Shreya Project Copy- 97 Word

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PART A

Vision Statement

To become the preferred long term financial partner to a wide base of customers whilst

optimizing stakeholders value!

Mission Statement

To establish a base of 1 million satisfied customers by 2010. We will create this by being a

responsible and trustworthy partner!

HSBC Group entities in India

The Hongkong and Shanghai Banking Corporation Limited (HSBC)

HSBC Asset Management (India) Private Limited

HSBC Global Resourcing / HSBC Electronic Data Processing (India) Private Limited

HSBC Insurance Brokers (India) Private Limited

HSBC Operations and Processing Enterprise (India) Private Limited

HSBC Professional Services (India) Private Limited

HSBC Securities and Capital Markets (India) Private Limited

HSBC Software Development (India) Private Limited

MAJOR EVENTS IN THE HISTORY OF THE COMPANY

Year Event

1997-1998

* February 1998: Commenced equity broking on NSE 1998-99* Commenced branch operations for retail businesses at Bangalore, Chennai and Kolkata.

1999-2000

* August 1999: Commenced equity broking on BSE

* March 30, 2000: ORIX subscribed to 80,00,000 Equity Shares

* March 30, 2000: K. Raheja group subscribed to 30,00,000 Equity Shares

* Launched a fully functional website : www.investsmartindia.com

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http://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#commercialhttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#assethttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#globalhttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#insurancehttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#datahttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#audithttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#investmenthttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#softwarehttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#assethttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#globalhttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#insurancehttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#datahttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#audithttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#investmenthttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#softwarehttp://www.hsbc.co.in/1/2/miscellaneous/about-hsbc#commercial


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2000-2001

* April 14, 2000: Change in the registered office of the Compan

* June 2000: Commenced derivative broking on NSE

* January 2001: Launched investment advisory products.

* Set up a dedicated mutual fund desk and fixed incom retail desk at branch locations.

* Received SEBI registration as a Portfolio Manager

2001-2002

* January 01, 2002 : Merger of IL&FS Merchant Banking Services Limited (IMBSL) and

DebtonNet India Limited (DIL) with the Company

* Foray into insurance distribution through setting up of wholly owned subsidiaries i.e.

Investsmart Insurance Agency Pvt. Ltd. and Investsmart Insurance Distribution Private Limited

as Corporate Agents of HDFC Standard Life Insurance Company Limited and Life Insurance

Corporation of India respectively

2002-2003

* March 25, 2003 : Change in name of the Company from Investsmart India Limited to IL&FS

Investsmart Limited

2003-2004

* Registered as an Underwriter with SEBI

* Acquired 4 branches of Tata TD Waterhouse Securities Pvt. Limited along with assets.

* Incorporated a wholly owned subsidiary, IL&FS

Investsmart Commodity Brokers Limited

* Acquired IL&FS Academy for Insurance and Finance Limited (Formerly known as SAIFA

Training Academy Limited)

2004-2005

* Induction of ETM and SAIF as strategic investors

* Commenced derivative broking on BSE

* IL&FS Investsmart Insurance and Risk Management Services Limited (formerly Investsmart

Insurance Distribution Private Limited) applied for insurance broking license which is currently

pending with IRDA

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* Name of SAIFA Training Academy Limited was changed to IL&FS Academy for

Insurance and Finance Limited

* Commenced commodities broking business through wholly owned subsidiary, IL&FS

Investsmart Commodity Brokers Limited

2007

- IL&FS Investsmart Ltd has informed that Mr. Mitchell Caplan, Chief Executive Officer and

Director of E*TRADE FINANCIAL Corporation, USA has been appointed as an Additional

Director on the Board of the Company.

2008

-IL&FS Investsmart Ltd has informed that Mr. Gregory Framke has been appointed on the

Board of the Company in the meeting of the Board held on February 28, 2008 subject to

completion of regulatory procedures including obtaining Director Identification Number (DIN).

2009

- HSBC InvestDirect (India) Ltd has appointed Ms. Naina Lal Kidwai as an Additional

Director of the Company with immediate effect

INTRODUCTION TO HSBC INVESTDIRECT SECURITIES (INDIA)LIMITED

HSBC InvestDirect (India) Limited engages in the securities broking, investment advisory,

distribution of financial products, portfolio management services, and securities related

financing businesses. It offers retail broking services, including equities, derivatives, and

mutual funds, as well as online and branch trading, and NRI services; wealth management

services that include IPO advisory and distribution services; advisory reports; investment tools;

insurance broking; and investment banking. The company serves retail and corporate customers

in India. It offers its products and services through its 77 branches and 151 franchisee outlets.

The company was formerly known as IL&FS Investsmart Limited and changed its name to

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HSBC InvestDirect (India) Limited in August 2009. HSBC InvestDirect (India) Limited was

founded in 1997 and is based in Mumbai, India.

HISTORY OF THE COMPANY

The company was set up as Investment India Limited, a wholly owned subsidiary of

Infrastructure Leasing & Financial Services Limited for carrying on capital market activities

such as share and stock broking, underwriting, placement of securities etc. The company was

incorporated on September 01, 1997 and received the Certificate of Commencement of

Business on October 07, 1997. The company commenced equity broking on NSE and BSE in

February 1998 and August 1999 respectively. In June 2000, the company commenced

derivative broking on NSE and in January 2001, they launched investment advisory products.In January 2002, with the view of consolidated the IL&FSs interests in capital markets, IL&FS

Merchant Banking Services Ltd and DebtonNet India Ltd were merged with the company. The

company also forayed into insurance distribution by setting up wholly owned subsidiaries

namely Investment Insurance Agency Private Limited and Investsmart Insurance Distribution

Private Limited. In March 2003, the name of the company was changed from Investsmart India

Ltd to IL&FS Investsmart Ltd. During the year 2003-04, the company acquired 4 branches of

TATA TD Waterhouse Securities Pvt. Ltd. They incorporated a wholly owned subsidiary,

IL&FS Investsmart Commodity Brokers Ltd and also acquired IL&FS Academy for Insurance

and Finance Ltd during the year. During the year 2004-05, the company has inducted two

strategic partners namely, Softbank Asia Infrastructure Fund L P(SBAIF) and E*Trade

Financial Corporation. SBAIF is a large private equity fund with funds under management

exceeding USD 6 billion and E*Trade is one of the largest retail broking and banking equity

based in US with the presence in all major world markets. During the year , the company

commenced derivative broking on BSE and also commenced commodity broking business

through their wholly owned subsidiary, IL&FS Investsmart Commodity Brokers Ltd. During

the year 2005-06, the company incorporated a wholly owned subsidiary namely IL&Fs

Investsmart Asia Pacific Pvt. Ltd. in Singapore to undertake securities services related

business. During the year 2007-08, the company incorporated Il&FS Investsmart Securities Ltd

as a wholly owned subsidiary and transferred their Portfolio Management Services Ltd as a

wholly owned subsidiary and transferred their PMS to subsidiary company. Also, they acquired

100% stake in Tajir Investment & Properties Ltd, a Non-Broking Finance Company on a going

concern basis. During the year 2007-08, the company transferred Merchant Banking and

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Underwriting Business to IL&FS Investsmart Securities Ltd. The company received the Best

Performing National Financial Advisor Award from CNBC for the two years.

CHANGE IN THE REGISTERED OFFICE OF THE COMPANY

IL&FS has set up a financial centre in Bandra Kurla Complex in Mumbai with a view to house

all its subsidiaries, ventures etc. at the same place for administrative convenience and to pursue

group synergy. Pursuant to this, on June 14, 2000 the registered office of the Company was

changed from Mahindra Towers, 4th Floor, B1 Wing, and Dr. G. M. Bhosale Marg, Worli,

Mumbai 400 018 to The IL&FS Financial Centre, Plot C-22, G Block, Bandra Kurla Compex,

Bandra (E), Mumbai 400 051.

