FINANCIAL DERIVATIVES AND RISK

MANAGEMENT

Analysis of equity derivative market of top companies based on market

capitalisation

SUBMITTED TO:

Dr. Rekha

PRESENTED BY-Group 7:

Amritha Pal (08PG080)

Anurag Agarwal (08PG155)

Dipti Jha (08PG225)

P.Varun Nair (08PG177)

Sanjeev Agarwal (08PG267)

V.Pushpa (08PG352)

[NIFTY TOP TEN] December 5, 2009

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Tabulate Top 10 companies (which are traded on derivatives market) by market

capitalisation and find their weight in nifty as on November 2009. compare with

market capitalisation as on November 2008. Analyse the growth in the market

capitalisation over this period.

Market capitalisation according to nifty in November 2008

SECURITY Market Capitalisation WEIGHTAGE

RELIANCE 1,78,538 10.46

ONGC 1,48,395 8.7

NTPC 1,31,474 7.71

BHARTIARTL 1,27,375 7.47

INFOSYSTCH 71,210 4.17

SBIN 69,110 4.05

BHEL 66,555 3.9

ITC 65,461 3.84

TCS 54,743 3.21

HINDUNILVR 51,515 3.02

Market capitalisation according to nifty in November 2009

SECURITY Market Capitalisation WEIGHTAGE

RELIANCE 129456 10.11

INFOSYSTCH 102606 8.01

LT 89672.2 7

ICICIBANK 87524.3 6.83

HDFC 65414.3 5.11

ITC 63919.5 4.99

HDFCBANK 55113.8 4.3

SBIN 54188.7 4.23

ONGC 37730.4 2.95

BHARTIARTL 37174.4 2.9

[NIFTY TOP TEN] December 5, 2009

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Ranking in the two periods

SECURITY Year 2008 Year 2009 RELIANCE 1 1 INFOSYSTCH 5 2 LT - 3 ICICIBANK - 4 HDFC - 6 ITC 8 7 HDFCBANK - 8 SBIN 6 9 ONGC 2 10 BHARTIARTL 4 - BHEL 7 - TCS 9 - HINDUNILVR 10 -

[NIFTY TOP TEN] December 5, 2009

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RELIANCE INDUSTRIES LIMITED (NSE: RELIANCE) is India's largest private

sector conglomerate (by market value) and second largest in the world, with an annual

turnover of US$ 35.9 billion and profit of US$ 4.85 billion for the fiscal year ending in

March 2008 making it one of India's private sector Fortune Global 500 companies, being

ranked at 206th position (2008) It was founded by the Indian industrialist Dhirubhai

Ambani in 1966. Ambani has been a pioneer in introducing financial instruments like

fully convertible debentures to the Indian stock markets. Ambani was one of the first

entrepreneurs to draw retail investors to the stock markets. Critics allege that the rise

of Reliance Industries to the top slot in terms of market capitalization is largely due to

Dhirubhai's ability to manipulate the levers of a controlled economy to his advantage.

Though the company's oil-related operations form the core of its business, it has

diversified its operations in recent years. After severe differences between the founder's

two sons, Mukesh Ambani and Anil Ambani, the group was divided between them in

2006. In September 2008, Reliance Industries was the only Indian firm featured in

the Forbes's list of "world's 100 most respected companies".

The Group's activities span exploration and production of oil and gas, petroleum

refining and marketing, petrochemicals (polyester, fibre intermediates, plastics and

chemicals), textiles, retail and special economic zones.

Reliance enjoys global leadership in its businesses, being the largest polyester yarn and

fibre producer in the world and among the top five to ten producers in the world in

major petrochemical products.

[NIFTY TOP TEN] December 5, 2009

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The graph shows the weight of RELIANCE in nifty in 2008 and 2009. It’s been observed

that RELIANCE nifty weight in nifty over 2 years is above 10%. Even though there has

been a change in the way of calculation of Market Capitalisation in Nifty. The method for

calculation has changed from full market capitalisation to free float method from 26

June, 2009. Reliance has been the highest contributor in the Nifty.

Reliance share holding pattern clearly states the importance given to public

shareholding. As it is India’s largest private conglomerate it has also the highest public

share holders.

RELIANCE has the highest weight in NIFTY. The scrip is one of the most sustained

stocks. The stock has been the biggest contributor to the recent rally. Reliance has

gained under the new free float method. And it has still maintained itself at the top of

the list.

The recent events: 2009

RPL merger with RIL: Value creation through scale and synergies - The merger of

Reliance Petroleum Limited (RPL) with Reliance Industries Limited (RIL) has

enabled seamless integration of operational scale and financial synergies that

existed between the two Companies. Assets and liabilities of RPL have been

transferred to RIL with effect from 1st April 2008, as per the approval granted by

the Hon. High Courts of Mumbai and Gujarat. Shareholders of RPL received 1

share of RIL in lieu of every 16 shares of RPL held by them, as per the scheme of

merger. Accordingly, 6.92 crore new equity shares of RIL have been allotted to

the shareholders of RPL.

9.8010.0010.2010.4010.60

2008 2009

10.46

10.11

RELIANCE INDUSTRIES LTD

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RIL joins the league of global deepwater oil and gas operators - RIL commenced

production of hydrocarbons in its KGD6 block in the Krishna Godavari basin with

the production of sweet crude of 420 API. The production of oil in KG-D6 was

commissioned in just over two years of its discovery, making it the world’s

fastest green-field deepwater oil development project.

