A Project Report on Equity Analysis on Indian IT Sector

8/13/2019 A Project Report on Equity Analysis on Indian IT Sector

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A STUDY ON EQUITY ANALYSIS OF INDIAN IT SECTOR

KRUPANIDHI DEGREE COLLEGE Page 1

TABLE OF CONTENTS:

CHAPTER

NO.

CONTENT PAGE

NO.

1 INTRODUCTION:

1.1 Introduction

1.2 Top players in Indian IT sector

1.3: Definition of equity market

1.4 Indian IT sector

1.5 History of Indian IT sector

1.6 Role of IT industry

1.7Contribution of Information Technology in Indian economy

1.8 Impact of IT sector

1.9 Future of Information Technology

1.10 Meaning of Equity

1.11 Meaning of Technical analysis

1.12 Meaning of Fundamental analysis

1.13 SWOT analysis of the industry

1-16

2 REVIEW OF LITERATURE & RESEARCH DESIGN

2.1 Introduction

2.2 Literature Review

2.3 Statement of the problem

2.4 Objective of study

2.5 Scope of study

2.6 Need of the study

2.7 Limitations

2.8 Research Methodology

2.8.1: Source of Data

2.8.2: Research Method

2.8.3: Sample Size

17-30


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2.8.4 Chapter scheme

3 INDUSTRY PROFILE AND COMPANY PROFILE

3.1 Introduction

3.2 IT sectors- an overview

3.3 The Indian IT industry

3.4 Major IT companies

3.5 Nature of competition

3.6 Growth of Indian IT industry

3.7 Market segments and their products

3.8 Scope of IT industry in India

3.9 Expanding foreign investments by India

3.10 Stock exchanges in India

3.11 List of stock exchanges in India

3.12 Profile of TCS (Tata Consultancy Services)

3.13 Profile of Wipro

3.14 Profile of Infosys

3.15 Profile of Satyam computer services

3.16 Profile of HCL

3.17 Profile of Tech Mahindra

3.18 Profile of Larsen & Toubro limited

31-57

4 Results, Analyses & Discussions 58-88

5 Summary of Findings, Conclusions and Suggestions

Recommendations

89-93

Bibliography 94


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LIST OF TABLES:

Table No. Description Page No.

4.1 Table showing Debt to equity ratio of TCS 634.2 Table showing EPS of TCS 64

4.3 Table showing Current ratio of TCS 664.4 Table showing Debt to equity ratio of Wipro 67

4.5 Table showing Current ratio of Wipro 684.6 Table showing EPS of Wipro 69

4.7 Table showing EPS of Infosys 714.8 Table showing current ratio of Infosys 724.9 Table showing EPS of Satyam computer services 74

4.10 Table showing Debt to equity ratio of Satyam computerservices

75

4.11 Table showing current ratio of Satyam computer services 764.12 Table showing Debt to equity ratio of HCL Technologies 784.13 Table showing EPS of HCL Technologies 794.14 Table showing current ratio of HCL Technologies 80

4.15 Table showing Debt to equity ratio of Tech Mahindra 814.16 Table showing EPS of Tech Mahindra 824.17 Table showing current ratio of Tech Mahindra 834.18 Table showing Debt to equity ratio of L&T InfoTech 85

4.19 Table showing EPS of L&T InfoTech 86

4.20 Table showing current ratio of L&T InfoTech 87


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LIST OF CHARTS:

Chart No. Description Page No.

3.1 Graph showing major trends in Hiring 33

3.2 Graph showing IT market structure 35

4.1 Graph showing Debt to equity ratio of TCS 63

4.2 Graph showing EPS of TCS 64

4.3 Graph showing P/E ratio of TCS 65

4.4 Graph showing current ratio of TCS 66

4.5 Graph showing Debt to equity ratio of Wipro 67

4.6 Graph showing current ratio of Wipro 68

4.7 Graph showing EPS per year of Wipro 69

4.8 Graph Showing P/E ratio of Wipro 70

4.9 Graph showing EPS of Infosys 71

4.10 Graph showing current ratio of Infosys 72

4.11 Graph Showing P/E ratio of Infosys 73

4.12 Graph showing EPS of Satyam computers services 74

4.13 Graph showing Debt to equity ratio of Satyamcomputer services

75

4.14 Graph showing current ratio of Satyam computerservices

76

4.15 Graph showing P/E ratio of Satyam computer services 77

4.16 Graph showing Debt to equity ratio of HCLtechnologies.

78

4.17 Graph showing EPS of HCL Technologies 79

4.18 Graph Showing Current ratio of HCL Technologies 80

4.19 Graph showing P/E ratio of HCL Technologies. 81

4.20Graph showing Debt to equity of Tech Mahindra

824.21 Graph Showing EPS of Tech Mahindra 83

4.22 Graph showing current ratio of Tech Mahindra 84

4.23 Graph showing P/E ratio of Tech Mahindra 85

4.24 Graph showing Debt to equity of L&T InfoTech 86

4.25 Graph showing EPS of L&T InfoTech 87

4.26 Graph showing current ratio of L&T InfoTech 88

4.27 Graph showing P/E ratio of L&T InfoTech 89


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1.1: INTRODUCTION:

India is a developing country. Now days many people are interested to invest in

financial markets especially on equities to get high returns, and to save tax in honest way.

Equities are playing a major role in contribution of capital to the business from the beginning.

Since the introduction of shares concept, large number of investors are showing interest to

invest in stock market.

In an industry plagued with skepticism and a stock market increasingly difficult to

predict and contend with, if one looks hard enough there may still be a genuine aid for the

day trader and short term investor.

The price of a security represents a consensus. It is the price at which one person

agrees to buy and another agrees to sell. The price at which an investor is willing to buy or

sell depends primarily on his expectations. If he expects the security's price to rise, he will

buy it; if the investor expects the price to fall, he will sell it. These simple statements are the

cause of a major challenge in forecasting security prices, because they refer to human

expectations.