PRESENT STATUS OF THE COMPANY (Rebranding of IL&FS Invest Smart)

IL&FS Investsmart Limited became a part of the HSBC family after it was acquired by HSBC

in 2008. As HSBC Invest Direct, it combines the benefits of HSBCs global brand, knowledge

and expertise with a strong understanding of local markets. HSBC Invest Direct provides a

wide range of investment products to its retail and institutional clients including equity broking,

investment banking, insurance distribution, mutual funds distribution and related financing

services. It has 77 branches and 151 franchisees, spread across 103 cities. HSBC has completed

the acquisition of IL&FS Invest Smart Limited (Invest Smart), a leading retail brokerage in

India, for a total consideration of INR 1,311crore (app.). Sandy Flockhart, Group MD and CEO

of HSBC Asia-Pacific, said: Invest Smart gives HSBC access to the worlds third-largest

investor base, with over 20 million retail investors. In fact, the business already has 1, 43, 000

customers and operates in 128 cities. With Indian GDP expected to grow, the opportunity here

is obvious and underlines why HSBC has a stated strategic aim of focusing on high-growth

economies.

HSBC in India

The HSBC Group in India is represented by several entities including The Hong Kong and

Shanghai Banking Corporation Limited which offers a full range of banking and financial

services to its over 2 million customers in India through its 47 branches and 170 ATMs across

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26 cities. HSBC is one of Indias leading financial services groups, with over 33,000

employees in its banking, investment banking and capital markets, asset management,

insurance broking, two global IT development centres and six global resourcing operations in

the country. The Bank is the founding and a principal member of the HSBC Group which, with

over 10,000 offices in 83 countries and territories and assets of US$2,354 billion at 31

December 2007, is one of the worlds largest banking and financial services organisations.

Sale of Stake in Investsmart to HSBC

IL&FS agrees to sell its stake in Investsmart to HSBC. Infrastructure Leasing and Financial

Services Limited (IL&FS), is to sell its 29.36 percent stake in IL&FS Investsmart Limited

(Investsmart), a leading retail brokerage house in India, to HSBC. Under the terms of the

agreements, HSBC, through Group subsidiaries, proposes to acquire IL&FSs 29.36 per cent

stake of Investsmart for a consideration of INR 410 crores (approximately US$ 96.9 million).

In addition, IL&FS will be paid INR 82 crores (approximately US$ 19.4 million) as part of a

threeyear non-compete agreement. HSBC also proposes to acquire an additional 43.85 per

cent stake in Investsmart from E*TRADE Mauritius Limited, an indirectly wholly-owned

subsidiary of E*TRADE Financial Corporation.

Both IL&FS and E*TRADE Mauritius Limited will receive a price of INR200 per share for

their respective stakes. HSBC will also make an open offer to acquire up to 20 per cent of the

remaining shares in Investsmart. Details of the open offer to Investsmart shareholders will be

published in the Indian press and distributed to shareholders in accordance with local

regulations. Established in 1997 by IL&FS, Investsmart is a financial services firm with a

strong presence in retail broking. It has a national distribution network comprising 88 branches,

190 franchise outlets and more than 660 terminals in 133 cities throughout India. Its 2,000 staff

serves over 138,000 clients. While strong in retail broking, it also has businesses in Institutional

broking, investment banking, wealth management, insurance distribution and margin financing.

Ravi Parthasarathy, Chairman of IL&FS, said IL&FSs goal is to position IIL as a leader in

the brokerage sector.

In particular, IL&FS have always felt the need for a successful brokerage Group to have an

international capability. And believe that the strength of the HSBC Group provides a unique

opportunity for Investsmart to execute its strategic vision. It is IL&FS intention to retain a close

association with Investsmart through co-operation on a number of areas that will be mutually

beneficial and on an arm's length basis Mr. Parthasarathy added, I believe that HSBC Group

will provide Investsmart employees significant opportunities to enhance the value proposition

for their customers. Investsmart employees will also benefit from the training and development

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infrastructure that arises from being a part of one of the worlds leading banking

organizations.

HSBC will be making the acquisition through Group subsidiaries, including HSBC Securities

and Capital Markets (India) Private Limited, the Groups broking arm in India. The agreement

and open offer are subject to regulatory and other approvals. With a market capitalization of

approximately US$300 million, Investsmart is listed on the National Stock Exchange and the

Bombay Stock Exchange and its Global Depository Shares are listed on the Luxembourg Stock

Exchange ends/more.

PRODUCT PROFILE

All the products of ILFS can be broadly divided into the following two categories:

1. Online Trading Products

2. Advisory Services

3. Other services.

1. Online Trading Product of IL&FS Investsmart

Basically IL&FS Investsmart offers three types of products to its retail customers. They are:

a. SmartStart

b. SmartInvest

c. SmartTrade

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a. SmartSTART:

SmartStart is a powerful browser based trading system for those who are relatively new to

online investing. A unique integrated account, which integrates customer banking, broking,

and demat accounts of the clients. A comprehensive trading service, which allows customer to

invest in equities and derivatives.

SmartStart trading platform allows customer the flexibility of trading on any internet capable

system, with access to both the NSE and BSE

System Requirement

Browser Type: Microsoft Internet Explorer 6.0 or higher (Java enabled)

Internet Connection: Broadband/Dial-Up connection (Modem at a minimum of

28.8/33.6 Kbps)

System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128 MB

or better

Operating System: Windows 98/2000 or Windows XP.

Features of SmartStart

Freedom of information.

Control of investors money.

Access to market.

Ensure the best price for investors.

Offers greater transparency.

Live financial news and analysis.

Access to NSE and BSE

b. SmartINVEST

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SmartInvest is a browser-based system designed for customers who transact occasionally. It is

ideal for investors who believe in the Buy and Hold Approach towards investment in equities.

SmartInvest's capability as a browser-based trading platform gives customer the benefit of real-

time streaming data with the flexibility of trading on any Internet capable system. With access

to both the NSE and BSE, customers are in the driver's seat when routing their order to the best

price on either of the exchanges. SmartInvest sophisticated yet easy to use point and click order

entry interface allows customer to react more quickly to the markets and make better decisions.

System Requirement


Internet Connection: Broadband/Dial-Up connection (Modem at a minimum

of 28.8/33.6 Kbps)

System: Pentium 3 or 4 Ghz or best available at market RAM (Physical) 128

MB or better

Operating System: Windows 98/2000 or Windows XP

Features of SmartInvest

Instant Loading: The browser- based applet system allows customer to instant

access to clients account with no wait time, unlike other system that takes a

few minutes to load.

Works behind a proxy: This platform can be accessed on any internet-enabled

network. They can be accessed even from costumer work place.

Live streaming quotes: Keeps an eye on the stocks of customers choice with

streaming real time quotes and customizable market data. Color-coded price

changes help them to spot trends and in turn help the customer to react faster.

Multiple watch lists: The new watch list option allows the customer to create

up to 10 groups of watch list with each group accommodating 15 scripts. Each

watch list can be personalized by the customers according to their choice of

scripts.

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NSE and BSE Access: Flexibility of trading on both NSE and BSE via a single

screen.

Single order form for Cash and F & O: Single order form offers the

customers the convenience of transacting in various segments of the market

without having to switch between multiple windows.

Point and click order entry: Makes order entry quick and simple with a click

on the security, the same is inserted on the order form in the trade screen.

Hot key functions: Using a single keystroke (hotkey) function the customer

can achieve important task very similar to a brokers terminal. Accessing

important reports is also one keystroke away.

Market depth window: It gives an immediate at a glance information about

the stock they are following. The view provides the best 5 bids and offers

quotes and the outstanding order quantities.

Back office access: View segment wise ledger bills and contract notes, trades,

positions, account balance, realized/unrealized profit and loss, and buying

power all in real time.

c. SmartTRADE:

SmartTrade is an EXE based desktop software designed for active traders who transact

frequently to capture favourable short-term price movements. The platform offers active traders

the tools they need to make critical decisions with confidence.

SmartTrade is designed and built from the ground up to address the needs of active traders.