Total Assets crossed Rs. 200,000 crore mark (Rs. 245,706 crore, US$ 48.44

billion), Networth crossed Rs. 100,000 crore mark (Rs. 126,373 crore, US$ 24.92

billion), unparalleled in the Indian Private sector.

RIL declares Dividend of 130%. Payout of Rs 1,897 Crore, highest in the Indian

Private Sector.

2008

During the year, Reliance signed an agreement to acquire certain polyester

(capacity) assets of Hualon, Malaysia.

In the Refining & Marketing business, Reliance took over majority control of Gulf

Africa Petroleum Corporation (GAPCO) and started shipping products to the East

African markets.

Reliance also signed MoU with GAIL (India) Limited to explore opportunities of

setting up petrochemical plants in feedstock rich countries outside India.

Reliance Petroleum Limited (RPL) continued the second year of implementation

of its refinery project with an overall project progress of 90%.

During the year, Reliance Retail Limited (RRL) continued its rollout of stores

across various verticals and formats. Reliance Retail today operates over 590

stores in 57 cities, spanning 13 states, with over 3.5 million square feet of trading

space.

Revenue crossed Rs. 130,000 crore mark (Rs. 139,269 crore, US$ 34.7 billion),

Net Profit crossed Rs. 15,000 crore mark (Rs. 19,458 crore, US$ 4.9 billion) and

Total Assets crossed Rs. 140,000 crore mark (Rs. 149,839 crore, US$ 37.3

billion), unparalleled in the Indian Private sector.

Exports crossed Rs. 80,000 crore mark (Rs. 83,492 crore, US$ 20.8 billion),

13.4% of India's total exports.

RIL declares Dividend of 130%. Payout of Rs 1,631 Crore, highest in the Indian

Private Sector.

[NIFTY TOP TEN] December 5, 2009

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INFOSYS TECHNOLOGIES LTD. (NASDAQ: INFY) was started in 1981 by seven people

with US$ 250. Today, we are a global leader in the "next generation" of IT and

consulting with revenues of over US$ 4 billion.

Infosys defines, designs and delivers technology-enabled business solutions that help

Global 2000 companies win in a Flat World. Infosys also provides a complete range of

services by leveraging our domain and business expertise and strategic alliances with

leading technology providers.

Their offerings span business and technology consulting, application services, systems

integration, product engineering, engineering, independent, IT infrastructure

services and business process outsourcing.

Infosys pioneered the Global Delivery Model (GDM), which emerged as a disruptive

force in the industry leading to the rise of offshore outsourcing. The GDM is based on

the principle of taking work to the location where the best talent is available, where it

makes the best economic sense, with the least amount of acceptable risk.

Infosys has a global footprint with over 50 offices and development centers in India,

China, Australia, the Czech Republic, Poland, the UK, Canada and Japan. Infosys and its

subsidiaries have 105,453 employees as on September 30, 2009

Infosys takes pride in building strategic long-term client relationships. Their 97% of

revenues come from existing customers.

[NIFTY TOP TEN] December 5, 2009

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The graph shows the weight of INFOSYS in nifty in 2008 and 2009. It’s been observed

that INFOSYS weight in nifty in year 2008 its 4%. The stock was the 5th highest

contributor in 2008. But the company has significantly moved from 4 % weight in the

year 2008 to 8% in the year 2009. This has happened because there has been a change

in the way of calculation of Market Capitalisation in Nifty. The method for calculation

has changed from full market capitalisation to free float method from 26 June, INFOSYS

has only 16% Promoters holding in the shareholding pattern.

INFOSYS share holding pattern clearly states the importance given to public

shareholding. As it is India’s largest IT Company. Promoters contribution is only to the

extent of 16% which shows the importance given to the public shareholding.

INFOSYS has the SECOND highest weight in NIFTY. INFOSYS CONTRIBUTES 8% of the

NIFTY. The scrip is one of the most sustained stocks. The stock has been one of the

biggest contributors to the recent rally. INFOSYS has gained under the new free float

method. The new method has helped Infosys move from the 5th position in 2008 to 2nd

position in 2009.

Recent Events:

Infosys Technologies made its second acquisition in the space, by acquiring

Atlanta based McCamish Systems for $38 million. A couple of years ago, it had

acquired the shared services centres of Royal Philips Electronics for $28 million.

McCamish Systems, founded in 1985, has 260 employees located at their delivery

0

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4.17

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INFOSYS …

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centre in Atlanta and clocked revenues of $38.2 million for the year ended

December 2008.

Infosys Technologies has established a separate subsidiary in the US for serving

government and healthcare customers locally and cope with American laws that

prohibit offshoring of sensitive citizen data, a top company official told financial

analysts last month.

Infosys continues to win transformational deals, solution-based engagements,

and systems integration projects as clients seek a trusted partner in their

journeys.

Clients are leveraging Infosys’ industry expertise on projects directed at gaining

a competitive advantage. A leading manufacturer and marketer of beauty care

products, Alberto Culver Company, selected us to enhance its trade promotion

effectiveness. We will deliver advanced category analytics services to help the

company improve pricing, promotions and category management decisions.

Infosys continues to strengthen its position in the banking and capital markets

sector.

[NIFTY TOP TEN] December 5, 2009

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ITC is one of India's foremost private sector companies with a market capitalisation of

nearly US $ 19 billion and a turnover of over US $ 5 billion. ITC has a diversified

presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-

Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel,

Personal Care, Stationery, Safety Matches and other FMCG products. While ITC is an

outstanding market leader in its traditional businesses of Cigarettes, Hotels,

Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its

nascent businesses of Packaged Foods & Confectionery, Branded Apparel, Personal Care

and Stationery.