Investor v/s Trader:

People can make money in equity market by investing or trading or both. However, to

avoid disappointment of losing money, customers should make very prudent and informed

decisions.

"Investors" put their money into stocks for a long term. This is under the principle that over

time, the underlying investment will increase in value, and the investment will be profitable.

On the other hand

"Traders" take a proactive approach to their investing. They follow or predict a trend in the

stock and use strategies like buy-low, sell-high and make profits.

Though there is really no right or wrong type of stock trading, it is necessary for investors to

identify which type of trading is right for them. They can make a great amount of money

either way however, they must consider their time frame, risk, and how much work you want

to put into it.


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While traders can make more money much faster, they are required to do more work

and monitoring than the typical investor. Determine what type of trader you want to be, and

then make sure that the people you take guidance from have the same goals as you.

1.2: Top players in Indian IT sector:

No. Name of company Share price

(Rs)

1 TCS 1429

2 Wipro 399.65

3 Infosys 2774

4 Satyam computers services 113.40

5 HCL Technologies 694.6

6 Tech Mahindra 989.10

7 L&T Infotech 1457

1.3: Definition of EquityMarket:

The market in which shares are issued and traded, either through exchanges or over-

the-counter markets also known as the stock market, it is one of the most vital areas of a

market economy because it gives companies access to capital and investors a slice of

ownership in a company with the potential to realize gains based on its future performance.

1.4: Indian IT sector:

The information technology sector can broadly be classified into:-

1.4.1:- IT- Software- These companies help in developing and implementation of different

software for their clients worldwide. These software could be for documentation, security

services, banking softwares etc.


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1.4.2:- ITeS Business Process Outsourcing (BPO) Major Corporations across the world

outsources their back-office operations to some companies. E.g. Employee payroll for a US

companys global workforce is maintained by an Indian BPO. Slowly the definition is

expanding to Human resources, accounting, logistics, legal processes etc.

1.4.3:- IT- Hardware and peripherals -The stuff which can be actually seen and touched,

and would likely break if we threw it out, is hardware. This would include laptops, desktops,

Storage devices, Networking devices, LCD, printers etc.

1.4.4:- IT- Education - This segment provides training for employment in the other

segments. This would include companies providing various certification courses, like Java,

Oracle etc. These companies also provide training for employees in corporate sector.

Recently, some companies have also expanded this service to cater to schools and colleges.

1.5: History of Indian IT sector:-

Information Technology (IT) industry in India is one of the fastest growing industries.

Indian IT industry has built up valuable brand equity for itself in the global markets. IT

industry in India comprises of software industry and information technology enabled services

(ITES), which also includes business process outsourcing (BPO) industry. India is considered

as a pioneer in software development and a favorite destination for IT- enabled services.

The origin of IT industry in India can be traced to 1974, when the mainframe

manufacturer, Burroughs, asked its India sales agent, Tata Consultancy Services (TCS), to

export programmers for installing system software for a U.S. client. The IT industryoriginated under unfavorable conditions. Local markets were absent and government policy

toward private enterprise was hostile. The industry was begun by Bombay-based

conglomerates which entered the business by supplying programmers to global IT firms

located overseas.

During that time Indian economy was state-controlled and the state remained hostile

to the software industry through the 1970s. Import tariffs were high (135% on hardware and

100% on software) and software was not considered an "industry", so that exporters were


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ineligible for bank finance. Government policy towards IT sector changed when Rajiv

Gandhi became Prime Minister in 1984. His New Computer Policy (NCP-1984) consisted of

a package of reduced import tariffs on hardware and software (reduced to 60%), recognition

of software exports as a "delicensed industry", i.e., henceforth eligible for bank finance andfreed from license-permit raj, permission for foreign firms to set up wholly-owned, export-

dedicated units and a project to set up a chain of software parks that would offer

infrastructure at below-market costs. These policies laid the foundation for the development

of a world-class IT industry in India.

Today, Indian IT companies such as Tata Consultancy Services (TCS), Wipro, Infosys, and

HCL etc. all are renowned in the global market for their IT prowess.

Some of the major factors which played a key role in India's emergence as key global IT

player are:

i. Indian Education System:The Indian education system places strong emphasis on mathematics and science,

resulting in a large number of science and engineering graduates. Mastery over quantitative

concepts coupled with English proficiency has resulted in a skill set that has enabled India to

reap the benefits of the current international demand for IT.

ii. High Quality Human Resource:Indian programmers are known for their strong technical and analytical skills and their

willingness to accommodate clients. India also has one of the largest pools of English-

speaking professional.

iii. Competitive Costs:The cost of software development and other services in India is very competitive as

compared to the Western countries.

iv. Infrastructure Scenario:Indian IT industry has also gained immensely from the availability of a robust

infrastructure (telecom, power and roads) in the country.


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In the last few years Indian IT industry has seen tremendous growth. Destinations

such as Bangalore, Hyderabad and Gurgaon have evolved into global IT hubs. Several IT

parks have come up at Bangalore, Hyderabad, Chennai, Pune, Gurgaon etc. These parks offerSilicon Valley type infrastructure. In the light of all the factors that have added to the strength

of Indian IT industry, it seems that Indian success story is all set to continue.

1.6: ROLE OF IT INDUSTRY:

The IT industry can serve as a medium of e-governance, as it assures easy accessibility to

information. The use of information technology in the service sector improves operational

efficiency and adds to transparency. It also serves as a medium of skill formation.I. Economies of scale for the information technology industry are high. The marginal

cost of each unit of additional software or hardware is insignificant compared to the

value addition that results from it.

II. Unlike other common industries, the IT industry is knowledge-based.III. Efficient utilization of skilled labor forces in the IT sector can help an economy

achieve a rapid pace of economic growth.

IV. The IT industry helps many other sectors in the growth process of the economyincluding the services and manufacturing sectors.

1.7: CONTRIBUTION OF INFORMATION TECHNOLOGY IN INDIAN

ECONOMY:

The growth in the service sector in India has been led by the ITITES sector,

contributing substantially to increase in GDP, employment, and exports. The sector has

increased its contribution to India's GDP from 1.2% in FY1998 to 7.5% in FY2012.

