Peoples invest in stocks to do their money grow. And to assist investors place the suited and the appropriate manner to put, there are assorted manners of analysis. A figure of attacks have been developed over clip. One most of import analytical attack among them is EIC analysis ( E for economic system, I for industry and C for company ) . EIC analysis is besides sometimes referred to as Cardinal Analysis or the Top Down attack to Fundamental analysis. . In this attack, the investing determinations are taken on the footing of the strength of the economic system, industry and company. The major aim of undergoing a undertaking on EIC analysis or exceed down attack to cardinal analysis is to reply the inquiry as “ What to purchase ” .
At economic system degree, cardinal analysis will concentrate on the economic indexs of the state to measure the present and future growing of the economic system. Major economic indexs include the GDP growing rate, rising prices, imports, exports, pecuniary and financial policies, foreign exchange militias, IIP, etc. The basic premise is that if the economic system grows, companies would make good.
At the industry degree, apart from economic system other factors like authorities attitude, entry barriers, competition degree, menace of possible entrants, replacement merchandises, cost construction, foreign entrants, besides affect the manner an industry evolves in clip and hence affects the stock monetary values of companies in that peculiar industry. This industry analysis will besides include Porters five force theoretical account ( wherever applicable ) which will give a better attack to it.
The following undertaking to be done in the undertaking is to place and analyse two companies i.e. ACC and Ultratech cement Ltd. For that a figure of factors will be taken into consideration, say, the company ‘s SWOT analysis and the financials of the company. Therefore, on the foundation of some major factors, this EIC analysis will analyse the overall economic system, industry and company which will give a clear image and practical attack of stock designation.
The 2nd portion of the undertaking is Technical analysis which is a method of measuring securities by analysing the statistics generated by market activity, such as past monetary values and volume. Technical analysis looks at the monetary value motion of a security and uses this information to foretell its future monetary value motions. Thus a proficient analyst approaches a security from the charts.
ECONOMIC Analysis
EIC analysis is non merely about balance-sheets or analysis of a company ‘s fiscal public presentation. It is besides important to look at the broader picture- the macro-economic factors that may straight or indirectly impact the economic system, industry and stocks of the company. Economic Analysis is the First Measure in a three measure security analysis procedure. An economic lag has deductions for the net incomes and borders of companies. At economic system degree, cardinal analysis will concentrate on the economic indexs of the state to measure the present and future growing of the economic system. It aims at analysing the overall Economy and placing the general way, in which the economic system is heading. Although there are many macroeconomic indexs that are relevant to markets, given below are some must-track-indicators
GROSS DOMESTIC PRODUCT
The GDP ( Gross Domestic Product ) growing rate is the most of import macroeconomic index of a state ‘s economic wellness. If the GDP is turning, so will economic system, concerns, occupations and personal income. If GDP is decelerating down, so concerns will keep off puting in new investings and engaging new employees, waiting to see if the economic system will better. If the GDP growing rate really turns negative, so it means the economic system is in a recession. Therefore, on the footing of the GDP informations, we can analyse the economic system and construe the hereafter of India ‘s economic system up to some extent. Given below is the information of existent GDP growing rate from the twelvemonth 2006 till the twelvemonth 2010.
In the twelvemonth 2008, India ‘s GDP turning at 7.9 % , was the lowest in three old ages and was declarative of lag in Indian economic system. Recorded for the months of April-June 2008, India ‘s economic growing rate was 7.9 % which was less than what it was at the same clip last twelvemonth. The economic system had expanded by 7.6 per cent in the July to September one-fourth of 2008. India ‘s economic growing slowed to merely 5.3 per cent in the last three months of 2008, its slowest gait of enlargement in the last six old ages, as the planetary fiscal crisis took its toll on local makers and farm end product fell.
The International Monetary Fund has forecast India ‘s economic system to turn at 6.75 per centum in 2009-10 and 8 per centum in 2011-12 on the dorsum of an expected pick-up in private ingestion and investing. Indian economic system grew 8.6 per centum from January to March of 2010, maintaining in line with governmental projections. During the one-fourth, excavation and quarrying, fabrication and trade, hotel, conveyance and communicating saw year-on-year growing of 14 per centum, 16.3 per centum and 12.4 per centum. The state strives to achieve 8.5 percent growing of GDP in financial twelvemonth 2010-2011 with the purpose of recognizing 9 percent growing in the undermentioned twelvemonth.