ITC's diversified status originates from its corporate strategy aimed at creating multiple

drivers of growth anchored on its time-tested core competencies: unmatched

distribution reach, superior brand-building capabilities, effective supply chain

management and acknowledged service skills in hoteliering. Over time, the strategic

forays into new businesses are expected to garner a significant share of these emerging

high-growth markets in India

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ITC LTD

[NIFTY TOP TEN] December 5, 2009

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Tobacco major ITC Ltd has launched Wills Navy Cut Regular size filer

cigarettes, priced at Rs 24 a pack of 10 sticks in select markets in north and

west India. The brand has been launched keeping in mind ITC's objective of

delivering superior quality and value to, all its consumers. The new

cigarettes, which have been launched in select retail markets such as

Mumbai and Pune, could be rolled out nationally based on the response

from these "test markets", ITC's distributors said. Analysts believe ITC's

move to launch the new cigarette directly through retailers instead of the

company’s distributor network could be a part of a strategy to de-

emphasise Wills as a tobacco brand.

ITC Foods has drawn up plans to foray into the nascent frozen foods

category in the domestic market within the next six-eight months. The

company will extend its Kitchen of India brand to frozen foods, which

would include meals packaged in trays and snacks. ITC recently began

exporting frozen vegetarian foods to markets such as the US and Canada,

since exporting non-vegetarian foods out of India is restricted. The

company is manufacturing the frozen foods range at its Bangalore facility,

and will use the same to cater to the domestic market as well, ITC Foods

CEO Ravi Naware told ET. This will be seventh food category ITC Foods will

tap.

ITC's garment retailing arm Wills Lifestyle, which embarked upon a major

rejuvenation and brand makeover late last year, is tying up with budding

designers, Italian fabric makers and established designers in a bid to have

cost advantage and premium look. Wills has also collaborated with

international design studios Alessandra Macchi Studio (Italy) for superior

quality flat knits and with Ricardo Rami Studio (Italy) for fashion wear.

The move is aimed at wooing the young upwardly mobile segment, which is

expected to bring 30 per cent growth for the company. Mr Deveshwar said:

“We will invest in companies that are in the same businesses if there are

prospects of generating value.” ITC already has stakes in hotels major EIH,

Ballarpur Industries, VST Industries and Agrotech Foods.

[NIFTY TOP TEN] December 5, 2009

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State Bank of India (SBI) is the largest bank in India. The bank traces its ancestry back

through the Imperial Bank of India to the founding in 1806 of the Bank of Calcutta,

making it the oldest commercial bank in the Indian Subcontinent. The Government of

India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India

taking a 60% stake, and renamed it the State Bank of India. In 2008, the Government

took over the stake held by the Reserve Bank of India. SBI provides a range of banking

products through its vast network in India and overseas, including products aimed at

NRIs. The State Bank Group, with over 16000 branches, has the largest branch network

in India. With an asset base of $250 billion and $195 billion in deposits, it is a regional

banking behemoth. It has a market share among Indian commercial banks of about 20%

in deposits and advances, and SBI accounts for almost one-fifth of the nation’s loans. SBI

has tried to reduce its over-staffing through computerizing operations and Golden

handshake schemes that led to a flight of its best and brightest managers. These

managers took the retirement allowances and then went on the become senior

managers at new private sector banks. The State bank of India is 29th most reputable

company in the world according to Forbes. State Bank of India is one of the Big Four

Banks of India with ICICI Bank, Axis Bank and HDFC Bank.

[NIFTY TOP TEN] December 5, 2009

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The reasons:

1. The bank has decided on revising interest rates in the second half of the

year 2008. The bank, which has already extended loans worth INR50bn to

help cash-strapped mutual funds, India's largest bank, has announced its

plans to raise deposit rates by 25-50 basis points effective from June 1,

2008. While the two-to-three-year term deposit rate will be raised to 8.75

percent .

2. Country’s largest lender State Bank of India (SBI) reported a 10.2% rise in

quarterly profit on trading gains and rising loan demand. The bank, which

along with its associates controls almost a quarter of Indian bank loans and

deposits, said on Saturday that its July-September net profit rose to

Rs2,490 crore ($530.2 million) from Rs2,260 crore a year earlier. That met

a Reuters poll of brokers who forecast a profit of Rs2,460 crore for the

period. Closest rival ICICI Bank on Friday said that its quarterly net profit

rose 2.6%, beating forecasts. Shares in State Bank, valued at $31.5 billion,

rose 26% in July-September, beating a 20% rise in the sector index and an

18% gain on the benchmark index.

3. State Bank of India incurred a marked to market loss of $10 million in its

investments in the US because of subprime crisis. The bank had already

factored the loss in its balance sheet for last fiscal and the impact might not

be drastic. SBI had not ventured into any exotic derivatives and the Indian

companies to which the bank had intermediated MTM loss could be

3.95

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4.1

4.15

4.2

4.25

2008 2009

4.05

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STATE BANK OF INDIA

[NIFTY TOP TEN] December 5, 2009

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between Rs 600 and Rs 700 crore (Rs 6 and Rs 7 billion).None of the

companies had approached the courts till date against the bank.

4. Customer complaints about banking services during 2008-09 increased by

44%, with a majority related to credit card services followed by the failure

to meet commitments, the Reserve Bank of India (RBI) said in a report.