According to NASSCOM, the ITBPO sector in India aggregated revenues of US$100 billion

in FY2012, where export and domestic revenue stood at US$69.

The contribution of India's IT industry to economic progress has been quite

significant. The rapidly expanding socio-economic infrastructure has proved to be of great

use in supporting the growth of Indian information technology industry.


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The flourishing Indian economy has helped the IT sector to maintain its

competitiveness in the global market. The IT and IT enabled services industry in India has

recorded a growth rate of 22.4% in the last fiscal year. The total revenue from this sector was

valued at 2.46 trillion Indian rupees in the fiscal year 2007. Out of this figure, the domestic ITmarket in India accounted for 900 billion rupees. So, the IT sector in India has played a major

role in drawing foreign funds into the domestic market.

The growth and prosperity of India's IT industry depends on some crucial factors.

These factors are as follows:

i. India is home to a large number of IT professionals, who have the necessary skill andexpertise to meet the demands and expectations of the global IT industry.

ii. The cost of skilled Indian workforce is reasonably low compared to the developednations. This makes the Indian IT services highly cost efficient and this is also the

reason as to why the IT enabled services like business process outsourcing and

knowledge process outsourcing have expanded significantly in the Indian job market.

iii. India has a huge pool of English-speaking IT professionals. This is why the English-speaking countries like the US and the UK depend on the Indian IT industry for

outsourcing their business processes.

The emergence of Indian information technology sector has brought about sea

changes in the Indian job market. The IT sector of India offers a host of opportunities of

employment. With IT biggies like Infosys, Cognizant, Wipro, Tata Consultancy Services,

Accenture and several other IT firms operating in some of the major Indian cities, there is no

scarcity of job opportunities for the Indian software professionals. The IT enabled sector of

India absorbs a large number of graduates from general stream in the BPO and KPO firms.

All these have solved the unemployment problem of India to a great extent.


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1.8: IMPACT OF IT SECTOR:

i. Impact on Society:A society can also refer specifically to any group of people, other animals and the

interactions within that group. This can be anything from a small neighborhood to the entire

global community. Religion, ethnicity, interests, political opinions or other relating factors

may help form a group of people.

ii. Common Traditions:In the context of this report it is helpful to highlight a difference between "traditions"

and "activities/interests". Tradition can be defined as the following: An inherited,established, or customary pattern of thought, action, or behavior (as a religious practice or a

social custom).Cultural continuity in social attitudes, customs, and institutions."

iii. Cultural Continuity:Social attitudes have changed in that citizens of a society now expect the various

elements of that society to be better informed than previously. They also expect to be able to

access more information about a specific product, service or organization so that they can

make informed decisions with regard to their interactions with that entity.

iv. Institutions:The word institutions can incorporate a wide variety of organizations. For the purposes of this

report the institutions will examine:

1. Governments,2. Commercial businesses,3. News & media organizations,4. Educational organizations.

The focus is on how information technology development has improved the processes by

which these institutions accomplish their tasks or goals.


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v. Governments:The government of a nation is comprised of many varied institutions. However

developments in information technology have helped governments to improve their "service"

to their citizens. Information technology has also had a major impact on the defensecapabilities of governments. This covers both a governments capability to wage war and

their intelligence gathering capability. Advances in weapons technology and weapons design

have increased the effectiveness of various governments' armed forces. For example it would

have been impossible to design aero planes such as the B2 Bomber if it were not for the

advances made in information technology. The B2bomber relies on a "continuous curvature"

design to minimize radar signature. It would have been impossible to design or build this

machine without the development of computer modeling techniques.

1.9: Future of Information Technology:

IT will continue to gain momentum; telecom and wireless will follow the trend. The

immense expansion in networking technologies is expected to continue into the next decade

also. IT will bring about a drastic improvement in the quality of life as it impacts application

domains and global competitiveness. Technologies that are emerging are Data Warehousing

and Data Mining. They involve collecting data to find patterns and testing hypothesis in

normal research. Software services that are being used in outsourcing will go a long way.

1.10: Meaning of equity:

Equity is the ownership interest of investors in a business firm. Investors can own

equity shares in a firm in the form of common stock. Equity ownership in the firm means that

the original business owner no longer owns 100% of the firm but shares ownership with

others.

On a companysbalance sheet, equity is represented by the common stock and paid-in

capital.

Equity analysis: Equity analysis is researching and analyzing equities, or stocks. These

stocks trade on various stock markets such as the BSE, NSE, New York Stock Exchange, and

NASDAQ, AMEX or foreign stock markets.


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Equity analysts are usually employed by financial firms that have equity research

departments made up of numerous analysts, each of which focuses on being an "expert" on a

particular industry. There are numerous industries within the 10 sectors. Those 10 sectors are

the consumer discretionary, consumer staples, energy, industrials, financials, healthcare,materials, information technology, and telecommunications and utilities sectors.

On a daily basis, equity research analysis closely "follow", or monitor a number of

stocks. For example, a PC hardware equity research analyst would probably spend a great

deal of time monitoring the business of Dell Computer and any news that may affect dell.

Investors purchase equity shares with two basic objectives:

1. To make capital profits by selling shares at higher prices.

2. To earn dividend income.

These two factors are affected by lots of factors. An investor has to carefully

understand and analyze all these factors. There are basically two approaches to study security

prices and valuation i.e. fundamental analysis and technical analysis.

The value of common stock is determined in large measure by the performance of the

firm that issued the stock. If the company is healthy and can demonstrate strength and

growth, the value of the stock will increase. When values increase then prices follow and

returns on an investment will increase. However, just to keep the savvy investor on their toes,

the mix is complicated by the risk factors involved. Fundamental analysis examines all the

dimensions of risk exposure and the probabilities of return, and merges them with broader

economic analysis and greater industry analysis to formulate the valuation of a stock.