Inflation
Inflation is no alien to the Indian economic system. It is an addition in the monetary value of a basket of goods and services that is representative of the economic system as a whole. Inflation is an upward motion in the mean degree of monetary values. Because rising prices is a rise in the general degree of monetary values, it is per se linked to money. It denotes excessively much money trailing excessively few goods.
High rates of rising prices can hold critical effects on economic system. It is characterized by depreciation in the value of money. Economists attribute a figure of factors to rising prices that can be loosely categorized under supply side factors like increased production costs and demand side factors like inordinate demand created by revenue enhancement cuts, cheaper adoptions etc. High rates of rising prices can hold serious effects for the economic system in general. Therefore, for authoritiess all over the universe, cut downing motions of monetary values to a lower limit is seen as a primary economic aim.
The above effects can be exemplified by taking the current scenario of the Indian economic system. Annual Inflation in India in May 2008 was 7.4 % which was the highest since November 2004. As a consequence Industrial production growing declined to 8.6 % in February 2008 as compared to 11 % in February 2007. Thus, high inflationary rate is harmful because the value of the money falls, cost of life rises, reduces the value of nest eggs, discourages future investing and nest eggs and slows down the overall growing of the economic system. The India ‘s economic narrative can be traced by seeing the general tendency of rising prices rate in the twelvemonth 2008.
In the Year 2008, RBI had revised its cardinal rates several times to keep the liquidness in the banking system. The lower involvement rates will let the Bankss to cut their benchmark loaning rates, though the sedimentations will besides see the decrease in involvement rates. Lower trade good monetary values and rough oil monetary values is driving the Inflation on a downside. This will be fantastic as the lower rising prices agencies, lower cost of recognition, which drives the economic system on the top. For 2009, Indian rising prices stood at 11.49 % Y-o-Y.
On March 19, 2010, the Reserve Bank of India raised its benchmark rearward redemption rate to 3.5 % per centum, after this rate touched record depressions of 3.25 % . The redemption rate was raised to 5 % from 4.75 % every bit good, in an effort to control Indian rising prices. The rising prices rate in India was 13.73 per centum in June of 2010. This is because of the monetary values of pulsations were up by 34.40 per cent from a twelvemonth ago, milk by 21.12 per cent, fruits by 13.67 per cent, cereals by 5.41 per cent, rice by 6.76 per cent and wheat by 3.97 per cent. On 19th August, cheaper veggies pull down rising prices to 10.35 % .
Unemployment Rate
India has been confronting immense job of unemployment and underemployment from old ages. Unemployment is much higher in urban countries than in rural countries and excessively adult females face the unemployment more. Assorted jobs like tremendous addition in the population, age, vocational softness and physical disablements, technological and economic factors have caused this job.
Other jobs besides contribute towards unemployment. Several socio-economic jobs like poorness, malnutrition, antisocial and condemnable activities, drug and substance maltreatment, etc. are the consequence of sick effects of unemployment. Underemployment, Disguised unemployment, regional instabilities in the unemployment scenario in India are another of import factor. The diminution in occupation creative activity in agribusiness has been identified as one of the of import grounds behind the increasing unemployment in India. But participants like TCS, BSNL & A ; WIPRO have announced their program to engage more and more people in 2010.
Imports
India ‘s ware imports witnessed a growing of 44.9 per cent during April-September 2008, and thenceforth it showed a slowing, reflecting the lag in industrial activities due to planetary economic crisis. The overall imports during April 2008-January 2009 at US $ 241.5 billion, recorded a lower growing of 24.4 per cent than 30.9 per cent recorded a twelvemonth ago. POL imports during April 2008-January 2009 at US $ 82.1 billion, nevertheless, maintained loosely a similar growing of 30.6 per cent ( 31.9 per cent a twelvemonth ago ) reflecting the high gait of rough oil monetary values.