SmartTrade makes the most of state-of the-art technology to deliver power, speed and

reliability. Through an easy-to-use interface, users are provided with the same tools and

advantages that the professionals enjoy.

System Requirement


Internet Connection: Broadband/Dial-Up connection (Modem at a minimum

of 28.8/33.6 Kbps)

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System: Pentium 3 or 4 GHz or best available at market RAM (Physical) 128

MB or better

Operating System: Windows 98/2000 or Windows XP.

This account is an EXE based desktop software designed for active traders who transact

frequently to capture favourable short-term price movements. The platform offers active traders

the tools they need to make critical decisions with confidence.

Smart Trade is designed and built from the ground up to address the needs of active traders.

Smart Trade makes the most of state of the art technology to deliver power, speed and

reliability. Through an easy to use interface, users are provided with the same tools and

advantages that the professionals enjoy.

Features of SmartTrade

Fully customizable display: The save desktop option allows the clients to save

their created trade screen layout, so the next time they access the application the

created layout is not lost.

Dynamic charts with Indicators: Provides the clients a wealth of charting

capabilities and timing indicators, which allow them to go right into the action

with real time daily charts, and intra-day charts. Watch price movements by

minutes, days or weeks.

EOD Charts: Smart Trade puts up to 5 years of in depth history at their

command with the power to instantly back-test any trading strategy they design,

before risking one rupee of their trading capital.

Real- Time market data: Get real time market data from both NSE and BSE,

similar to what a professional broker gets.

Advanced alert capabilities: Alert window allows the customer to be free from

watching every tick. Users can be notified once a security has reached the set

parameters. Multiple securities can be monitored using the set parameters.

These alerts can be triggered both visually and audibly.

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Live order status: Tracking all their orders are made easy through the order

status screen. Further drill down into all details pertaining to an order is

available in the order detail sub report.

Track your orders real time: Track customer stock orders and trades in real

time.

Real time position updates: All their positions are updated automatically and

instantly. The need of refresh button is avoided.

Dynamic buying power: It reflects their credits and debits instantly on every

trade execution. No need to refresh each statement to know their latest buyinglimits.

Derivative chain: This feature provides with a list of all derivative contracts

available for the selected security. To view derivative prices of a security just

right click on the symbol and click on derivative chain.

Lock terminal option: If the system is unattended, this function locks the

trading platform for the customers and can be accessed again only on providing

the proper login details.

Message window docking: This feature enables the customers to receive

trading messages, intraday trading calls and messages from both the exchanges

flashed real time onto their screens.

Advisory Services

Basically IL&FS Investsmart offers following types of services to its retail customers. They

are:

a. Mutual fund advisory services.

b. Portfolio management services.

c. IPO Advisory and Distribution Services.

d. Insurance Advisory Services.

e. Investment Advisory services.

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Mutual Fund Advisory Services

As a part of Mutual Fund Advisory Services, their team of experts across India helps investors

in selecting the right scheme from over 500 offerings, matching customer needs, goals and

risks. In addition to this, we also help you constantly monitor their MF portfolio, making

changes according to the changing needs as per the market scenario, in order to make

customers money work for investors.

At IL&FS Investsmart (IIL), their expert teams of relationship managers interact with investors

on a regular basis to discern customer changing needs, in tune with the changing environment.

Most of investors require some assistance in making selections appropriate to their individual

needs. Investors need sound advice from people who have expertise to decipher the financial

jargon of investment options available today. Their Investment Advisory Team helps customer

customize and execute plans, based on their individual needs towards wealth maximization.

Portfolio Management Services (PMS)

Financial markets today offer enormous growth potential. But managing investors own

investments can be an extremely challenging task. Anticipating market trends, assessing the

impact of socio-economic changes on customer investments, keeping abreast of latest corporate

developments and financial analysis all adds up. Managing ones investments has become

nearly a full-time affair that requires considerable time and expertise.

At IL&FS Investsmart, they offer customer just the solution that allows clients to relax as

IL&FS put their money to work through the IIL-PMS, a Discretionary Portfolio Management

Service.

IPO Advisory and Distribution Services

IL&FS Investsmart (IIL) is one of India's leading companies engaged in the activity IPO

Advisory and Distribution. IL&FS primary markets division does a comprehensive research

before recommending issues to clients. IL&FS pan India reach helps us in mobilising large

number of applications across India during public offerings, this has ensured that constantly

figure amongst the top ranking performers in the primary market distribution space.

As a part of their online offering, customers can invest in IPO's not only through IL&FS

branches but also through our website, which also provides customer with regular updates on

the IPO scenario, Open IPO's as well as all the forthcoming IPO's at any given point of time.

The primary markets distribution division works in conjunction with the retail and wholesale

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distribution networks, as well as IL&FS private client group. In case there are not IL&FS

customers, but still want to invest in any particular IPO, IL&FS suggest client to visit any of

branch locations near clients or else call us for an application form and IL&FS would courier it

to customer.

Insurance Advisory Services

IL&FS Investsmart (IIL) is customer one stop shop for all Insurance & Retirement needs. They

have also been recognized as Indias Best Retail Financial Advisors at the CNBC TV18

Financial Advisory Awards 2006-07, 2007-08.

Their key service features include the following:

Risk management solutions for all

Comprehensive research for all policies available on a regular basis

Recommendations on a comprehensive insurance cover based on clients needs

Maintain proper records of client policies

Investment Advisory Services

The investment advisory team in the company helps customize plans, base on customer

individual needs.

Other services

Basically IL&FS Investsmart offers following types of other services to its retail customers.

They are:

a. Online services.

b. Research and Financial Analysis.

c. Value added services.

Online Services

The website offers unique features such as real time news and analysis, a personal portfolio

manager, research tools, corporate profiles, mutual fund and product options, IPO centres,

stock alerts, investment advisory services, query solving and much more.

Research and Financial Analysis

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The research team in the company thoroughly studies each asset class-equity, mutual funds,

commodities and fixed income products. The qualified financial analysts in the company study

the market trends and make objective recommendations, so that customers can make well-

informed decisions.

Value Added Service

Smart update Extensively researched monthly reports detailing the market

performance of various investment options.

Mutual fund Weekly updates Analysis of the Mutual Fund industry, offering an

overview of Mutual Fund Schemes.

Flavour of Equity Monthly reports on the change in exposure in the top 10

stocks, churning of portfolios and the entry and exit of stocks by the respective

fund managers of select Mutual Fund companies.

Bond Fund Snapshot Monthly reports on analysis of bond funds of select

mutual fund companies.

Rolling returns Monthly reports on the fundamental and technical call for

equities and derivatives for short term.

Market wrap Daily post market analysis.

Smart trader Daily reports on the fundamental and technical call for equities

and derivatives for short term.

Equity Research reports Sector and company wise reports on the fundamentals,

along with a recommendation of the stock.

Strategy note Quarterly note on the broad equity market views, macro

fundamentals and top stock picks.

Result preview Pre result quarterly reports on select companies.

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Result update Post result quarterly reports on select companies.

Event notes Implications and analysis of major corporate events like mergers

and takeovers.

Visit notes Notes on the companys outlook and discussion during a corporate

visit.

Deri Watch Weekly, sock specific technical and derivatives statistics reports.

Deri Strat Daily derivatives market strategy.

IPO Updates Analysis on the current IPO with support for and against it.

Policy Updates Updates and analysis of important announcements and policies

like the budget and monetary.

Morning coffee Daily update on the Indian and International financial markets.

Morning Track Monthly research reports on the debt and money markets.

Commodity reports Daily and weekly commodity reports.

Depository & Custodial services - Company also offers dematerialization

services as the company is Depository Participant of NSDL.

Top Management

A committed and formidable management team anchors the company towards its goal and

provides direction in diverse areas of business strategy, operating management, regulatory

reporting, human resources development, product development etc. Equipped with excellent

domain knowledge and extensive experience, they drive IILs vision.