Valuation of Equity:

The methods used to analyze securitiesand market investment decision falls into two very

broad categories:

Technical Analysis Fundamental Analysis


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1.11 MEANING OF TECHNICAL ANALYSIS:

A method of evaluating securities by analyzing statistics generated by market activity,

such as past prices and volume. Technical analysts do not attempt to measure a securitys

intrinsic value, but instead use charts and other tools to identify patterns that can suggest

future activity.

A Technical analyst believes that share prices are determined by the demand and

supply forces operating in the market. These demand and supply forces in turn are influenced

by a number of fundamental factors as well as certain psychological or emotional factors.

Many of these factors cannot be quantified. The combined impact of all these factors isreflected in the share price movement. A technical analyst therefore concentrates on the

movement of share prices. He claims that by examining past share price movements future

share prices can be accurately predicted. Technical analysis is the name given to forecasting

techniques that utilize historical share price data.

The rationale behind technical analysis is that share price behavior repeats itself over

time and analysts attempt to derive methods to predict this repetition. A technical analystlooks at the past share price data to see if he can establish any patterns. He then looks at

current price data to see if any of the established patterns are applicable and, if so,

extrapolations can be made to predict the future price movements. Although past share prices

are the major data used by technical analyst, other statistics such as volume of trading and

stock market indices are also utilized to some extent.

The basic premise of technical analysis is that prices move in trends or waves which

may be upward or downward. It is believed that the present trends are influenced by the past

trends and that the projection of future trends is possible by an analysis of past price trends. A

technical analyst, therefore, analyses the price and volume movements of individuals

securities as well as the market index. Thus, technical analysis is really a study of past or

historical price and volume movements so as to predict the future stock price behavior.


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1.11.1: Basic principles of technical analysis:

The basic principles on which technical analysis is based may be summarized as follows:

1. The market value of a security is related to demand and supply factors operation inthe market.

2. There are both rational and irrational factors which surround the supply and demandfactors of a security.

3. Security prices behave in a manner that their movement is continuous in a particulardirection for some length of time.

4. Trends in stock prices have been seen to change when there is a shift in the demandand supply factors.

5.

The shifts in demand and supply can be detected through charts prepared specially toshow market action.

6. Patterns are used by analysis to make forecasts about the movement of prices infuture.

1.12: MEANING OF FUNDAMENTAL ANALYSIS:

Fundamental analysis is a method of forecasting the future price movements of afinancial instrument based on economic, political, environmental and other relevant factors

and statistics that will affect the basic supply and demand of whatever underlies the financial

instrument.

Fundamental analysis is the cornerstone of investing. The basic philosophy

underlying the fundamental analysis is that if an investor invests re.1 in buying a share of a

company, how much expected returns from this investment he has. It insists that no one

should purchase or sell a share on the basis of tips and rumors. The fundamental approach

calls upon the investors to make his buy or sell decision on the basis of a detailed analysis of

the information about the company, about the industry, and the economy.

Fundamental analysis is really a logical and systematic approach to estimating the

future dividends and share price. It is based on the basic premise that share prices are

determined by a number of fundamental factors relating to the economy, industry and

company. Hence, the economy fundamentals, industry fundamentals and company

fundamentals have to be considered while analyzing a security for investment purpose.


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Fundamental analysis is, in other words, a detailed analysis of the fundamental factors

affecting the performance of companies.

Each share is assumed to have an economic worth based on its present and future

earning capacity. This is called its intrinsic value or fundamental value. The purpose offundamental analysis is to evaluate the present and future earning capacity of a share based

on the economy, industry and company fundamentals and thereby assess the intrinsic value of

the share. The investor can then compare the intrinsic value of the share with the prevailing

market price to arrive at an investment decision. If the market price of the share is lower than

its intrinsic value, the investor would decide to buy the share as it is underpriced. The price of

such a share is expected to move up in future to match with its intrinsic value.

Fundamental analysis thus involves three steps:

1. Economy Analysis.2. Industry Analysis.3. Company Analysis.

1.12.1: ECONOMY ANALYSIS:

The performance of a company depends on the performance of the economy. If the

economy is booming, income rise, demand for goods increases, and hence the industries and

companies in general trend to be prosperous. On the other hand, if the economy is in

recession, the performance of companies will be generally bad.

Investors are concerned with those variables in the economy which affect the

performance of the company in which they intend to invest. A study of these economic

variables would give an idea about future corporate earnings and the payment of dividends

and interest to investors.

Here are some of the key economic variables that an investor must monitor as part of his

fundamental analysis:

i. Growth Rates of National Incomeii. Inflation

iii. Interest Ratesiv. Exchange rates


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v. Infrastructurevi. Monsoon

vii. Economic and Political Stability

1.12.2: INDUSTRY ANALYSIS:

An industry is a group of firms that have similar technological structure of production

and produce similar products and Industry analysis is a type of business research that focuses

on the status of an industry or an industrial sector (a broad industry classification, like

"manufacturing"). Irrespective of specific economic situations, some industries might be

expected to perform better, and share prices in these industries may not decline as much as inother industries. This identification of economic and industry specific factors influencing

share prices will help investors to identify the shares that fit individual expectations.

Industry Life Cycle:

The industry life cycle theory is generally attributed to Julius Grodensky. The life cycle of the

industry is separated into four well defined stages:

a. Pioneering stage:The prospective demand for the product is promising in this stage and the technology

of the product is low. The demand for the product attracts many producers to produce the

particular product. There would be severe competition and only fittest companies survive this

stage. The producers try to develop brand name, differentiate the product and create a product

image. In this situation, it is difficult to select companies for investment because the survival

rate is unknown.

b. Rapid growth stage:This stage starts with the appearance of surviving firms from the pioneering stage.

The companies that have withstood the competition grow strongly in market share and

financial performance. The technology of the production would have improved resulting in

low cost of production and good quality products. The companies have stable growth rate in

this stage and they declare dividend to the shareholders. It is advisable to invest in the shares

of these companies.