Imports during January 2009 at US $ 18.5 billion besides declined by 18.2 per cent for the first clip during the current twelvemonth 2008-09 so far, as against an addition of 64.0 per cent in January 2008, chiefly due to crisp diminution in oil imports. The overall imports during April 2008-January 2009 at US $ 241.5 billion, showed a growing of 24.4 per cent lower than that registered during the comparable period of old twelvemonth ( 31.0 per cent ) on history of slowing in both oil and non-oil imports.
India ‘s imports during March, 2010 were valued at US $ 27733 million ( Rs.126175A A crore ) stand foring a growing ofA 67.1 per cent in dollar footings ( 48.4A per cent in Rupee footings ) A over the degree of imports valued at US $ 16597 million ( Rs. 85022 crore ) in March, 2009. Oil imports during March, 2010 were valued at US $ 7730 million which was 85.2A per cent higher than oil imports valued at US $ A 4175 million in the corresponding period last year.A A Non-oil imports during March, 2010 were estimated at US $ 20003 million which was 61.0 per cent higher than non-oil imports of US $ 12422 million in March, 2009.
Exports
India ‘s ware exports, after entering a steady growing of 35.3 per cent during April-August 2008, declined in all the subsequent months so far, during the current twelvemonth, viz. , ( -12.1 per cent in October ) , ( -9.9 per cent in November ) , ( -1.1 per cent in December ) and ( -15.9 per cent in January 2009 ) on history of planetary fiscal convulsion and economic lag.
With the consequence, the overall exports during April 2008-January 2009 at US $ 143 billion increased by 12.4 per cent as compared with 24.1 per cent during the corresponding period of the old twelvemonth. Exports of labour intensive sectors such as, fabrics, treasures and jewelry makers, agricultural and allied merchandises, ores and minerals, leather merchandises have registered decelerated growing as these sectors have been adversely affected under the impact of demand recession, chiefly in the developed parts, viz. , the US and the EU. Exports in2009- 2010 is 90573 crore as compared to 66169 crore in 2008-09, therefore demoing a growing of 36.9 % .
Exchange Rate
Since the international concern environment has no cosmopolitan medium of exchange, exchange rates is a necessity for international trade. Soon, both interlingual rendition and transition of foreign currency involve the usage of exchange rates. Therefore, in order to derive a more through apprehension of foreign currency interlingual rendition, it is of import to analyze the nature of exchange rates and the critical function they play in the international economic system. The recent Asiatic currency crisis demonstrates how critically exchange rates impact economic developments. Economic factors impacting exchange rates include fudging activities, involvement rates, inflationary force per unit areas, trade instabilities, and market activities.
The political factors act uponing exchange rates include the constituted pecuniary policy along with authorities action or inactivity on points such as the money supply, rising prices, revenue enhancements, and shortage funding. Psychological factors besides influence exchange rates. These factors include market expectancy, bad force per unit areas, and future outlooks.
MONETARY AND FISCAL POLICY
Fiscal Policy
Riding on the way of financial consolidation, in February 2008, the universe economic system was hit by three unprecedented crises — foremost, the crude oil monetary value rise ; 2nd, rise in monetary values of other trade goods ; and 3rd, the dislocation of the fiscal system. The combined consequence of these crises of these orders is bound to impact emerging market economic systems and India was no exclusion. The first two crises resulted in serious inflationary force per unit area in the first half of 2008-09.
Seriess of financial steps both on revenue enhancement gross and expenditure side were undertaken with the aim of easing supply side restraints. These steps were supplemented by pecuniary enterprises through policy rate alterations by the Reserve Bank of India and contributed to the softening of domestic monetary values. Additional budgetary resources of Rs.1, 50,320 crore was provided as portion of stimulus bundle and assorted committed liabilities of Government including lifting subsidy demand, execution of Central Sixth Pay Commission recommendations and Agriculture Debt Waiver and Debt Relief Scheme for Farmers contributed to the higher financial shortage of 6 per cent of GDP in RE 2008-09 as compared to 2.5 per cent of GDP in B.E.2008-09.