Mr. Manasije Mishra MD & CEO

Mr. Avdhoot Deshpande Head - Equity and Capital Markets

Mr. Vipul Shah Head - NBFC

Mr. Dharmen shah Vice President - Institutional Equity

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Mr. B.S. Shashidhar Head - IAIFL and General Insurance

Mr. Jaideep Anand Senior Vice President - Institutional Sales & Dealing

Mr. C. Diwakar Chief Information Officer (CIO)

Mr. Bhuvnesh Khanna Head - Alternate Channels

Mr. K. Venkatesh Head Distribution

ORGANIZATION CHART of HSBC InvestDirect Ludhiana Branch

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SWOT Analysis

It is a strategic planning tool used to evaluate the strengths, weaknesses, opportunities, and

threats for a business entity. It involves specifying the objective of the business venture or

project and identifying the internal and external factors that are favourable and unfavourable to

achieving that objective.

Strengths: Attributes of the organisation which are helpful to achieving the objective.

Weaknesses: Attributes of the organisation which are harmful to achieving the

objective.

Opportunities: External conditions which are helpful to achieving the

objective.

Threats: External conditions which could damage the businesss performance.

SWOT ANALYSIS OF HSBC InvestDirect (INDIA) Ltd.

Strengths

Customization: It understands the dreams, needs, aspirations, concerns and

resources are unique and this is reflected in every move they do for the sake

of individual customer. This is the greatest value it provide online trading

products like Smart Invest and Smart Trade.

Expertise: IIL brings within the customers reach their institutional expertise

and the ability to effectively combine an invaluable understanding of the

financial markets, with an intention of building a long-term partnership.

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One-stop-shop for all the investment needs: IIL gives all the types of

services and products an individual investor can dream and think off. All the

financial products and services are under one-roof.

Unbiased and objective advice: The teams of expert investment advisors

customize plans to suit the needs of investors.

Extensive reach: IIL make sure that they are always accessible to customers

through a host of mediums. A customer can contact them either through

website or through their branches and channel partners of more than 300

offices across India.

Brand image: IIL as such is a well known brand in industry.

Competitive pricing: It charges less brokerage compared to its competitors.

Weaknesses

Expensive products: Some of the products like SmartTrade are quite

expensive. An annual charge for SmartTrade is Rs. 3000.

Tedious procedures: Tedious procedures and delays in processing the data

and documents of new customers.

Fund transfer: It has tie-ups with only 5 banks for online fund transfer,

where as other competitors have more tie-ups.

Attrition: High attrition rates in trainees category.

Unattractive offers: Some offers of the company like Advance

Subscription Plan with a deposit of Rs.50,000 to avail low brokerage

charges. The low brokerage charges will be effective for the clients for a

minimum turnover of Rs. 50 Crore p.a.

Opportunities

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Indian economy seems to be out of recession. This is the right time for inventers

to re-enter the market. The company should adopt some strategies to increase

the business through existing clients.

The increasing number of management graduates helps to get sales force at

trainee levels at less salaries or commission basis. It reduces the salaries and

commissions expenses of the company. The company can tie up with reputed B

Schools for trainees.

Huge untapped market in rural areas, Tier2 and Tier 3 cities and towns of India

can be concentrated to increase the business.

Many a banks are offering fund transfer services. The company can increase the

tie-ups for fund transfers at attract customers of different banks.

Threats

Stiff competition from existing players in the market and there is also a threat of

new entrants. It has lead to cut throat competition in terms of brokerage charges

and exposure.

Increasing awareness of mutual funds and ULIPs created by Domestic

Institutional Investors has reduced the direct investment in to stock market to

some extent. This automatically reduces the business of stock brokers.

Changing economic scenario in India and changes in government policies will

have great impact on the revenue of this company

Many a investors burnt their figures during the bearish market conditions. It has

turned many a trading accounts inoperative.

BALANCE SHEET

31-Mar-09 31-Mar-08 31-Mar-07

Equity Capital 110.05 110.05 110.05

Preference Capital 0.00 0.00 0.00

Share Capital 110.05 110.05 110.05

Reserves and Surplus 2395.26 2096.74 1906.81Loan Funds 4690.54 2018.62 1929.31

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Current Liabilities 1640.92 976.54 891.06

Provisions 153.32 138.32 89.08

Current Liabilities and Provisions 1794.24 1114.86 980.14

Total Liabilities and Stockholders Equity (BT) 9413.18 5681.25 5274.84

Tangible Assets Net 4032.36 2336.03 2216.15

Intangible Assets Net 0.00 2.96 5.96

Net Block 4032.36 2338.99 2222.11

Capital Work In Progress Net 1251.51 281.30 220.29

Fixed Assets 5283.87 2620.29 2442.40

Investments 427.53 350.10 484.15

Inventories 1469.96 1437.63 1218.18

Accounts Receivable 1027.73 909.58 770.39

Cash and Cash Equivalents 792.69 121.22 86.06Other Current Assets 8.32 1.00 0.91

Current Assets 3298.70 2469.43 2075.54

Loans & Advances 403.08 241.43 272.75

Miscellaneous Expenditure Other Assets 0.00 0.00 0.00

Total Assets (BT) 9413.18 5681.25 5274.84

PROFIT & LOSS ACCOUNT

31-Mar-09(12)

31-Mar-08(12) 31-Mar-07(12)

Profit / Loss A/C Rs mn Rs mn Rs mn

Net Sales (OI) 6106.43 5208.38 4777.64

Material Cost 1432.93 1235.66 1144.08

Increase Decrease Inventories 892.62 637.49 658.80

Personnel Expenses 634.85 559.67 489.15

Manufacturing Expenses 1299.93 1173.25 980.61

Gross Profit 1846.10 1602.31 1505.00

Administration Selling and DistributionExpenses

809.66 792.62 720.32

EBITDA 1036.44 809.69 784.68

Depreciation Depletion and Amortisation 278.43 263.15 248.25

EBIT 758.01 546.54 536.43

Interest Expense 166.36 163.03 142.52

Other Income 91.45 77.64 62.24

Pretax Income 683.10 461.15 456.15

Provision for Tax 166.25 162.80 165.03

Extra Ordinary and Prior Period Items Net -115.33 -11.85 0.00

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Net Profit 401.52 286.50 291.12

Adjusted Net Profit 516.85 298.35 291.12

Dividend Preference 0.00 0.00 0.00

Dividend - Equity 88.04 82.54 78.41

FINANCIAL STATEMENT ANALYSIS

Interpretation

CurrentRatio:

From the above data it can be clearly interpreted that the current ratio for the march 2009 is less

as compared to previous year. For the last year it was good and it was depicting that the short

22

quidity 09 08 07

rrent Ratio (x) 1.90 2.30 2.20

ick Ratio (x) 1.10 1.10 1.00

turn Related

urn on Total Assets (%) 9.90 12.00 12.50

urn on Networth (%) 20.60 13.50 14.40

ofitability

oss Margin (%) 30.20 30.80 31.50

t Profit Margin (%) 6.60 5.50 6.10

verage

bt/Equity ratio (x) 2.59 1.42 1.44

0.60 0.40 0.40

al Debt/Total Assets 0.69 0.55 0.54


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term financial position of the company was very good and for this year current ratio is good but

not as per the previous standards.

Quick Ratio:

From the above data we can see that the quick ratio of the bank is good and satisfying the

thumb rule of 1:1 also. For the last two years it is same i.e. 1.10:1 that means bank is well

enough to pay off its creditors.

Return on Total assets:

It can be observed from the above data that return on total assets is decreasing from the

previous years. However it doesnt mean that net profit of the bank has been decreased it is

basically due to increase in total assets which is much higher than the net profit.

Gross Profit Ratio:

G/p ratio of the company is ranging from 30-31 for the last three years and there is however a

little bit change in the ratio for the last years. There is not any standard thumb rule to compare

this ratio but as per market trend this percentage is good.

Net profit ratio:Net profit ratio of the company has increased from the previous year and this

shows the company is performing well and the main reason for increase in the net profit is

increase in sales which is more than the increase in expenses of the company.

Debt Equity Ratio:

Debt equity ratio of the company has been improved from the last year and this shows that the

company has increased its debts but however more increase in debt will increase the risk from

the equity shareholders point of view.