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c. Maturity and stabilization stage:The growth rate tends to moderate and the rate of growth would be more or less equal

to the industrial growth rate or the gross domestic product growth rate. Symptoms of

obsolescence may appear in the technology. To keep going, technological innovations in the

production process and products should be introduced. The investors have to closely monitor

the events that take place in the maturity stage of the industry.

d. Decline stage:Demand for the particular product and the earnings of the companies in the industry

decline. It is better to avoid investing in the shares of the low growth industry even in the

boom period. Investment in the shares of these types of companies leads to erosion of capital.

1.12.3: COMPANY ANALYSIS:

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

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

analysis helps the investor to select the industry in which investment would be rewarding.

Now he has to decide the company in which he should invest his money. Company analysis

provides the answer to this question.

Company analysis deals with the estimation of return and risk of individual shares.

This calls for information. Many pieces of information influence investment decisions.

Information regarding companies can be broadly classified into two broad groups: internal

and external. Internal information consists of data and events made public by companies

concerning their operations. The internal information sources include annual reports to

shareholders, public and private statements of officers of the company, the companys

financial statements, etc. External sources of information are those generated independently

outside the company. These are prepared by investment services and the financial press.

In company analysis, the analyst tries to forecast the future earnings of the company

because there is strong evidence that earnings have a direct and powerful effect upon share

prices. The level, trend and stability of earnings of a company, however, depend upon a

number of factors concerning the operations of the company.


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i. Financial Statementsii. Analysis of Financial Statements

iii. Leverage ratios and Profitability Ratiosiv.

Assessment of Risk

1.13: SWOT Analysis of the Industry:

SWOT analysis:

SWOT analysis represents the strength, weakness, opportunity and threat for an

industry. Every investor should carry out a SWOT analysis for the chosen industry. Take for

instance, increase in demand for the industrys product becomes its strength, presence of

numerous players in the market, i.e. competition becomes the threat to a particular company.

The progress in R & D in that industry is an opportunity and entry of multinationals in the

industry is a threat. In this way the factors are to be arranged and analyzed.

Strengths

Highly skilled human resource

Low wage structure

Quality of work

Initiatives taken by the Government (setting

up Hi-Tech Parks and implementation of e-

governance projects)

Many global players have set-up operations

in India like Microsoft, Oracle, Adobe, etc.

Following Quality Standards such as ISO

Weaknesses

Absence of practical knowledge

Dearth of suitable candidates

Less Research and Development

Contribution of IT sector to Indias GDP is

still rather small.

Employee salaries in IT sector are

increasing tremendously. Low wages benefit


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9000, SEI CMM etc.

English-speaking professionals

Cost competitiveness

Quality telecommunications infrastructure

Indian time zone (24 x 7 services to the

global customers). Time difference between

India and America is approximately 12hours,

which is beneficial for outsourcing of work

will soon come to an end.

Opportunities

High quality IT education market

Increasing number of working age people

India 's well-developed soft infrastructure

Upcoming International Players in the

market

Threats

Lack of data security systems

Countries like China and Philippines with

qualified workforce making efforts to

overcome the English language barrier

IT development concentrated in a few cities

only


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2.1: Introduction:

A literature review is an evaluative report of studies found in the literature related to

our selected area. The review should describe, summarize, evaluate and clarify this literature.

It should give a theoretical basis for the research and help us to determine the nature of ourown research. Select a limited number of works that are central to our area rather than trying

to collect a large number of works that are not as closely connected to our topic area.

A literature review goes beyond the search for information and includes the identification and

articulation of relationships between the literature and our field of research. While the form

of the literature review may vary with different types of studies, the basic purposes remain

constant:

a)

Provide a context for the researchb) Justify the researchc) Ensure the research hasn't been done before (or that it is not just a "replication study")d) Show where the research fits into the existing body of knowledgee) Enable the researcher to learn from previous theory on the subjectf) Illustrate how the subject has been studied previouslyg) Highlight flaws in previous researchh) Outline gaps in previous researchi) Show that the work is adding to the understanding and knowledge of the field

j) Help refine, refocus or even change the topic.

2.2: Literature Review:

There is a vast body of literature by eminent scholars and financial experts on

different aspects of the stock market. The literature available on stock market mainly deals

with various aspects such as stock market efficiency, stock pricing, stock valuation and stock

market operations-. This chapter presents an overview of the important studies mid literature

on capital market.

The review of the available literature shows that although there are a number of

studies on the different aspects of capital market, there is no specific comprehensive study on

the attitudes, aspirations and perceptions of individual investors. The present study is an

attempt to fill this gap to a certain extent.


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DOW Theory Trends: The ideas of Charles Dow, the first editor of the Wall Street

Journal, form the basis of technical analysis. The Dow Theory is a method of interpreting and

signaling changes in the stock market direction based on the monitoring of the Dow Jones

Industrial and Transportation Averages. Dow created the Industrial Average, of top blue chipstocks, and a second average of top railroad stocks (now the Transport Average). He believed

that the behavior of the averages reflected the hopes and fears of the entire market. The

behavior patterns that he observed apply to markets throughout the world.

Baumol (1965)

In this paper researcher ascertains the importance of contribution to a better understanding of

the performance of the stock market. His book represents a synthesis of past research andcurrent thinking on the subject. It analyses in considerable detail both the short-run and long-

run price equilibrating processes and points out important departures from the competitive

ideal and the implications of these departures to stock market efficiency. Besides, Baumol

offers his own hypothesis on the pricing of securities, and he sheds new light on the overall

efficiency of the stock market as a mechanism for allocating the nations capital resources.

Bhatia (1970)

In this researcher has made an evaluative study of the New Issue Market (NIM) for the

period 1958-1973. The role of the financial institutions in the NIM has been described and

evaluated. The study shows that a new class of middle - income individual investors has

emerged as an important supplier of the risk capital.

The growth of joint stock companies played an important role in the development of the new

issue market. Besides, the government also passed various legislations to protect the interests

of the investors. Of the various institutions involved in the organization of the NIM, stock

exchanges are the most important, because they provide a continuous market for issued

securities.