The steps taken by Government to counter the effects of the planetary meltdown on the Indian economic system, have resulted in a short autumn in grosss and significant additions in authorities outgos, taking to a impermanent divergence from the financial consolidation way mandated under the FRBM Act during 2008-09 and 2009-2010. The financial policy for the twelvemonth 2009-2010 is continued to be guided by the aims of maintaining the economic system on the higher growing trajectory amidst planetary lag by making demand through increased public outgo in identified sectors.
Monetary policy
India has quickly integrated into the planetary system and has linkages with the remainder of the universe non merely through trade channels, but besides through bipartisan motions of capital and finance. As an built-in portion of a globalizing universe, India can non be expected to stay immune to a planetary crisis and in reacting to the crisis, India has to portion the uncertainness on the manner frontward merely like the remainder of the universe.
Both the Government and the Reserve Bank have acted to protect the economic system from the inauspicious impact of the crisis since mid-September 2008. While the Government has announced three major financial stimulation bundles, the enterprise of the Reserve Bank has been to supply ample rupee liquidness, guarantee comfy dollar liquidness and keep a pecuniary policy environment conducive for the continued flow of recognition to productive sectors. Towards this enterprise, the Reserve Bank has adopted both conventional steps such as, for illustration, decrease of the hard currency modesty ratio ( CRR ) , every bit good as unconventional steps such as, for illustration, the dollar barter installation for Bankss.
To better the flow of recognition to productive sectors at feasible costs so as to prolong the growing impulse, the Reserve Bank signaled a lowering of the involvement rate construction by significantly cut downing both its key policy rates – the repo rate and the contrary repo rate.A The statutory liquidness ratio ( SLR ) has besides been reduced by one per centum point let go ofing financess to Bankss for recognition deployment. In the infinite of merely one one-fourth, the repo rate has been reduced from 9.0 per cent to 5.5 per cent and the rearward repo rate from 6.0 per cent to 4.0 per cent, thereby conveying down both of them to historically last degrees.
The Reserve Bank of India lowered its benchmark redemption rate to 7.5 per centum from 8 per centum. At the same clip the cardinal bank besides reduced the hard currency modesty ratio to 5.5 per centum from 6.5 per centum, and cut the sum of money loaners are required to maintain in authorities bonds to 24 per centum from 25 per centum.
But the steps taken by authorities and the Reserve Bank will go on to keep vigil, proctor domestic and planetary developments, and reconstruct the economic system to its possible growing way.
Industry Analysis
Industry SNAPSHOT
The Indian Cement Industry with a capacity of around 125 Million Ton Per Annum ( MTPA ) is the 4th largest in the universe after China, Japan and USA. However, the per capita ingestion in the state is merely about 90 kilogram as compared to the universe norm of approx. 250 kilogram. The Cement Industry is extremely disconnected comprising of more than 50 participants runing from more than 125 workss. The Cement Industry is cyclical and capital intensifier.
Cement is a cardinal substructure industry. It has been decontrolled from monetary value and distribution on 1st March, 1989 and delicensed on 25th July, 1991. However, the public presentation of the industry and monetary values of cement are monitored on a regular basis. The restraints faced by the industry are reviewed in the Infrastructure Coordination Committee meetings held in the Cabinet Secretariat under the Chairmanship of Secretary ( Coordination ) . Its public presentation is besides reviewed by the Cabinet Committee on Infrastructure.
The Cement Industry witnessed a slow start in the FY 2005 due to alter in the Government at the Centre ; decelerate down in substructure disbursement during the passage and hardships of drouth like conditions in the South and West. The subsequent restitution of impulse enabled the industry clock a despatch growing of 7 % for the full twelvemonth. The Cement sector appears to be on a sustainable growing way, given the strong mentality for the lodging sector and the renewed impulse in substructure disbursement. The Cement sector appears to be on a sustainable growing way, given the robust mentality in Government substructure disbursement. It is expected that the industry would turn at an mean 8 % one-year growing in the long tally.