Total debt to total assets:

In above data we can see that the total debt to total assets for last three years is continuously

increasing that Shows Company is now increasing the share of debts in assets. But on the other

hand it is also enlarging the risk profile for the creditors.

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Trend Analysis

An aspect of technical analysis that tries to predict the future movement of a stock based on

past data. Trend analysis is based on the idea that what has happened in the past gives tradersan idea of what will happen in the future. Trend analysis tries to predict a trend like a bull

market run and ride that trend until data suggests a trend reversal (e.g. bull to bear

market). Trend analysis is helpful because moving with trends, and not against them, will lead

to profit for an investor.

Trend Analysis of Net Sales

Interpretation

From the above data we can observe that the net sales of the company is increasing which may

tends to increase in the net profit of the company and also will lead to increase in the net-worth.

Trend Analysis of Expenses (Administrative Selling & Distribution)

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Years Sales Percentage

2006-2007 4777.64 100

2007-2008 5208.38 109.02

2008-2009 6106.43 127.81


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Years Expenses Percentage

2006-2007 720.32 100

2007-2008 792.62 110.04

2008-2009 809.66 112.40

Interpretation

From the above data we can observe that the expenses from the last years are increasing but

their percentage change is not as much as in the sales which will tend to increase in the Net

profit. But increase in expenses from 2006-07 to 2007-08 is more than the net sales which may

tend to decreases in profit.

Trend Analysis of Net Profit

Years Net Profit Percentage

2006-2007 291.12 100

2007-2008 286.50 98.41

2008-2009 401.52 137.92

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Interpretation

As from the above trend it can be analyzed that Net profit for the company is continuously

increasing. But however increase N/P from 2006-07 to 2007-08 was decreased due to increase

in expenses as compared to previous years.

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PART B

TABLE OF CONTENTS

CHAPTER No. TITLE PAGE No.

I Introduction to the subject

I.1.1 Securities Analysis 31I.1.2 Fundamental Analysis 32-35

I.1.3 Strengths of Fundamental Analysis 35-36I.1.4 Weaknesses of Fundamental Analysis 37I.1.5 Technical Analysis 38-39I.1.6 Fundamental Analysis vs Technical Analysis 40I.1.7 Who uses Technical Analysis 41I.1.8 Support and Resistance 41-44I.1.9 Dow Theory 44-48I.1.10 The use of Trend 48-52I.1.11 Charts 52-64I.1.12 Technical Indicators 65-75

II Literature Review 77-83

III Research Methodology 85-88

IV Data Presentation, Analysis and Interpretation 90-110

V Conclusion, Limitations and Recommendations 112-115

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Bibliography 117-121

Annexure 122-124

LIST OF TABLES

Table No. Title Page No.

1.1 Breadth of the Market 72-73

3.1 Companies Listed on BSE SENSEX 87-88

3.2 Companies analysed 88

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LIST OF FIGURES

Figure No. Title Page No.

1.1 Support 42

1.2 Resistance 42

1.3 Demand and Supply Mechanism 43

1.4 Primary Trends 45

1.5 Successive higher highs and higher lows 47

1.6 Start and end of Bull Trend 47

1.7 Uptrend 49

1.8 Downtrend 49

1.9 Sideways Trend 50

1.10 Trend Lengths 51

1.11 Trend Line 511.12 Channels 52

1.13 Basic Chart 53

1.14 Line Chart 54

1.15 Bar Chart 55

1.16 Types of Candles 56

1.17 Candlestick Chart 57

1.18 Point and Figure Chart 58

1.19 Head & Shoulder Pattern 59

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4.19 MA & Volume representation of Sun Pharmaceutical 108

Industries Ltd.

4.19 RSI representation of Sun Pharmaceutical 109

Industries Ltd.

Chapter 1

Introduction to the

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Subject

Chapter 1-Introduction to the Subject

Section I-Theoretical Foundation

The investors chief problem and even his worse enemy - is likely to be himself.

Investing, like marriage, isn't something that should be entered into lightly. You wouldn't get

married on a first date, would you? Ok, maybe some of us would, but that's not really very

foolish. Before we marry... err, I mean invest in a company, there are more than a few things

we need to know about it.

1.1.1 SECURITIES ANALYSIS

People invest in securities to make their money grow. And to help investors identify the fastest

and the best way to invest, there are analysts, strategists and portfolio managers. These people

expend their energy and effort to accomplish one thing: beat the market. Of course, by doing

this and selling their advice, they are making money for themselves as well. Analysts are hired

to identify undervalued stocks. Strategists predict the direction of the market and various

sectors. Portfolio managers are hired to put it all together and outperform their benchmark, i.e.

the stock index. Is it really possible to beat the market on a sustained basis? Well, that's an

important question. But before we answer that, let's see the tools and techniques analysts use

for their living.

Different modes of security analysis

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One of the very first things an aspiring trader or investor must do before attempting to invest in

the stock market is to equip himself with knowledge. One of the basic knowledge an aspiring

trader, broker or investor must have is the two major forms ofstock analysis.

1. Fundamental Analysis: Also sometimes referred to as E-I-C analysis (E for economy,

I for industry and C for company), the basic premise in this approach is that the drivers of

economy, industry and company collectively affect the security prices.

2. Technical Analysis: This is exactly opposite of Fundamental Analysis. While

Fundamental Analysis helps one predict the effect from the causes, Technical analysis looks at

the effect to identify the cause. Its basic premise is that markets are efficient and all 'news' is

already incorporated in the price and traded volume of securities. Thus it examines past price

and volume movements to forecast the future price movements.

This knowledge is the root of all the necessary knowledge needed to survive and make profits

in such a fiercely competitive market. After all is said and done, most finance and stock

brokerage experts will tell you that these two forms of analysis are what would ultimately save

the day.

1.1.2 FUNDAMENTAL ANALYSIS

Fundamental analysis refers to the study of the core underlying elements that influence the

economy of a particular entity. It is a method of study that attempts to predict price action and

market trends by analyzing economic indicators, government policy and societal factors (to

name just a few elements) within a business cycle framework.

1.1.2.1 ECONOMIC ANALYSIS

POLITICO-ECONOMIC ANALYSIS:

No industry or company can exist in isolation. It may have splendid managers and a

tremendous product. However, its sales and its costs are affected by factors, some of which are

beyond its control - the world economy, price inflation, taxes and a host of others. It is

important, therefore, to have an appreciation of the politico-economic factors that affect an

industry and a company.

- The political equation

- Foreign Exchange Reserves

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- Foreign Exchange Risk

- Restrictive Practices

- Foreign Debt and the Balance of Trade

- Inflation

- The Threat of Nationalization

- Interest Rates

- Taxation

- Government Policy

- The Economic Cycle

1.1.2.2INDUSTRY ANALYSIS

The importance of industry analysis is now dawning on the Indian investor as never before.

Cycle

The first step in industry is to determine the cycle it is in, or the stage of maturity of the

industry. All industries evolve through the following stages:

1. Entrepreneurial, sunrise or nascent stage

2. Expansion or growth stage

3. Stabilization, stagnation or maturity stage, and

4. Decline or sunset stage to properly establish itself. In the early days, it may actually make

losses.

Each industry has differences in terms of its customer base, market share among firms,

industry-wide growth, competition, regulation and business cycles. Learning about how the

industry works will give an investor a deeper understanding of a company's financial health.

1.1.2.3 COMPANY ANALYSIS

At the final stage of fundamental analysis, the investor analyzes the company. This analysis

has two thrusts:

How has the company performed vis--vis other similar companies?

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And

How has the company performed in comparison to earlier years?

With a shortlist of companies, an investor might analyze the resources and capabilities within

each company to identify those companies that are capable of creating and maintaining a

competitive advantage. The analysis could focus on selecting companies with a sensible

business plan, solid management and sound financials.