State Bank of India (SBI), ICICI Bank Ltd and the local unit of HSBC Holdings

Plc saw the largest number of complaints filed against them, according to

RBI data. The annual study—Report on Trend and Progress of Banking in

India, 2008-09—said the number of complaints registered with banking

ombudsmen for the year ended 31 March rose to 69,117 from 47,887 a

year earlier. The number of complaints against public sector banks, which

meet some 70% or more of India’s banking needs, was the highest at

33,141, up from 25,694 during 2007-08. Private sector banks and foreign

banks saw 21,982 and 11,700 complaints filed against them, respectively.

The SBI group faced the most—18,167—of the complaints against public

sector banks. SBI, the nation’s largest lender, alone accounted for 15,306

complaints, with 4,295 related to credit cards, followed by 2,631 over

failed commitments.

“The credit card-related complaints could be associated with the customer being

wrongly charged for a transaction not done by him/her. A significant number of

complaints related to pension payments, especially in the case of public sector

banks, and direct-selling agents, especially for new private sector banks,

according to the study. “In case of pensioners, the common error made by

bankers is when they are doing the dearness allowance computation.”

5. State Bank of India, India’s largest bank, is looking at acquisitions of up to

$1 billion in the UK and expects to maintain a 40% growth rate in its UK

business, senior officials said on Thursday. The bank’s overseas

businesses, which include Europe, the US and the Middle East, would

contribute over 10% of profits in 2009-10 (April-March). SBI, which along

with its associates controls almost a quarter of Indian bank loans and

deposits, would make London the hub of its European operations, as UK

accounted for three-quarters of its $4 billion European business. The bank

has close to 12,000 branches across India and 132 abroad, seven of which

are in the United Kingdom. It plans to open about 40 foreign branches in

the next 12 months, including five in the UK by next June. It was also

looking at expanding its branch network in the United States, including

through acquisitions. The bank has plans to move to all geographies across

the globe, where Indian corporates have operations.

[NIFTY TOP TEN] December 5, 2009

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6. ICBC’s market cap has risen by 18.5% compared with June 2007, but what’s

more interesting is that the value of State Bank of India has risen by 26.5%

during the same period. Because of this large shift in the value of US’

largest bank and outperformance of the Indian banks, SBI’s market value

relative to that of Citigroup has risen to 24% currently, up from just 8% in

June 2007. The comparison tells us several things. The most obvious one is

that banks in countries such as India and China have done better because

they haven’t been holding the high level of toxic assets held by banks in

developed countries. The more important point, however, is that it seems

to indicate that, contrary to the received wisdom, government-owned

banks may not be such a bad thing after all.

[NIFTY TOP TEN] December 5, 2009

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ONGC (Oil and Natural Gas Corporation Limited) is India's leading oil & gas exploration

company. ONGC has produced more than 600 million metric tonnes of crude oil and

supplied more than 200 billion cubic metres of gas since its inception. Today, ONGC is

India's highest profit making corporate. It has a share of 77 percent in India's crude oil

production and 81 per cent in India's natural gas production.

The origins of ONGC can be traced to the Industrial Policy Statement of 1948, which

called for the development of petroleum industry in India. Until 1955, private oil

companies such as Assam Oil Company at Digboi, Oil India Ltd (a 50% joint venture

between Government of India and Burmah Oil Company) at Naharkatiya and Moran in

Assam, and Indo-Stanvac Petroleum project (a joint venture between Government of

India and Standard Vacuum Oil Company of USA) at West Bengal, were engaged in

exploration work. The vast sedimentary tract in other parts of India and adjoining

offshore were largely unexplored. In 1955, Government of India decided to develop the

oil and natural gas resources in the various regions of the country as part of the Public

Sector development. To achieve this objective an Oil and Natural Gas Directorate was

set up in1955, as a subordinate office under the then Ministry of Natural Resources and

Scientific Research.

ONGC has a fully owned subsidiary, ONGC Videsh Ltd (OVL) that looks for exploration

opportunities in other parts of the world. OVL is pursuing exploration of oil and gas in

Russia, Iran, Iraq, Libya Myanmar and other countries. ONGC has also acquired 72%

stake in MRPL with full management control of the 9.69 tonne, state-of-the-art refinery.

Major Achievements of ONGC

Judged as Asia's best Oil & Gas company, as per a recent survey conducted by US-

based magazine 'Global Finance'

Ranked as the 2nd biggest E&P company (and 1st in terms of profits), as per the

Platts Energy Business Technology (EBT) Survey 2004.

Leads the list of Indian companies listed in Forbes 400 Global Corporates and

Financial Times Global 500 by Market Capitalization.

[NIFTY TOP TEN] December 5, 2009

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Only fully-integrated petroleum company in India, operating along the entire

hydrocarbon value chain.

Holds largest share of hydrocarbon acreages in India.

In future

The rebound in crude prices has increased the likelihood of healthy crude realization in

coming quarters, which will boost the bottom‐line of the company.

The market capitalization of ONGC was Rs. 178538 crores in 2008 and it was ranked on

number 2nd among the top 10 companies, based on market capitalization. The market

capitalization of the company decreased to 3773.04 crores and its ranking came down

to 8th among the top 10 companies.

ONGC Price from 1-nov-2008 to 1-nov-2009

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[NIFTY TOP TEN] December 5, 2009

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Though there was a increase in price of shares the overall market capitalisation fell. The

reasons for such a dip can be attributed to the following:

The poor production numbers from maturing fields and slippages on the

execution of new projects.

The shareholding pattern of ONGC was as under due to which the change in the

market capitalization was seen.