The industry has witnessed consolidation in the recent old ages which is likely to increase with the entry of planetary participants. Cement being an energy intensive industry ; power and coal are the major cost subscribers. Logisticss besides form a important part of the cost. The looming coal deficit will non merely impact the cost, but besides the quality of coal. Cement monetary values are expected to tauten up across parts in the average term on history of a better demand- supply balance and greater consolidation. The initiation of advanced engineering has helped the industry vastly to conserve energy and fuel and to salvage stuffs well. India is besides bring forthing different assortments of cement like Ordinary Portland Cement ( OPC ) , Portland Pozzolana Cement ( PPC ) , Portland Blast Furnace Slag Cement ( PBFS ) , Oil Well Cement, Rapid Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc.
GROWTH PROSPECT
The one Indian industry which is set for growing over the coming old ages is the Cement Industry. The industry is to a great extent dependent on 3 sectors ; coal, power and conveyance. Energy and cargo are the two major cost constituents. Over the last few old ages, while the proportion of energy cost has increased marginally, cargo costs have declined.
Increasing authorities outgo on substructure sector and lifting demand for commercial and residential existent estate development has resulted in higher demand for cement in the state. Harmonizing to a study by the ICRA Industry Monitor, the installed cement capacity is expected to increase to 241 million tones per annum by the terminal of 2010. It besides expects that driven by higher domestic demand and increasing use, India ‘s cement industry may enter an one-year growing of 10 % over the coming old ages.
Taking cue of the planetary economic lag which was impacting cement companies in India last twelvemonth, Governments initiative to re-impose counter-veiling responsibility and particular counter-veiling responsibility this twelvemonth will assist supply a flat playing field for domestic participants. Furthermore, it besides appointed a coal regulator to ease seasonably and proper allotment of coal blocks to the of import sectors like cement. As coal is one of the premier natural stuff used in cement production, this seems to be a positive move.
Growth potency of cement industry can be judged by the fact that the per capita cement ingestion ( 156 kilogram ) in India is still good below the planetary norm ingestion ( 396 kilogram ) . This spread can be expected to be covered in the coming old ages. Besides, lodging sector histories for about 50 % of the entire cement ingestion in the state and the big immature population will guarantee that the demand for substructure corsets put.
The lifting cost of energy, transit natural stuff continues to coerce the industry as a whole. To prolong profitableness, companies will hold to research alternate beginning of energy while at the same clip heighten their operational efficiency.
Industry experts opine that the cement industries should now increase their focal point on puting adequately in developing human resources that will be capable plenty to turn to the professional demands of building industry including advanced engineerings and building patterns, undertaking direction building and judicial proceeding. We expect that the cement production and ingestion both will turn well over the old ages.
PORTER ‘S FIVE FORCES MODEL
Rivalry among Competing Firms
Inter house competition is really high in this sector. Reasons for this are manfully big figure of participants in the market, intermittent overcapacity, fringy merchandise distinction, high storage cost and high issue barriers in the signifier of immense capital investing.
Potential Entry of New Rivals
In cement Industry engineering and work force are easy available but still entry of new houses is non that feasible. This is because of immense capital investing, wide distribution web and oversupplied market.
Potential Development of Substitute Merchandises
Merely bitumen in route and technology plastics in edifice offer some component of competition otherwise no stopping point replacements are popular in India.
Dickering Power of Suppliers
The bargaining power of providers of natural stuffs and intermediate goods is really high. Because of monopolistic control of external cost elements i.e. coal, power, transit and revenue enhancements providers are basking high bargaining power with the authorities.
Dickering Power of Consumers
Rising portion of retail purchase, worsening portion of bulk purchase by authorities has taken away the bargaining power of clients.
SWOT ANALYSIS
Strengths
Second largest in footings of capacity- In India there is about 124 big and 300 mini workss with installed capacity of 200 million metric tons.
Low cost of production- Because of easy handiness of natural stuff and inexpensive labour.
Failing
Demand supply spread, overcapacity- the capacity add-ons distort the demand supply equilibrium in the industry therefore impacting the profitableness.
Increasing cost of production due to increase in coal monetary values.
High involvement rate on housing- addition in involvement rate from 7 % to 12 % has resulted in lag in residential belongings market.
Opportunities
Increase in infrastructure projects- Infrastructure histories for 35 % of cement ingestion in India. And with addition in authorities focal point on substructure disbursement such as roads, main roads and airdromes, the cement demand is likely to turn in future.