What exactly does one look at when analyzing a company? The different issues regarding a

company that should be examined are :

BUSINESS PLAN

The business plan, model or concept 88971333.doc forms the bedrock upon which all else is

built. If the plan, model or concepts stink, there is little hope for the business. For a new

business, the questions may be these: Does its business make sense? Is it feasible? Is there a

market? Can a profit be made? For an established business, the questions may be: Is the

company's direction clearly defined? Is the company a leader in the market? Can the company

maintain leadership?

THE MANAGEMENT

Investors might look at management to assess their capabilities, strengths and weaknesses.

Even the best-laid plans in the most dynamic industries can go to waste with bad management

(AMD in semiconductors). Alternatively, even strong management can make for extraordinary

success in a mature industry (Alcoa in aluminum). Some of the questions to ask might include:

How talented is the management team? Do they have a track record? Can management deliver

on its promises? If management is a problem, it is sometimes best to move on.

THE COMPANY

An aspect not necessarily examined during an analysis of fundamentals is the company. A

company may have made losses consecutively for two years or more and one may not wish to

touch its shares - yet it may be a good company and worth purchasing into. There are several

factors one should look at

1. How a company is perceived by its competitors?

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It is held in high regard. Its management may be known for its maturity, vision, competence

and aggressiveness. The investor must ascertain the reason and then determine whether the

reason will continue into the foreseeable future.

2. Whether the company is the market leader in its products or in its segment

When you invest in market leaders, the risk is less. The shares of market leaders do not fall as

quickly as those of other companies. There is a magic to their name that would make

individuals prefer to buy their products as opposed to others.

3. Company Policies

What are its plans for growth? What is its vision? Every company has a life. If it is allowed to

live a normal life it will grow up to a point and then begin to level out and eventually die. It is

at the point of leveling out that it must be given new life. This can give it renewed vigor and a

new lease of life.

4. Labour Relations

A company that has motivated, industrious work force has high productivity and practically no

disruption of work. On the other hand, a company that has bad industrial relations will lose

several hundred man days as a consequence of strikes and go slows.

5. Where the company is located and where its factories are?

One must also consider where the companies Plants and Factories are located..

THE ANNUAL REPORT

The primary and most important source of information about a company is its Annual Report.

By law, this is prepared every year and distributed to the shareholders. Annual Reports are

usually very well presented. A tremendous amount of data is given about the performance of a

company over a period of time.

The Annual Report is broken down into the following specific parts:

A) The Director's Report,

B) The Auditor's Report,

C) The Financial Statements (Balance Sheet and Profit & Loss a/c, Ratios, Cash Flow

Statement etc)

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D) The Schedules and Notes to the Accounts.

Therefore, fundamental analysis involves making careful estimates of the expected stream of

benefits and the required rate of returns for a common stock.

Putting it all together

After all is said and done, an investor will be left with a handful of companies that stand out

from the pack. Over the course of the analysis process, an understanding will develop of which

companies stand out as potential leaders and innovators. In addition, other companies would be

considered laggards and unpredictable. The final step of the fundamental analysis process is to

synthesize all data, analysis and understanding into actual picks.

1.1.3 STRENGTHS OF FUNDAMENTAL ANALYSIS

Long-term Trends: Fundamental analysis is good for long-term investments based on long-

term trends, very long-term. The ability to identify and predict long-term economic,

demographic, technological or consumer trends can benefit patient investors who pick the right

industry groups or companies.

Value Spotting: Sound fundamental analysis will help identify companies that represent a

good value. Some of the most legendary investors think long-term and value. Fundamental

analysis can help uncover companies with valuable assets, a strong balance sheet, stable

earnings, and staying power.

Business Acumen: One of the most obvious, but less tangible, rewards of fundamental

analysis is the development of a thorough understanding of the business. After such

painstaking research and analysis, an investor will be familiar with the key revenue and profit

drivers behind a company. Earnings and earnings expectations can be potent drivers of equity

prices. Even some technicians will agree to that. A good understanding can help investors

avoid companies that are prone to shortfalls and identify those that continue to deliver. In

addition to understanding the business, fundamental analysis allows investors to develop an

understanding of the key value drivers and companies within an industry. A stock's price is

heavily influenced by its industry group. By studying these groups, investors can better

position themselves to identify opportunities that are high-risk (tech), low-risk (utilities),

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growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical

(transportation) or income-oriented (high yield).

Knowing Who's Who: Stocks move as a group. By understanding a company's business,

investors can better position themselves to categorize stocks within their relevant industry

group. Business can change rapidly and with it the revenue mix of a company. This happened

to many of the pure Internet retailers, which were not really Internet companies, but plain

retailers. Knowing a company's business and being able to place it in a group can make a huge

difference in relative valuations.

1.1.4 WEAKNESSES OF FUNDAMENTAL ANALYSIS

Time Constraints: Fundamental analysis may offer excellent insights, but it can be

extraordinarily time-consuming. Time-consuming models often produce valuations that are

contradictory to the current price prevailing on the market.

Industry/Company Specific: Valuation techniques vary depending on the industry group and

specifics of each company. For this reason, a different technique and model is required for

different industries and different companies. This can get quite time-consuming, which can

limit the amount of research that can be performed. A subscription-based model may workgreat for an Internet Service Provider (ISP), but is not likely to be the best model to value an

oil company.

Subjectivity: Fair value is based on assumptions. Any changes to growth or multiplier

assumptions can greatly alter the ultimate valuation.

Analyst Bias: Since the analysis is carried on by employees specifically appointed for the

purpose but still there exist chances of personal bias.

Future Uncertainties: Future changes are likely unpredictable, more so when the economic

and business environment has frequent winds of change.

Irrational Market Behavior: The slow correction of under or over valuations pose a threat to

the analyst. Before the market reflects the value established by the analyst, new forces may

emerge.

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Fallibility of Experts: The investment decision requires interactive reasoning and not linear

reasoning. When multiple factors interact in complicated way and point in different directions,

human judgments, however well informed and well reasoned, tend to be fallible.

Thus, fundamental analysis can be valuable, but it should be approached with caution. We all

have personal biases, and every analyst has some sort of bias. There is nothing wrong with this,

and the research can still be of great value. Learn what the ratings mean and the track record of

an analyst before jumping off the deep end. Corporate statements and press releases offer good

information, but they should be read with a healthy degree of skepticism to separate the facts

from the spin. Press releases don't happen by accident; they are an important PR tool for

companies. Investors should become skilled readers to weed out the important information and

ignore the hype.

1.1.5 TECHNICAL ANALYSIS

I know no way of judging the future but by past.

Technical Analysis is the forecasting of future financial price movements based on an

examination of past price movements. Like weather forecasting, technical analysis does not

result in absolute predictions about the future. Instead, technical analysis can help investors

anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety

of charts that show price over time.

Technical analysis is applicable to stocks, indices, commodities, futures or any tradable

instrument where the price is influenced by the forces of supply and demand. Price refers to

any combination of the open, high, low, or close for a given security over a specific timeframe. The time frame can be based on intraday (1-minute, 5-minutes, 10-minutes, 15-minutes,

30-minutes or hourly), daily, weekly or monthly price data and last a few hours or many years.

In addition, some technical analysts include volume or open interest figures with their study of

price action.

1.1.5.1 What exactly is technical analysis?

The use of Charts

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A study of market/price action

An attempt to forecast future market/price trends

Therefore, we can define technical analysis as the use of charts in order to study price action,

with the objective of forecasting future price trends.

Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued; the

only thing that matters is a security's past trading data and what information this data can

provide about where the security might move in the future.

Technical Analysis is frequently used as a supplement to fundamental analysis rather than as a

substitute for it.

1.1.5.2 ASSUMPTIONS OF THE TECHNICAL ANALYSIS

The techniques of Technical Analysis are based on the following main assumptions:

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

2. The stock prices tend to move in fairly persistent trends, except minor deviations.

3. Shifts in demand and supply bring about changes in trends.

4. Because of the persistence trends and patterns, analysis of past market data can be used to

predict future price behaviour.

5. The market discounts everything. The price of the security quoted represents the hopes, fears

and inside information received by the market players.