Gupta (1972)

In this researcher he has studied about the working of stock exchanges in India and has

given a number of suggestions to improve its working. The study highlights the need to

regulate the volume of speculation so as to serve the needs of liquidity and price continuity. It


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suggests the enlistment of corporate securities in more than one stock exchange at the same

time to improve liquidity. The study also wishes the cost of issues to be low, in order to

protect small investors.

Rohatgi (1973)

This research explains that the basic function of the stock market is to provide ready

marketability or liquidity to holdings of securities. The ideal stock market is one that can

provide instantaneous and unlimited liquidity. But it is reasonable to assume that a prudent

long-term investor in equities would provide for his immediate cash needs. This is in

agreement with the three motives of liquidity preference. If so, one would expect not `instant'

liquidity, but moderate liquidity. It will be unreasonable for any investor to suppose that his

equity holdings are as good as cash.

Mc Kinnon and Shaw (1973)

This study investigated the advocate liberalization of financial market. Study argues the state

intervention in setting interest rates and quantitative measures of resource allocation

adversely affect, not only allocative efficiency but also depress the aggregate saving rate in

less developed economies.

Khan (1976)

This study of researcher examines the role, and the cost of raising funds from the market. The

study goes on to suggest appropriate measures to enable the NIM to play a part in consonance

with the requirements of the planned growth of industry. The core of the study deals with the

new issues and company finance, the structure of underwriting, and the cost of capital. The

study has important policy implications in terms of its relevance to the national economy. In

the process of industrialization, a developed NIM would be instrumental in forging an

organic link between the collection and distribution of industrial capital.

Blume and Friend (1978)

This study states that the proportion of stock owned by institutional investors in America has

increased sharply, while that owned by individual investors has decreased. They analyze the

effects of the shift in stock ownership from individuals to institutions on the efficiency of

equity market. They also examine, the pros and cons of numerous proposals for improving


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the securities market. Transactions by individuals have always been regarded as essential to

both liquidity and the efficiency of the market.

Panda (1980)In this, researcher has studied the role of stock exchanges in India before and after

independence. The study reveals that listed stocks covered four-fifths of the joint stock sector

companies. Investment in securities was no longer the monopoly of any particular class or of

a small group of people. It attracted the attention of a large number of small and middle class

individuals. It was observed that a large proportion of savings went in the first instance into

purchase of securities already issued.

Gupta (1981)

This research is an extensive study titled `Return on New Equity Issues' which states that the

investment performance of new issues of equity shares, especially those of new companies,

deserve separate analysis. The factor significantly influencing the rate of return on new issues

to the original buyers is the `fixed price' at which they are issued. The return on equities

includes dividends and capital appreciation. The study presents sound estimates of rates of

return on equities, and examines the variability of such returns over time.

The findings of this study suggest that the market seems to function largely on a `hit or miss'

basis rather than on the basis of informed beliefs about the long-term prospects of individual

enterprises. The main reason for the market's irrationality appears to be the preponderance of

speculative influences over investment influences.

Gujarathi (1981)

This study of researcher answers the question of the risk - adjusted return in the issue market.

It is a significant work in the field of new issues in India. The difficulty of estimating the risk

(Beta) of newly issued securities forced Guajarathi to use complicated methodology for

arriving at the risk-adjusted return. His conclusion is that investors in the new issue market in

1970s earned an extra normal return of nearly 2 per cent per month.

Chitale (1983)

This research has evaluated the underlying causes of the growing shortage of equity finance

for funding new industrial enterprises in the private sector during the period 1960-1980. The


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available evidence suggests the emerging scarcity of risk finance, despite bullish trend in the

price of select shares and over - subscription to a few issues of good companies. The study

also evaluates the quantum and the kind of returns that investors were able to earn from their

investments in equity shares of new companies.

Gupta (1985)

This study has analyzed share price behavior in India in the context of efficient market

hypothesis. Using data over a period of five years (January 1971 to March 1976) from the

Indian stock market, the author has examined the applicability of Random Walk Hypothesis

in describing share price behavior under the Indian conditions.

Cho (1986)

This study of researcher argues that financial market liberalization may remain, incomplete

without an efficient market for equity capital as a means of spreading risk and reward.

Gupta (1987)

This study emphasis on the geographic distribution of corporate shareholders in India. The

study shows that a process of `securitization' is going on in the Indian capital market. The

spotlight of the study is on equity shareholders. It covers individual holders of industrial

securities in India. It is based on a sample of 1,09,031 security holders drawn from 165

companies distributed over various regions of India.

The study brings out the dominant share of the metropolitan cities. The respective

percentage shares as per data related to 1983- 84 were; Bombay (35.3), Calcutta (10.0), Delhi

(9.5) and Madras (3.9). An important factor for the very meager share of small towns and

villages in the country's share - holding population, according to Gupta, is the lack of

infrastructure needed for facilitating share transactions.

Deva Kumar (1987)

This study reveals that earlier to 1985, there were very few investors and they were

knowledgeable. During the 1985 boom, thousands of new investors invaded the market. The

new investors suffered heavy losses compared to the professionals. A good number of new

investors have walked out of the stock market to safer areas like UTI Units, NSC, etc. There

is a mild shift of investment preferences to mutual funds also.


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Narayana Rao and Bhole (1990)

This research point out that over longer periods of time, positive rate of return was being

provided by equities, but in the short-run, the real return was often negative. The regressionanalysis shows that the nominal total return on equities in India has increased, but not in

proportion to an increase in the rate of inflation. The coefficient of inflation is found to be

nearer to zero than one. The real return on equity has been found negatively related to

inflation throughout all periods. Thus equity share in India may only be a weak or partial

hedge against inflation.

Gupta (1991)

Researcher has made an extensive survey of Indian share-owners, around mid-1990. It

throws light on many unknown aspects of the market for shares and other financial assets.

The study covers a wide range of aspects and has generated much new data on investors, their

investment habits and preferences.