Turning in-between class- There has been a addition in buying power of emerging in-between category with rise in salary and rewards, which consequences in lifting demand for better quality of life that farther necessitates substructure development and hence addition yhe demand for cement.
Technological changes- At present 93 % of the entire capacity in industry is based on modern and environmental friendly dry procedure and merely 7 % is based on old moisture and semi dry procedure engineering. The initiation of advanced engineering has helped the industry vastly to conserve energy and to salvage stuffs well and therefore cut down the cost of production.
Menaces
Excess overcapacity can ache borders every bit good as monetary values.
Company ANALYSIS
ACC LIMITED
Established in 1936, has been a innovator and tendency compositor in cement and concrete engineering. A outstanding abroad presence and calculating on the elect list of consumer super trade names of India but most significantly Air Combat Command has been amongst the first Indian companies to do environment protection as basis of its corporate aims. The historic amalgamation of 10 bing companies has led to the established of acc- melding into a cohesive organisation in 1936. It offers the services of ready made concrete and consultancy services. This company is listed by Bombay stock exchange, National stock exchange and in London.
During twelvemonth 2007 company acquired 100 % equity interest in Lucky Minmat Private limited for Rs 35 crores and besides acquired 43 % interest in Shiva Cement Limited. Meanwhile the company divested its full equity portions in Almatis ACC limited to the Almatis group. The abroad contact with YANBU Cement Company in the land of Saudi Arabia is successfully on-going relationship from last 28 old ages and has been renewed up to Feb 28, 2011.
The company ‘s assorted fabricating units are backed by a cardinal engineering support services centre – the lone one of its sort in the Indian cement industry. ACC has rich experience in excavation, being the largest user of limestone. As the largest cement manufacturer in India, it is one of the biggest clients of the domestic coal industry, of Indian Railways, and a considerable user of the state ‘s route conveyance web services for inward and outward motion of stuffs and merchandises.
The company has developed comprehensive enlargement programs to run into the demand of its docket for growing with a position to achieve leading place in the cement industry, for that company made a undertaking for augmentation of clinkering and cement grinding. Besides it implements undertakings for augmenting crunching capacity at Madukkaria by 0.225 MTPA and New Wadi at 0.60 MTPA.
Ready mix concrete concern has been identified as country of strategic precedence. ACC commissioned a Wind Energy Farm in Tamil Nadu to advance clean and green engineering. The company foresees significant range for growing of this concern in India. The company actively promotes the usage of alternate fuels and natural stuffs and offers entire solutions for waste direction including proving, suggestions for reuse, recycling and co-processing.
When we look at the values that are obtained utilizing the DCF and the stock monetary values we can state that the monetary values of the companies stock are mispriced to a big extent. The intrinsic values for four back-to-back old ages turned out to be negative which means that the portions are extremely over priced. The investings in these stocks are really hazardous.
ULTRATECH CEMENT
Ultratech Cement Limited ( UltraTech ) is India-based one of the largest cement fabrication company. UltraTech Cement was incorporated as a populace limited company on 24th August 2000, as “ L & A ; T Cement Limited ” a 100 % Subsidiary of Larsen & A ; Toubro Limited. The name of the Company was changed to UltraTech CemCo Limited with consequence from 19th November 2003. The name of the company was once more changed to UltraTech Cement Limited with consequence from 11th October 2004.
UltraTech Cement has an one-year capacity of 18.2 million tones. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. It besides manufactures ready mix concrete ( RMC ) .
The company has five integrated workss, six crunching units and three terminals- two in India and one in Sri Lanka. It is the state ‘s largest exporter of cement cinder. The export marketspan states around the Indian Ocean, Africa, Europe and the Middle East.
The company has an one-year cement production capacity of 18.2 million tones. It is a subordinate of Grasim Industries Ltd. The company operates two subordinate companies viz. , Dakshin Cement Limited and UltraTech Ceylinco ( P ) Limited. The company is headquartering at Mumbai in India. The company reported grosss of ( Rupee ) INR 66,643.30 million during the financial twelvemonth ended March 2009, an addition of 16.43 % over 2008. The operating net income of the company was INR 13,678.20 million during the financial twelvemonth 2009, a lessening of 9.73 % from 2008. The net net income of the company was INR 9,780.60 million during the financial twelvemonth 2009, a lessening of 3.17 % from 2008.