6. Another important idea in technical analysis is that history tends to repeat itself, mainly in

terms of price movement. Technical analysis uses chart patterns to analyze market movements

and understand trends.

1.1.5.3 PURPOSE OF TECHNICAL ANALYSIS

The Technical Analysis is done from four important points of view, discussed as follows:

1. Price: The changes in price reflect changes in investor attitude and demand for and supply

of securities.

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2. Time: The degree of movement in price is function of time. The longer it takes for reversal

in trends, the greater the price change that would follow.

3. Volume: The intensity of price changes is reflected in the volume of transactions that

accompany the change. An increase in price accompanied by low volume implies that the

change is not strong enough.

4. Breadth: The quality of price change is measured by studying whether a change in trend

spread across most sectors and industries or is concentrated in few types of scrip. Study of the

breadth of the market indicates the extent to which price change have taken place in the market

in accordance with a certain overall trend.

1.1.6 FUNDAMENTAL ANALYSIS vs. TECHNICAL ANALYSIS

Both fundamental and technical analyses are used to measure the price/return of securities but

technical analysis is frequently used as supplement to fundamental analysis rather than as a

substitute for it. However, the following differences may be noted between the two techniques:

(a) Basis - Fundamentalists forecast stock prices on the basis of Economy- Industry-

Company statistics considering the future growths of EPS, DPS, Price of the security, etc. on

the other hand, the technical analysts believe that past patterns of market action will recur in

future and, therefore, stock prices depend upon historical trends.

(b) Time range Since technical analysis seeks to predict short term price movements and

fundamentalists try to establish long term values, private and institutional investors use

fundamental analysis as their basis for stock purchases, while short-term traders use technical

analysis. Since the risk-reward ratio and time horizons used in investing and trading are very

different, it makes sense that these two different methods are employed.(c) Focus The focus of technical analysis is mainly on internal market data, particularly

the study of price action and trend of a financial instrument. The focus of fundamentalists is on

economic supply and demand relations and factors relating to industry and firm to calculate the

appraisal value.

(d) Beliefs Fundamentalists believe that the stock price behavior is 90% logical and 10%

psychological, while the technical analysts follow vice versa.

(e) Indicators In technical analysis, the instruments in uptrend are candidates to bepurchased and those in downtrend are candidates to be sold. While, in fundamental analysis,

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instruments below appraisal value are the candidates to be purchased and above it are to be

sold.

(f) Cause and effect Fundamentalists study the cause of market movements while the

technical analysts study their effects. Thus the former needs to know why prices have moved

while the latter attempts to measure the projected effect of the price movements.

Thus, Technical analysis and Fundamental analysis are the two basic sectors of reasoning that

constitute the way investors and traders go about choosing stocks, and one must follow his

own financial strengths in determining whether day trading or investing, and technical or

fundamental analysis are right for him.

1.1.7 WHO USES TECHNICAL ANALYSIS?

Investors for their short-term trading decisions use Technical Analysis. This short-term may be

further divided in day-trading, short-term investment and for hedging purposes. The role

played by Technical Analysis in each case is as follows:

1. Day Traders: A day trader is one who takes and squares off his position both on the same

day. Mostly a day trader counts on turnover rather than margin.

2. Short Term Investors: These people form the biggest clientele base of both the brokers and

technical analyst.

3. Hedgers: These are generally big investors, who have a lot of money at stake and hence

look to have some hedging of their risk. The strategy followed by this section of investors is

that they compare the stock in consideration with the index and on the basis of the result of this

comparison they take their position in the stock.

1.1.7 SUPPORT AND RESISTANCE

Support and resistance represent key junctures where the forces of supply and demand meet. In

the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is

synonymous with bearish, bears and selling. Demand is synonymous with bullish, bulls and

buying. As demand increases, prices advance and as supply increases, prices decline. When

supply and demand are equal, prices move sideways as bulls and bears slug it out for control.

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What is Support?

Support is the price level at which demand is thought to be strong enough to prevent the price

from declining further. The logic dictates that as the price declines towards support and gets

cheaper, buyers become more inclined to buy and sellers become less inclined to sell. By the

time the price reaches the support level, it is believed that demand will overcome supply and

prevent the price from falling below support.

After a support level is penetrated, it often becomes a resistance level; this is because investors

want to limit their losses and will sell later, when prices approach the former level.

Figure 1.1 Support

What is Resistance?

Resistance is the price level at which selling is thought to be strong enough to prevent the price

from rising further. The logic dictates that as the price advances towards resistance, sellers

become more inclined to sell and buyers become less inclined to buy. By the time the price

reaches the resistance level, it is believed that supply will overcome demand and prevent the

price from rising above resistance.

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After a resistance level is penetrated, it often becomes a support level; this is because buyers

who didn't buy at that price before it went up are now willing to buy at that price.

Figure 1.2 Resistance

The concept of SUPPORT and RESISTANCE is essential for understanding and interpreting

the markets. Just as a ball bounces when it hits the floor or drops after being thrown to

the ceiling, support and resistance define natural boundaries for rising and falling prices.

Buyers and sellers are constantly in battle mode. Support defines that level where buyers are

strong enough to keep price from falling further. Resistance defines that level where sellers are

too strong to allow price to rise further. Support and resistance play different roles in uptrends

and downtrends. In an uptrend, support is where a pullback from a rally should end. In a

downtrend, resistance is where a pullback from a decline should end.

Figure 1.3 Demand and Supply Mechanism

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Q u a n t i t y

P r i c e

5

1 0

1 5

2 0

2 5

3 6 9 1 2 1 5 1 8

S u p p o r t

R e s i s t a n c e S u p p l y( s e l l e r s )

D e m a n d( B u y e r s )

$ 2 3

F i g u r e 1

For instance, in the figure above we have two diagonal lines, supply and demand. The supplyline shows the number of sellers willing to sell at a given price.

The demand line shows the number of buyers willing to buy at a given price. Quite simply, as

the price increases, the number of buyers willing to buy at the higher prices decreases. In the

chart below, resistance occurs where the price bumps the ceiling because there are no buyers

willing to pay the higher price. Support occurs on the left side of the supply line where sellers

are no longer willing to sell at the low price.

How can Support & Resistant Levels help you make profitable trading decisions?

Identification of key support and resistance levels is an essential ingredient to successful and

profitable trading. Being aware of the support and resistance levels of stocks and indices can

greatly enhance analysis and forecasting abilities.

If a security is approaching an important support level, it can serve as an alert to be extra

vigilant in looking for signs of increased buying pressure and a potential reversal. If a security

is approaching a resistance level, it can act as an alert to look for signs of increased selling

pressure and potential reversal.

If a support level is broken, it signals that the relationship between supply and demand has

changed. A resistance breakout signals that demand (bulls) has gained the upper hand and a

support break signals that supply (bears) has won the battle.

1.1.9 DOW THEORY

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Originally proposed in the late nineteenth century by Charles H.Dow, the editor of the Wall

Street Journal, the Dow Theory is perhaps the oldest and best known theory of technical

analysis.

In the words of Charles Dow:

The market is always considered as having three movements, all going at the same time.

The first is the narrow movement from day to day. The second is the short swing, running

from two weeks to a month or more; the third is the main movement, covering at least four

years in its duration.

He developed the theory on certain hypothesis.

1. No single individual or buyer can influence the major trend of the market. However, an

individual investor can affect the daily price movement by buying or selling huge quantum of

particular scrip. The intermediate price movement also can be affected to a lesser degree by an

investor.

2. The market discounts everything. Even natural calamities such as earthquake, plague and

fire also get quickly discounted in the market.

3. The theory is infallible. It is not a tool to beat the market but provides a way to understand it

better.

Three Movements

Markets fluctuate in more than one time frame at the same time:

Nothing is more certain than that the market has three well defined movements which fit into

each other.

The first is the daily variation due to local causes and the balance of buying and selling

at that particular time.

The secondary movement covers a period ranging from ten days to sixty days,

averaging probably between thirty and forty days.

The third move is the great swing covering from four to six years.