The study involved nearly 6000 households spread over more than 100 cities of

India. According to the study there do around 38 lakh share owning households and about 90

to 95 lakh shares own individuals in India. The number of debenture - owning households is

about 29 lakh and most of them are shareowners also.

The most outstanding development is that share ownership has become a middle class

phenomenon (7501'0). Nearly 6.5 percentages of the Indian households own shares and are

mainly restricted to cities. The analysis reveals that nearly 75% of the share owners are long

term investors.

Anshuman and Chandra (1991)

This study of researcher has trace out the government policy of favoring small shareholders

in terms of allotment of shares. They argue that such a policy suffers from several lacunae

such as higher issue and servicing costs and lesser vigilance about the functioning of

companies because of inadequate knowledge.

Jawahar Lal (1992)

This study presents a profile of Indian investors and evaluates their investment decisions. He

made an effort to study their familiarity with, and comprehension of financial information,


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and the extent to which this is put to use. The information that the companies provide

generally fails to meet the needs of a variety of individual investors and there is a general

impression that the company's Annual Report and other statements are not well received by

them.

Fama and French, (1992)

This study titled, The cross section of expected returns, Journal of Finance identifies that

value stocks (high book/market) significantly outperform growth stocks (low book/market).

The average return of the highest book/market decile is reported to be one per cent per month

higher than the average return for the lowest book/market decile. (www.aims-

international.org).

Mayer (1992)

This research has examined using company balance sheet data, found that internal resources

finance bulk of corporate investment in major OECD countries and the roll of the stock

market is very limited.

Pyare Lal Singh (1993)

This study titled, Indian Capital Market,a functional analysis, depicts the primary market

as a perennial source of supply of funds. It mobilizes the savings from the different sectors of

the economy like households, public and private corporate sectors. The number of investors

increased from 20 lakhs in 1980 to 150 lakhs in 1990 (7. 5 times). In financing of the project

costs of the companies with different sources of financing, the contribution of the securities

has risen from 35.01% in 1981 to 52.94% in 1989. In the total volume of the securities

issued, the contribution of debentures / bonds in recent years has increased significantly from

16. 21 per cent to 30.14 per cent.

Subhash Chander and Ashwani Kansara (1994)

This study has surveyed the perceived significance of the information contained in the

abridged prospectus attached to the application form for shares / debentures of companies.

For an existing company, the information necessary for investment decisions could be

obtained from newspapers, magazines, annual reports, prospectus etc. But for a new


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company, abridged prospectus is the main important document which provides information

for investment decisions.

The study shows that the majority of investors are casual investors. The investors

regard abridged prospectus as well as the investment journals as the prime source ofinformation for their investment decisions. Investment decisions also depend upon unofficial

premium quoted in business magazines, expert analysis, market trends, political

considerations, etc.

Bajpai (1994)

This study investigated that, the liquidity aspect is an essential constituent of an efficient

stock market, a sub-system of capital market. The growth of the equity in the 1980s was

supported by the actual experience of the Indian investors. Equity prices between 1978 and

1993 have outperformed other popular avenues of investment.

The chance of lucrative capital gain along with annual return from equity investment

attracted investors in a large scale towards primary and secondary capital markets. It

highlighted the need for liquidity of investment. The fact is that only 6 per cent of the listed

scripts remained on the active trading, and 28 per cent of them were traded once in a year just

to satisfy the requirements of listing agreement.

Bhole (1995)

This study "The Indian Capital Market at Crossroads" finds that various categories of

people in India have become preoccupied, rather obsessed with, the industrial securities

market since the middle of the 1980s, particularly since the launching of the New Economic

Policy (NEP) in the middle of 1991. The stock market has been regarded and projected as the

barometer of the health of the economy. The essentiality of the growth or spread of equity

culture or equity is being constantly stressed. Though the stock market activity has been

subject to wide fluctuations, the long-term trend has been one of steep increase. An

accelerating or exponential increase in new issues has occurred during the 80s and 90s. The

investors' asset preference has somewhat shifted from deposits to industrial securities.

Sahadevan and Thirpal Raju (1995)

This study investigates into the lead-lag relationship between money supply and stock return

in the Indian context. The study has attempted to trace the relationship between stock returns


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and money supply using monthly observation on SENSEX, RBI Index, M1, and M3 for a

period spanning over 14 years ending March 1994. The result reveals that supply variations

in money have a lag effect on stock return and hence, stock market is not found efficient with

respect to monetary data.

Amanulla and Kamaiah (1995)

This research makes an attempt to assess the Indian stock market efficiency by using market

integration approaches. The results show that there is no evidence in favour of market

efficiency of Bombay, Madras and Calcutta Stock Exchanges, while the results confirm the

existence of market efficiency in Ahmedabad and Delhi Stock Exchanges.

Feldman and Kumar (1995)

This research shows the potential benefits of equity markets to developing countries. They

argue that several constraints prevent banks from providing funds for long-term investment.

Improving the functioning of secondary market trading has the added advantage of

facilitating the primary issuance of equity shares.

The combined capitalization of some 38 emerging stock markets had increased

dramatically from less than $ 100 billion in 1983 to nearly $2 trillion by 1993. Information

flows, disclosure requirements, auditing and accounting standards and the existence of credit

rating institutions have an important bearing on the development and operations of capital

markets.

Dowen, R.J. (2001)

This study of researcherextends the Abarbanell and Bushee (1997, 1998) research on topic

Fundamental Information and Monetary Policy: The Implications for Earnings and

Earnings Forecastsby including new information developed in finance-related literature as

additional signals in the form of dividend yield, firm size and book-to-market value of equity

ratio. Monetary policy is also identified as a variable that may form the relationship. This is

based on the belief that monetary policy influences equity returns. Similar results were found.

Monetary policy relates both to the observed level of the signals and the level of earnings

change. However, monetary policy does not alter the degree to which future earnings are

predictable from publicly available information.