Harmonizing to the analysis done by DCF model the value of the portion are 1403.89. five twelvemonth daily informations has been taken for the analysis.
Hazard ANALYSIS
A hazard analysis involves placing the most likely menaces to an organisation and analysing the related exposures of the organisation to these menaces. In quantitative hazard analysis, an effort is made to numerically find the chances of assorted inauspicious events and the likely extent of the losingss if a peculiar event takes topographic point.
Qualitative hazard analysis, which is used more frequently, does non affect numerical chances or anticipations of loss. Alternatively, the qualitative method involves specifying the assorted menaces, finding the extent of exposures and inventing countermeasures should an onslaught occur.
Note: The values given in the above tabular arraies are calculated for the day-to-day informations taken for a period of 5 old ages for both the companies and the BSE Index ( 1st January 2006 – 31st January 2010 )
Average Tax return
-0.003328381
-0.00634216
-0.07786948
Discrepancy
0.010961979
8.72164503
4.55224251
Standard Deviation
0.104699472
2.95324314
2.133598489
Analysis:
From the values in the mean return, discrepancy and standard divergence we can understand that the return in cement industry was negative for an investor who invested his money in those stocks for that peculiar period.
The hazard associated with Ultratech company stock is really high as it has really high criterion divergence and discrepancy when compared to the other company ACC Cement. The standard divergence and discrepancy of Ultratech stock are greater than that of Index.
Hazard Analysis:
To analyse the hazard associated with a stock we have calculated 3 parametric quantities. Beta, Sharpe and Treynor
i( Beta ) Co-efficient ( A Measure of Systematic Risk ) : The beta is a step of systematic hazard or Non-diversifiable hazard. The beta of a stock measures the sensitiveness or volatility of the stock with mention to a wide based market index, e.g. SENSEX in India.
Sharpe ‘s Measure of Performance: Sharpe Measure measures the hazard Premiums of the portfolio ( mean portfolio return less risk free return ) relation to the entire sum of hazard in the portfolio ( standard divergence of the portfolio ) . It is besides called reward-to-variability ratio. The Sharpe ratio tells us whether a portfolio ‘s returnsA are due to ache investing determinations or a consequence of surplus hazard. The higher the Sharpe ratio for a portfolio, the better the portfolio has performed.
Treynor ‘s Measure of Performance: The Treynor step is a comparative step of public presentation for investing directors and measures the return premium per unit of systematic hazard ( hazard that can non be diversified ) as measured by the beta or comparative volatility of the portfolio. While a high and positive Treynor ‘s Index shows a superior risk-adjusted public presentation of a fund, a low and negative Treynor ‘s Index is an indicant of unfavourable public presentation. It is besides called reward-to-volatility ratio.
ACC Company
Releasing factor
0.000219178
0.000219178
Covariance
0.013539708
0.146233351
Beta
0.002972001
0.032123366
Sharpe
-0.033883253
-0.00222174
Treynor
-1.193659819
-0.204254414
Analysis:
Releasing factor: The hazard free return taken is a authorities exchequer measure which has a return of 8 % per annum.
When we compare the motion of the stock with the index there is more relation between Ultratech stocks to that of ACC Cement company stock. So we can state that the sensitiveness is more for Ultratech stock as a little alteration in the index would impact the stock monetary values of the company mostly.
A higher value of Sharpe ratio tells us that the investing in those stocks is a smart investing. The Sharpe ratio for both the companies stocks is negative which shows that they are non preferred.
A low and a negative value of the Treynor ratio is an unfavourable public presentation of the stock. In these two companies the Treynor ratio is negative which is non preferred.
