated of the portfolio according to the price change of the stocks.

Some of the calculations done so far are shown in the tables below:

Calculation of P/E Ratio& Long term price target

Industry P/E Ratio – 71.56 (Average of company P/E Ratio)

51
 Overvalued / Undervalued Stocks

• Avenue Supermar, Aditya Birla F and Trent are overvalued stocks as their P/E is greater
than Industry P/E Ratio.
• Future Life, V-Mart Retail, Shoppers Stop and V2 Retail are undervalued stocks as their
P/E Ratio is less than Industry P/E Ratio.

OVERVALUED STOCKS:

PEG Ratio= P/E Ratio/ EPS Growth

In case of overvalued stocks, if PEG Ratio is greater than 1 then reject it and if less than 1
then accept it.
GROWTH PICKS- ADITYA BIRLA F

52
 UNDERVALUED STOCKS:
VALUE PICKS

Key Financial Ratios for Retail Sector

FUND ALLOCATION
Total Value = 10 Cr

Total Cash in hand = Rs. 2100.15

53
This figure shows the NAV calculation of the portfolio started from 2nd April, 2019. It was
continued further to see the growth in NAV. As the price of the stock changes, the AUM changes
by which the NAV changes.

TECHINAL ANALYSIS OF RETAIL SECTOR:

Technical Analysis is the prediction of future financial price movements based on an examination
of past price movements. Technical analysis uses a wide variety of charts that show price over
time. Technical Analysis helps in identifying long term trend by analyzing the price movements
over a certain duration. There are different shapes that are formed while doing this analysis and
these trends help us to predict buy and sell point.

Steps in Technical Analysis-

1. Study the past movement in share price and identify the trends and establish patterns.
2. Look at the current movement in the share price and identify the trends and establish patterns.
With this the future price movement is predicted. The rationale behind the technical analysis is
that share price moves in trend which may be upside or downside. It is believed that the present
trends are influenced by the past trends. The technical analyst, therefore analyses the price and
volume movement of individual securities as well as the market index. Thus, technical analysis is
really a study of past or historical price volume so as to predict the future stock.

The basic principle behind Technical Analysis-

1. The market value of a share is related to the demand and supply factors prevailing in the market.
2. There are both rational factors which surrounds the supply and demand factors of security.
3. Security prices behaves in a manner that their movements are continuous in particular direction
for some length of time.
4. Trends in stock prices have been seen to change when there is shift in demand and supply.
5. The shift in demand and supply factors can be detected through charts prepared specifically to
show market action.

54
Charts and Patterns in Retail Sector:

Aditya Birla F

Interpretation-
Here the purple line is showing that double top was formed in Jan 2018 which indicates
trend reversal and now the market would be bearish. The market remained bearish till July
2018 after which there was a bullish pattern and as of now, the pattern is unclear.

Future Life

Interpretation- In Jan 2017, trend reversal was there as rounding bottom was formed and the
trend remained bullish till July 2017. Next trend reversal was seen around July 2018 and the
formation of cup with handle (shown with Yellow colour) starts, which is still continuing and
further trend is expected to be bullish.

55
 V2 Retail

Interpretation- Till July 2016, there was not much movement in prices but in Jan 2017, trend
reversal was seen with the formation of Rounding Bottom as the market remained bullish
till end of 2017. Next trend reversal was seen in Jan 2018 with the formation of Double Top
(Black circle) and market remained bearish after that which indicates selling pressure was
high. As of now, the trend is unclear.

V-Mart Retail

Interpretation- There was no change in prices till Jan 2017 and after that there was an
Uptrend (Orange line) from Jan 2018 to July 2018. After that there was a downfall but
then price movement is seen to be sideways.

56
 BIBLIOGRAPHY

 https://www.equitymaster.com/research-it/sector-info/Retail/index-jul09.html
 https://www.ibef.org/industry/indian-retail-industry-analysis-presentation
 https://www.investopedia.com/articles/stocks/07/retail_stocks.asp
 https://www.moneycontrol.com/stocks/marketinfo/marketcap/bse/retail.html?classic=true
 https://www.policybazaar.com/life-insurance/
 https://www.chittorgarh.com/ipo/ipo_list.asp
 https://economictimes.indiatimes.com/mutual-funds
 www.nism.ac.in
 http://www.investopedia.com/university/technicalanalysis/
 https://issuu.com/sanjaykumarguptaa/docs/fundamental-and-technical-analysis-of-five-
major-c
 https://lifeinsurance.adityabirlacapital.com/about-us.aspx
 http://www.moneycontrol.com/mutualfundindia/

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