President of India - 74.14%

Indian Oil Corporation Ltd. -7.69%

Gas Authority of India Ltd. -2.40%

Life Insurance Corporation of India - 2.94%

Others -12.83%

The major reason was the change in the method of valuation of market capitalization

from full-market capitalization method to the free float method in April 2008. Free-float

methodology market capitalization is calculated by taking the equity's price and

multiplying it by the number of shares readily available in the market. Instead of using

all of the shares outstanding like the full-market capitalization method, the free-float

method excludes locked-in shares such as those held by promoters and governments.

The free-float method is seen as a better way of calculating market

capitalization because it provides a more accurate reflection of market movements.

When using a free-float methodology, the resulting market capitalization is smaller than

what would result from a full-market capitalization method.

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India is the fourth largest telecom market in Asia after China, Japan and South Korea.

The Indian telecom network is the eighth largest in the world and the second largest

among emerging economies. At current levels, telecom intensiveness of Indian economy

measured as the ratio of telecom revenues to GDP is 2.1 percent as compared with over

2.8 percent in developed economies.

Indian telecom sector has undergone a major process of transformation through

significant policy reforms. The reforms began in 1980s with telecom equipment

manufacturing being opened for private sector and were later followed by National

Telecom Policy (NTP) in 1994 and NTP'1999.

Historically, the telecom network in India was owned and managed by the Government

considering it to be a natural monopoly and strategic service, best under state's control.

However, in 1990's, examples of telecom revolution in many other countries, which

resulted in better quality of service and lower tariffs, led Indian policy makers to initiate

a change process finally resulting in opening up of telecom services sector for the

private sector.

The telecom industry of today is characterized by hyper competition, convergence and

constant change. The market for mobile services is exploding and new actors are

continuously entering the market. The rapid advancements and changes in this industry

provide companies with business opportunities as well as challenges due to an

increasingly complex environment in terms of competition and technology.

Bharti Airtel formerly known as Bharti Tele-Ventures LTD (BTVL) is India's largest

cellular service provider with more than 110 million subscribers as of Sep 2009. With

this, Bharti is now the world's third-largest, single-country mobile operator and sixth-

largest integrated telecom operator. It also offers fixed line services and broadband

services. It offers its TELECOM services under the Airtel brand and is headed by Sunil

Bharti Mittal. The company also provides telephone services and Internet access over

DSL in 14 circles.

Globally, Bharti Airtel is the 3rd largest in-country mobile operator by subscriber base,

behind China Mobile and China Unicom. In India, the company has a 24.6% share of the

wireless services market, followed by 17.7% for Reliance Communications and 17.4%

for Vodafone Essar.

The market share of Bharti Airtel as a overall percentage in NSE is shown below:

[NIFTY TOP TEN] December 5, 2009

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The market capitalization of Bharti Airtel was Rs. 127375 crores in 2008 and it was

ranked on number 4th among the top 10 companies, based on market capitalization. The

market capitalization of the company decreased to 3717.44 crores and its ranking came

down to 9th among the top 10 companies.

Bharti-Airtel Price from 1-nov-2008 to 1-nov-2009

Issues

Rural Telecommunications

Interconnection

Spectrum Allocation

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Other reasons for such fall are:

Bharti Airtel and MTN deal: Bharti Airtel Ltd’s shares had risen 4% to Rs435

soon after its talks with South Africa’s MTN Group Ltd were called off. But that

relief rally was short-lived, with its shares falling by 8% to Rs400. When Bharti

was pursuing the deal, the markets were concerned about its implications and

the resultant uncertainty had led to its shares underperforming the market by a

wide margin.

Change of Valuation method: From Full capitalization to Free float

Fierce Price-War between the Telecom giants: Bharti recently cut its rates by

about 10% for on-network calls, and all the major incumbents responded to this

move immediately. We believe that such rapid cuts in prices are negative, as this

can aggravate investor concerns about industry fragmentation and irrational

pricing.

[NIFTY TOP TEN] December 5, 2009

22

Larsen & Toubro Limited (L&T) is India's largest engineering and construction

conglomerate with additional interests in electricals, electronics and IT. A strong

customer-focussed approach and constant quest for top-class quality have enabled L&T

to attain and sustain leadership position over 6 decades. L&T enjoys a premier brand

image in India and its international presence is on the rise.

ECC - the Engineering Construction & Contracts Division of L&T - is India's largest

construction organisation. Many of the country's prized landmarks - its exquisite

buildings, tallest structures, largest industrial projects, longest flyovers, highest viaducts

- have been built by ECC. Leading-edge capabilities of ECC cover every discipline of

construction: civil, mechanical, electrical and instrumentation engineering.

L&t market cap has increased from 42,566 cr (2008) to 89,672 cr (2009), which

accounts to 7% of the market capitalization in year 2009 as compared to 2.49% in the

November, 2008

Larsen and Toubro (L&T) is one company which seems to be bucking the slowdown

trend. The engineering and construction behemoth has projected an order book of Rs

66,000 crore (Rs 660 billion) by March 2009, a growth of 30 per cent over the previous

0

1

2

3

4

5

6

7

2008 2009

2.49

7

LARSEN & TOUBRO LTD.

[NIFTY TOP TEN] December 5, 2009

23

year. The company is, however, likely to close the year with a better-than-projected

order book of Rs 75,000 crore, though it is not certain about the growth prospects in the

next financial year.

Larsen & Toubro Ltd, the diversified engineering company, has raised $600 million

(Rs2,280 crore) through qualified institutional placements and foreign currency

convertible bonds to fund expansion in its emerging businesses, including railways

and defence. The company sold $400 million of shares and $200 million of foreign

currency convertible debentures. The shares were priced at a 1 per cent discount.