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Figure 1.4 Primary Trends

Bull markets are broad upward movements of the market that may last several years,

interrupted by secondary reactions. Bear markets are long declines interrupted by secondary

rallies. These movements are referred to as the primary trend.

Secondary movements normally retrace from one third to two thirds of the primary

trend since the previous secondary movement.

Daily fluctuations are important for short-term trading, but are unimportant in analysis

of broad market movements.

Various cycles have subsequently been identified within these broad categories.

Primary Movements have Three Phases

The general conditions in the market:

Bull markets

Bull markets commence with reviving confidence as business conditions improve.

Prices rise as the market responds to improved earnings

Rampant speculation dominates the market and price advances are based on hopes and

expectations rather than actual results.

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Bear markets

Bear markets start with abandonment of the hopes and expectations that sustained

inflated prices.

Prices decline in response to disappointing earnings.

Distress selling follows as speculators attempt to close out their positions and securities

are sold without regard to their true value.

Ranging Markets

A secondary reaction may take the form of a line which may endure for several weeks. Price

fluctuates within a narrow range of about five per cent.

Advances above the upper limit of the line signal accumulation and higher prices;

Declines below the lower limit indicate distribution and lower prices;

Volume is used to confirm pricebreakouts.

Trends

Bull Trends

A bull trend is identified by a series of rallies where each rally exceeds the highest point of the

previous rally. The decline, between rallies, ends above the lowest point of the previousdecline.

Figure 1.5 Successive higher highs and higher lows

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The start of an up trend is signaled when price makes a higher low (trough), followed by a rally

above the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low

(trough):

End = lower High + break below previous Low.

Figure 1.6 Start and End of Bull Trend

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and thenretreats below the previous low. The end of a bear trend is identical to the start of a bull trend.

A bull trend starts when price rallies above the previous high,

A bull trend ends when price declines below the previous low,

A bear trend starts at the end of a bull trend (and vice versa).

1.1.10 THE USE OF TREND

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One of the most important concepts in technical analysis is that of trend. The meaning in

finance isn't all that different from the general definition of the term - a trend is really nothing

more than the general direction in which a security or market is headed. The share prices can

either increase or fall or remain flat. The three share price movements are called uptrend,

downtrend and sideways.

A More Formal Definition

Unfortunately, trends are not always easy to see. In other words, defining a trend goes well

beyond the obvious. In any given chart, you will probably notice that prices do not tend to

move in a straight line in any direction, but rather in a series of highs and lows. In technical

analysis, it is the movement of the highs and lows that constitutes a trend. For example, an

uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of

lower lows and lower highs.

Types of Trend

There are three types of trend:

Uptrend

Downtrend

Sideways

1. Uptrend: An uptrend is a series of ascending peaks and troughs that rise in successive

fashion. Demand conditions outweigh supply, thus causing the increase in prices. It draws a

series of higher highs and higher lows on the stock chart. In an uptrend, there will be a

POSITIVE rate of price change over time. An uptrend emerges when bulls are stronger than

bears and their buying forces prices up.

Figre 1.7 Uptrend

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2.Downtrend: A downtrend is a series of descending peaks and troughs that fall in successive

fashion. Supply conditions outweigh demand, thus causing a fall in prices. It draws a series of

lower highs and lower lows on the stock chart. In a downtrend, there will be a NEGATIVE rate

of price change over time. Downtrend occurs when bears are stronger and selling pushes

market down.

Figure 1.8 Downtrend

2. Sideways: A sideways

trend is a series of often level or horizontal peaks and troughs that are flat in nature. In case

of such a trend the price moves in a small range for a long period. There is no apparent

direction as far as trend is concerned in this case and there will be LITTLE or NO rate of price

change.

Figure 1.9 Sideways Trend

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Trend Lengths

Along with these three trend directions, there are three trend classifications. A trend of any

direction can be classified as a long-term trend, intermediate trend or a short-term trend. In

terms of the stock market, a major trend is generally categorized as one lasting longer than a

year. An intermediate trend is considered to last between one and three months and a near-term

trend is anything less than a month.

Figure 1.10 Trend Lengths

The Importance of Trend

It is important to be able to understand and identify trends so that you can trade with rather

than against them. Two important sayings in technical analysis are "the trend is your friend"

and "don't buck the trend," illustrating how important trend analysis is for technical traders.

TRENDLINE

A trend lineis a simple charting technique that adds a line to a chart to represent the trend in

the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a

general trend. These lines are used to clearly show the trend and are also used in the

identification of trend reversals.

Figure 1.11 Trend line

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CHANNELS

A channel, or channel lines, is the addition of two parallel trendlines that act as strong areas of

support and resistance. The upper trendline connects a series of highs, while the lower

trendline connects a series of lows. A channel can slope upward, downward or sideways but,

regardless of the direction, the interpretation remains the same. Traders will expect a given

security to trade between the two levels of support and resistance until it breaks beyond one of

the levels, in which case traders can expect a sharp move in the direction of the break. Along

with clearly displaying the trend, channels are mainly used to illustrate important areas of

support and resistance.

Figure 1.12 Channels

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1.1.11 CHARTS

Charts are the valuable and the easiest tools in the technical analysis. The graphic presentation

of the data helps the investor to find out the trend of the price without any difficulty. The charts

also have following uses:

1. Spots the current trend for buying and selling.

2. Indicates the probable future action of the market by projection

3. Shows the past historic movements.

4. Indicates the important areas of support and resistance.

The charts do not lie but interpretation differs from analyst to analyst according to their skills

and experience. Charts are like fire or electricity, they are brilliant tools if intelligently

controlled and handled but dangerous to a novice. In technical analysis, charts are similar

to the charts that you see in any business setting. A chart is simply a graphical representation of

a series of prices over a set time frame. For example, a chart may show a stock's price

movement over a one-year period, where each point on the graph represents the closing price

for each day the stock is traded:

Figure 1.13 Basic Chart

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Above figure provides an example of a basic chart. It is a representation of the price

movements of a stock over a 1.5 year period. The bottom of the graph, running horizontally (x-

axis), is the date or time scale. On the right hand side, running vertically (y-axis), the price of

the security is shown. By looking at the graph we see that in October 2004 (Point 1), the price

of this stock was around $245, whereas in June 2005 (Point 2), the stock's price is around

$265. This tells us that the stock has risen between October 2004 and June 2005.

CHART PROPERTIES

There are several things that you should be aware of when looking at a chart, as these factors

can affect the information that is provided. They include the time scale, the price scale and the

price point properties used.

The Time Scale

The time scale refers to the range of dates at the bottom of the chart, which can vary from

decades to seconds. The most frequently used time scales are intraday, daily, weekly, monthly,

quarterly and annually. The shorter the time frame, the more detailed the chart. Each data point

can represent the closing price of the period or show the open, the high, the low and the close

depending on the chart used.

The Price Scale and Price Point Properties

The price scale is on the right-hand side of the chart. It shows a stock's current price and

compares it to past data points. This may seem like a simple concept in that the price scale

goes from lower prices to higher prices as you move along the scale from the bottom to the top.

CHART TYPES

There are four main types of charts that are used by investors and traders depending on the

information that they are seeking and their individual skill levels. The chart types are: the line

chart, the bar chart, the candlestick chart and the point and figure chart. The data used to create

the charts is the same, but the way the data is plotted and shown in the charts is different.

Line Chart

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The most basic of the four charts is the line chart because it represents only the closing prices

over a set period of time. The line is formed by connecting the closing prices over the time

frame. Line charts do not provide visual information of the trading range for the individual

points such as the high, low and opening prices. However, the closing price is often considered

to be the most important price in stock data compared to the high and low for the day and this

is why it is the only value used in line charts.

Figure 1.14 Line Chart

Bar Charts

The bar chart expands on the line chart by adding several more key pieces of information to

each data point. The chart is made up of a series of vertical lines that represent each data point.

This vertical line represents the high and low for the trading period, along with the closing

price. The close and open are represented on the vertical line by a horizontal dash. The opening

price

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