TECHNICAL Analysis
RELATIVE STRENGTH INDEX ( RSI )
The comparative strength of a stock is a step of a stock ‘s monetary value against its past public presentation. It helps to find the internal strength of the stock. It is a various tool, and can be used to:
- Generate bargain and sell signals
- Show overbought and oversold conditions
- Confirm monetary value motion
The graduated table is set from 1 to 100, and when RSI rises to 70, it indicates that the stock could be acquiring overbought. Conversely, if the RSI beads below 30, the stock could be acquiring oversold and you may desire to roll up portion. It enables you to use a simple expression to pull a meaningful decision about the monetary value strength of a individual stock. This is a proficient impulse index that quantifies the magnitude of additions and losingss to find whether the stock is overbought or oversold. This RSI computation is based on 14 periods, which is the default.
The expression for comparative strength is: RSI = 100 – ( 100 / ( 1 + RS ) ) . In this expression, RS = ( norm of ( x ) yearss up stopping points ) / ( norm of ( x ) yearss ‘ down stopping points ) .
RSI can be calculated over any clip period. Very short-run bargainers may track RSI over merely a few proceedingss, whereas bargainers willing to wait for longer clip periods may desire to utilize RSI over several months. Here is an illustration:
RSI Buy Signal
Buy when the RSI crosses above the oversold line ( 30 ) .
RSI Sell Signal
Sell when the RSI crosses below the overbought line ( 70 ) .
The center line for RSI is 50. Readings above and below 50 can give the index of a bullish or bearish joust. Changing the clip period of the Relative Strength Index can increase or diminish the figure of bargain and sell signals. Decreasing the clip period made the RSI more volatile, increasing the figure of bargain and sell signals well.
RESULTS FOR RSI:
Analysis:
For UltraTech Limited the value of RSI obtained is 50.80 while for ACC Limited RSI comes out to be 49.50. As RSI helps to bespeak whether a security has seen more buying or selling force per unit area over the trading period. ACC portion monetary value value is less than 50 i.e. it is a buying signal for investor because downward tendency is at that place while for Ultra Tech Limited whose value is above 50 is giving a selling signal to investor as it is demoing a upward tendency.
SIMPLE MOVING AVERAGE
The Simple Moving Average is the most popular proficient analysis tool used by bargainers. The Simple Moving Average ( SMA ) is used chiefly to place tendency way, but is normally used to bring forth bargain and sell signals. The SMA is an mean, or in statistical speak – the mean. The length of the traveling mean depends on the analytical aims. Short traveling norms ( 5-20 periods ) are best suited for short-run tendencies and trading. Chartists interested in medium-term tendencies would choose for longer traveling norms that might widen 20-60 periods. Long-run investors will prefer traveling norms with 100 or more periods. The 200-day moving norm is possibly the most popular.
Traveling Average Acting as Support – Buy Signal
When monetary value is in an uptrend and later, the moving norm is in an uptrend, and the moving norm has been tested by monetary value and monetary value has bounced off the traveling norm a few times ( i.e. the moving norm is functioning as a support line ) , so purchase on the following tiebacks back to the Simple Moving Average.
Traveling Average Acting as Resistance Sell Signal
At times when monetary value is in a downtrend and the moving norm is in a downtrend every bit good, and monetary value trials the SMA above and is rejected a few back-to-back times ( i.e. the moving norm is functioning as a opposition line ) , so purchase on the following mass meeting up to the Simple Moving Average.
Support and Resistance are basic yet vitally of import proficient analysis tools. On every clip frame, intra-day, day-to-day, hebdomadal, and monthly, Support and Resistance degrees are respected by bargainers. Knowledge of these degrees helps maintain a bargainer on the right side of the market, therefore assisting the bargainer net income.
RESULTS OF MOVING AVERAGE:
Analysis
Simple traveling norms represent a true norm of monetary values for the full clip period. The way of the traveling mean conveys of import information about monetary values. A lifting moving norm shows that monetary values are by and large increasing. A falling moving mean indicates that monetary values, on norm, are falling. A lifting long-run moving norm reflects a long-run uptrend. A falling long-run moving norm reflects a long-run downtrend. Traveling norms insure that a bargainer is in line with the current tendency.
It is clear from the above graph for ACC that from 2006-07 traveling norm is back uping the support line and after it is changeless in 2008. Then in 2009 it is moving as opposition line for the decreasing portion monetary value of ACC. While for Ultra Tech Limited tendency is non that clear. It is really fluctuating in nature.