L&T is adding railways, defence and shipbuilding to its main business of

constructing factories, roads and bridges, to benefit from a government plan to

spend $500 billion by 2012 to augment India's infrastructure. The FCCBs have been

issued for five years and can be converted any time. However, given the premium of

15 per cent, an investor will have to hold the bonds for some time to book profits.

The funds raised would help the company bid for infrastructure and ultra mega

power projects.

Indian construction major Larsen and Toubro (L&T) is bullish about its future and

anticipates a healthy growth rate of 25 to 35 percent in order inflows in the current

financial year. In the fiscal ended March 31, 2009, the company received orders

worth Rs.52,000 crore, recording a growth of 24 percent over the previous fiscal.

The company has been investing in creation of capacities in areas that have good

long-term prospects for value creation including power equipment and railways.

Further, the infrastructure and hydrocarbon sectors are expected to continue their

contribution to the order book.

BANKING INDUSTRY

Contrary to market expectations, the government did not announce financial sector

reforms in the Budget. Market expectations on financial sector reforms were high. The

government's annual economic survey released ahead of the Budget had called for a

phased increase in the foreign direct investment limit in banks.

Indian ADRs gain USD 3.54 bn past week;

Private sector lenders ICICI Bank and HDFC Bank together added USD 1.63 billion to

their market-cap.

No doubt that ICICI and HDFC bank have found their way into top 10 companies based

on market capitalisation.

[NIFTY TOP TEN] December 5, 2009

24

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial

institution, and was its wholly-owned subsidiary. ICICI's shareholding in ICICI Bank was

reduced to 46% through a public offering of shares in India in fiscal 1998, an equity

offering in the form of ADRs listed on the NYSE in fiscal 2000, ICICI Bank's acquisition of

Bank of Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary

market sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was

formed in 1955 at the initiative of the World Bank, the Government of India and

representatives of Indian industry. The principal objective was to create a development

financial institution for providing medium-term and long-term project financing to

Indian businesses. In the 1990s, ICICI transformed its business from a development

financial institution offering only project finance to a diversified financial services group

offering a wide variety of products and services, both directly and through a number of

subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian

company and the first bank or financial institution from non-Japan Asia to be listed on

the NYSE.

ICICI Bank’s market capitalisation rose to 87,524.30 in November 2009 from 39,132 in

November 2008, which accounts to 6.83% as compared to 2.29% in the previous year.

India's largest private sector bank by net profit ICICI Bank rose 7.6% as its American

depository receipt (ADR) rose 4.76%

[NIFTY TOP TEN] December 5, 2009

25

The valuation of ICICI Bank rose by USD 779 million to USD 22.55 billion. ICICI Bank

recently raised $750 million (about Rs 3,500 crore) through an overseas bond issue, at a

yield of 5.5%.

ICICI Bank's net profit rose 2.6% to Rs 1040.13 crore on 12.7% fall in sales to Rs

8480.73 crore in Q2 September 2009 over Q2 September 2008.

One major event which took place during the year was the appointment of Ms Chanda

Kochhar as Managing Director & CEO of ICICI Bank on May 1, 2009. Due to this event the

stakeholder’s confidence and trust was regained, which was lost during a couple of

years ago.

0

1

2

3

4

5

6

7

2008 2009

2.29

6.83

ICICI BANK LTD.

[NIFTY TOP TEN] December 5, 2009

26

HDFC was incorporated in 1977 with the primary objective of meeting a social need -

that of promoting home ownership by providing long-term finance to households for

their housing needs. HDFC was promoted with an initial share capital of Rs. 100 million.

The primary objective of HDFC is to enhance residential housing stock in the country

through the provision of housing finance in a systematic and professional manner, and

to promote home ownership. Another objective is to increase the flow of resources to

the housing sector by integrating the housing finance sector with the overall domestic

financial markets..

HDFC Ltd. Market capitalisation rose to 65,414.30 in November 2009 from 41,797 in the

previous year, which accounts for 5.11% in 2009 as compared to 2.45% in 2008.

There is an increase of 29.5% (y-o-y). Interest Income increased 3.8% q-o-q. Non

Interest Income increased 125.7% q-o-q. Leading to a 18 – 20% y-o-y pickup in

disbursements Housing demand had improve in H209 due to better affordability.

HDFC’s advances increased 2.2%

0

1

2

3

4

5

6

2008 2009

2.45

5.11

HDFC LTD

[NIFTY TOP TEN] December 5, 2009

27

HDFC sold loans worth Rs 4250 crores during the year to various institutions, primarily

HDFC Bank.

Net Interest Margins will improve as borrowing rates, especially in the wholesale

markets, will remain low on account of benign liquidity conditions; income from real

estate fund management fees and asset management (HDFC MF) will remain an

earnings driver in FY10 strong assetquality will reduce earnings pressure.

Real estate developers have succeeded in improving their cash flows and capital

structures, which has facilitated the flow of bank credit to them. HDFC plans to become

slightly aggressive in its lending in comparison to its past record. This is because its

credit approval and disbursal standards, and follow-up processes remain robust, which

assist in taking remedial measures and preventing a sharp rise in NPAs.

One of the major reasons of HDFC Ltd.’s doing well is its AMC. Its growing fast with

rising equity markets as it is expected the equity component of mutual funds to

continue increasing.

[NIFTY TOP TEN] December 5, 2009

28

HDFC Bank was incorporated in August 1994, and, currently has an nationwide network

of 1,506 Branches and 3,573 ATM's in 635 Indian towns and cities.

The Housing Development Finance Corporation Limited (HDFC) was amongst the first

to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a

bank in the private sector, as part of the RBI's liberalisation of the Indian Banking

Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank

Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations

as a Scheduled Commercial Bank in January 1995.

HDFC Bank’s Market capitalisation rose to 55,113.80 in November 2009 from 39.228 in

the previous year, which accounts for 4.30% in 2009 as compared to 2.30% in 2008.

HDFC Bank's market-cap grew by USD 851 million to USD 17.47 billion due to the

Indian ADR gain in global market.

HDFC Bank reported its quarterly results - The profit growth is a mix of steady margins

(4.2%), a late quarter growth surge (10% QoQ), and robust fee income growth (+29%),

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2008 2009

2.3

4.3

HDFC BANK LTD

[NIFTY TOP TEN] December 5, 2009

29

backed by strong trading gains. Bottom line - earnings and the balance sheet, and their

drivers/constituents, have recorded a strong quarter.

Asset deterioration has eased. Loan growth has been strong at quarter end (largely

corporate, slack retail) and management sees more upside than downside risks.

Both through acquisitions and organically, HDFC seeks to expand its presence in India

HDFC Bank Limited announced exercise of rights to convert 2,62,00,220 warrants into

2,62,00,220 equity shares of INR10 each of the Company and has remitted an amount of

INR3,608.06 crores

HDFC Bank Limited announced that its Board of Directors have recommended a

dividend of INR10 per equity share of INR10 (i.e. 100%) out of the net profits for the

year ended March 31, 2009.

Bank Muscat said that it has sold 40% of its stake in HDFC Bank Limited and would

offload the entire holding over a period of time.

HDFC Bank Limited has chalked out new measures to expand network to rural areas of

the country. New branches in rural areas would have core banking facility, similar to

those which the bank provides to customers in metropolitan cities. During the next

fiscal, the Company plan to open more than 200 branches across the country. Of this, it

open more than 100 branches in rural areas.

[NIFTY TOP TEN] December 5, 2009

30

The Group's principal activity is to provide information technology and business

process outsourcing services. The Group provides services to industries such as banking

and financial services, insurance, manufacturing, telecommunications, retail and

transportation. On 19-Sep-2008, it acquired Tata Consultancy Services (Philippines) Inc.

On 22-Oct-2008, the Group's wholly owned subsidiary, Tata Infotech Deutschland

GmbH merged with Tata Consultancy Services Deutschland GmbH. On 02-Dec-2008, its

subsidiary Financial Network Services (Europe) Plc voluntarily liquidated. On 11-Dec-

2008, the Group acquired 50% share capital of National Power Exchange Limited. On

31-Dec-2008, it acquired 96.26 % equity interest in TCS e-Serve Limited. On 10-Feb-

2009, the Group completed the acquisition of TCS e-Serve America Inc.

Reasons:

TCS (Tata Consultancy Services) share value down as the TCS share split was enforced

today. After the 1:1 share split TCS share price at about 350 (previous close over 700).

0

1

2

3

4

2008 2009

3.21

2.31

TCS

[NIFTY TOP TEN] December 5, 2009

31

Adjustment factor:

Adjustment factor for Bonus issue of A: B is defined as (A+B)/B. In the case of TCS, the

adjustment factor is 2/1 =2 since the bonus issue ratio is 1:1.

Adjustments for Options Contracts:

1. Strike Price: The adjusted strike price shall be arrived at by dividing the old strike

price by the adjustment factor.

2. Market Lot: The adjusted market lot shall be arrived at by multiplying the old market

lot by the adjustment factor. The revised market lot would be 1000.

Adjustments for Futures Contracts:

1. Futures Base Price: The adjusted Futures Base Price shall be arrived at by dividing the

old Futures Base Price by the adjustment factor.

2. Market Lot: The adjusted market lot shall be arrived at by multiplying the old market

lot by the adjustment factor. The revised market lot would be 1000.

[NIFTY TOP TEN] December 5, 2009

32

India’s largest consumer products company and has an annual turnover of over Rs

13,000 crores (calendar year 2007). It was formed in 1933 as Lever Brothers India

Limited and came into being in 1956 as Hindustan Lever Limited through a merger of

Lever Brothers, Hindustan Vanaspati Mfg. Co. Ltd. and United Traders Ltd. It is

headquartered in Mumbai, India and has employee strength of over 15,000 employees

and contributes for indirect employment of over 52,000 people. The company was

renamed in late June 2007 to “Hindustan Unilever Limited”.

In 2007, Hindustan Unilever was rated as the most respected company in India for the

past 25 years by Business World, one of India’s leading business magazines. The rating

was based on a compilation of the magazines annual survey of India’s Most Reputed

Companies over the past 25 years. HUL is the market leader in Indian consumer

products with presence in over 20 consumer categories such as Soaps, Tea, Detergents

and Shampoos amongst others with over 700 million Indian consumers using its

products. It has over 35 brands. Sixteen of HUL’s brands featured in the AC Nielsen-

Brand Equity list of 100 Most Trusted Brands Annual Survey (2008) . According to

Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List.

It’s a company that has consistently had the largest number of brands in the Top 50 and

in the Top 10 (with 4 brands).

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0.5

1

1.5

2

2.5

3

3.5

2008 2009

3.02

2.23

HINDUNILVR

[NIFTY TOP TEN] December 5, 2009

33

Reasons:

Hindustan Unilever Ltd (HUL) continues to be plagued by market-share loss across its

key categories -- toilet soaps, tea and toothpastes, among others. Fast moving consumer

goods major saw decline in volumes in eight of its top ten categories year on year, of

which six categories have also shown a loss in market share. HUL which has been

reporting sequential market-share loss, is aware that the majority of its share loss has

been in the mass-end segment. Despite many re-launches and heavy investments

driving volume growth, most categories continued to lose on volumes.

[NIFTY TOP TEN] December 5, 2009

34

BHEL, a public sector undertaking, is the largest engineering and manufacturing

enterprise in India in the energy-related/infrastructure sector. The company was set up

at Bhopal under the name of M/s Heavy electrical (India) Ltd. in collaboration with AEI,

UK. Subsequently, three more plants were set up at Hyderabad, Hardwar and Trichy.

BHEL manufactures over 180 products under 30 major product groups and caters to

sectors like power generation & transmission, industry, transportation,

telecommunication, renewable energy, etc. The company has 14 manufacturing

divisions, four power sector regional centres, over 100 project sites, eight service

centres and 18 regional offices. The company has installed equipment for over 90,000

MW of power generation and has supplied over 2,25,000 MVA transformer capacity and

other equipment operating in the transmission & distribution network up to 400 kV (AC

& DC). Between Jan. 92 and Feb.92, the government disinvested a portion of its share

holding in the company.

0

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1

1.5

2

2.5

3

3.5

4

2008 2009

3.9

2.66

BHEL

[NIFTY TOP TEN] December 5, 2009

35

Reasons:

The company was facing a lot of issues with regards to proper execution of orders and

too much of inventory being stocked up. There was decrease in their profits which

bound to bring down the market price of the company. The company produces capital

goods and during the time of economic slowdown, the demand for the same had come

down. As a result of which there was a decline in the BSE Capital Goods index of about

40%. The company also started losing out on foreign competition, where 2 of its major

orders were bagged by companies from China and Japan. The 52 week low price was

Rs.981 and 52 week high price is Rs.2550. There was a lot of fluctuation in the market

prices in the mid year where prices ranges on between Rs.1170-Rs.1190.

[NIFTY TOP TEN] December 5, 2009

36

NTPC Limited is the largest thermal-power generating company of India. A public sector

company, it was incorporated in the year 1975 to accelerate power development in the

country. Since then, it has grown to become the largest power utility of the country.

NTPC has mostly built regional power stations supplying power to the various states in

the region as per the power allocation formula approved by the government of India.

The strategy, inter-alia, includes capacity addition through green field projects,

expansion of existing stations, joint ventures, takeover of SEB`s stations, significant

addition of hydro-capacity, and forays into non-conventional and nuclear power

generation. NTPC has also entered into a MoU with Petronet LNG for arranging one

MMTPA of LNG which can be used to overcome shortage of gas at the existing gas power

stations of NTPC. NTPC signed a MoU with The Energy and Resources Institute (TERI)

for implementation of distributed generation projects in villages in India.

0

1

2

3

4

5

6

7

8

2008 2009

7.71

1.39

NTPC

[NIFTY TOP TEN] December 5, 2009

37

Reasons:

NTPC is a Public Sector Undertaking and there have been continuous changes in this

sector with government disinvestment happening in many units. This has been done in

order to attract more capital from the public, FDI in specific, and to enhance the

economic growth of the country in this time of recession.

There are 2 aspects that are considered while calculating the top 10 companies i.e.

Market price and the number of shares issued. Market prices may dip when the

investor’s confidence is low with regards to the company or if the company itself is not

performing well in the market.

Even though the profits for the company were on a rise, the market prices kept on

falling. The 52 week low price was Rs.113 and 52 week high price is Rs.233. There was a

lot of fluctuation in the market prices (Rs. 150 – Rs. 180) during December – March, due

to which the prices fell. When NTPC was to come out with the IPO, it was considered to

be better than Reliance and TATA Power. However, there is was lack of confidence in

the retail investors and there was not much participation by them in the F&O segment.

[NIFTY TOP TEN] December 5, 2009

38

Contract Size – NOVEMBER 2009

Company LOT size

RELIANCE INDUSTRIES LTD 150

INFOSYS TECHNOLOGIES LTD 200

LARSEN & TOUBRO LTD 200

ICICI BANK LTD 350

HDFC LTD 150

ITC LTD 1125

STATE BANK OF INDIA 132

HDFC BANK LTD 200

OIL AND NATURAL GAS CORP 225

BHARTI AIRTEL LIMITED 500

[NIFTY TOP TEN] December 5, 2009

39

CONCLUSION

Free float method has changed the positions of all the stocks in NIFTY. Free Float

method had come into effect from June 26. Changes in the ranking of the stocks

have been due to the free float market capitalisation method.

Due to changes in the way of calculation of market capitalization the government

owned stocks or the PSU companies have been hit the most. The PSU companies

generally have more of government stake and less of public holding. Hence, with

the effect of free capitalisation method the stocks like NTPC, BHEL, ONGC had a

fall in their rankings.They previously were in the top 10 now they are below

their rankings.

Stocks which have a less promoters holding and more of public holding had

benefited from the change in method. The major gainer was INFOSYS which

moved to 2nd position in terms of weight.

The top 8 stocks of nifty constitute more than 50% weight in the nifty. It tells the

biasness for the stocks like RELIANCE, INFOSYS. It can also be predicted if Nifty

moves up or down then it is majorly due to the top 8 stocks.