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The Economic Times' study (1995)

This study suggests that the major factors leading to a sustained weakness in stock prices are

excessive supply of equity shares and higher than apparent (P/E) levels of major stocks. Both

imply a failure of the market.When the Sensex peaked at 4547 on April 2, 1992, the aggregate market

capitalization amounted to Rs. 2,410 billion. And when the Sensex steadily fell to touch a

bottom of 1980 on 27 April 1993, (56.5%) the aggregate market capitalization declined only

by 23% to Rs. 1859 billion. The bulk of this differential (56.5-23 =33.5%) is due to the

increase in the sheer quantity of shares. By September 12, 1994, the Sensex scaled a peak of

4643, up by 134 %. But the aggregate market capitalization rose even more steeply to Rs.

5,518 billion.

A CMIE (1995)

This study on Initial Public Offering (IPO) points out that average annualized returns

obtained from issue date to list date by IPOs was 339%. But these returns fade away with

time, so that after one-month of listing, they drop to 256%. Annualized returns after three

months fell to 206% and subsequently to 120% after one year from listing. Returns on IPOs

are also highly volatile in the first few days of listing. By the end of sixty days from listing,

the volatility drops to 25 % of what it was in the first ten days of listing.

Debojit Chakraborty (1997)

This study of researcher tries to establish a relationship between major economic

indicators and stock market behavior. It also analyses the stock market reactions to

changes in the economic climate. The factors considered are inflation, money supply, and

growth in GDP, fiscal deficit and credit deposit ratio. To find the trend in the stock markets,

the BSE National Index of Equity Prices (Natex) which comprises 100 companies was taken

as the index. The study shows that stock market movements are largely influenced by, broad

money supply, inflation and fiscal deficit apart from political stability.

CMIE (1997)

This study explains that the proportion of rights issues was down to 16% during the first

three-quarters of the1996-'97 from 21% in 1995- With an objective to judge, what kind of

issues from the primary market have provided returns to the investors, CMIE analyzed the


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returns of a random sample of rights issues. This analysis clearly brought out the point that

judicious investments do provide returns. The majority of the rights offerings, which have

given positive returns, outperformed the market.

From the available review of literature mentioned above, there was no article or studies

which is related to my area of interest. Hence in order to bridge the gap between this, I have

selected this topic for my research.

2.3: Statement of the problem:

This study was undertaken to analyze the various economic, industry and company

factors that affect the IT sector. Fundamental analysis is good for long term investment basedon long term trend. The ability to identify and predict long term economic, demographic, and

technological or consumer trends can benefit long term investor who picks the right industry

or company. Again the study also analyzes the performance of the seven IT companies for the

past five years and comparison is made for their performance in different years.

2.4: Objective of the study:

The objective of this project is to deeply analyze our Indian IT sector for investmentpurpose by monitoring the growth rate and performance on the basis of historical data. The

main objectives of the Project study are:

i. To analyze the financial health of selected IT companies stock.ii. To examine the growth of IT sector in Indian capital market.

iii. To prepare comparative study of top IT companies.iv. The primary objective of equity research is to analyze the earnings persistence.v. To find out potentiality of selected companies through current ratios.

vi. To check companies performance on the basis of historical data.vii. To study and examine the relevance of fundamental analysis in investment decisions

making process.

viii. To analyze which company is giving best returns to the shareholders.


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2.5: Scope of the study:

The scope of the study is identified and during the study is conducted. The project is

based on tools like fundamental analysis and ratio analysis. Further, the study is based on

information of last five years.i. The analysis is made by taking into consideration seven companies i.e. TCS,

Wipro, Infosys, Satyam computers services, HCL Technologies, Tech Mahindra,

L&T Infotech.

ii. The scope of the study is limited for a period of five years.iii. The scope is limited to only the fundamental analysis of the chosen stocks.

2.6: Need of the study:To start any business capital plays major role. Capital can be acquired in two ways by

issuing shares or by taking debt from financial institutions or borrowing money from

financial institutions. The owners of the company have to pay regular interest and principal

amount at the end. Stock is ownership in a company, with each share of stock representing a

tiny piece of ownership. The more shares a person own, the more of the company he owns.

The more shares he own, the more dividends he earn when the company makes a profit. In

the financial world, ownership is called Equity.

Advantages of selling stock:

A company can raise more capital than it could borrow.

A company does not have to make periodic interest payments to creditors.

A company does not have to make principal payments stock/shares play a major role in

acquiring capital to the business in return investors are paid dividends to the shares they own.

The role of equity analysis is to provide information to the market. An efficient

market relies on information: a lack of information creates inefficiencies that result in stocks

being misrepresented (over or under valued). This is valuable because it fills information

gaps so that each individual investor does not need to analyze every stock thereby making the

markets more efficient.


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2.7: Limitations:

a) This study has been conducted purely to understand Equity analysis for investors.b) The study is restricted to seven companies based on Fundamental analysis.c) The study is limited to the companies having equities.d) Detailed study of the topic was not possible due to limited size of the project.e) Suggestions and conclusions are based on the limited data of five years.f) The future is uncertain.

2.8: Research Methodology:

Research design or research methodology is the procedure of collecting, analyzingand interpreting the data to diagnose the problem and react to the opportunity in such a way

where the costs can be minimized and the desired level of accuracy can be achieved to arrive

at a particular conclusion.

The sample of the stocks for the purpose of collecting secondary data has been

selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and

each stock is chosen independent of the other stocks chosen. The stocks are chosen from the

IT sector.The sample size for the number of stocks is taken as 7 for fundamental analysis of

stocks as fundamental analysis is very exhaustive and requires detailed study.

2.8.1: Source of Data:

Sources of data may be classified into primary and secondary sources. Primary sources

are original sources from which the researcher directly collects data from the customer.

Secondary data has been collected from various sources to analyze the fundamentals. The

secondary data are collected from the BSE, NSE, moneycontrol.com, articles, magazine,

journals and various websites etc.

2.8.2: Research Method:

The descriptive method is used for the study.


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2.8.3: Sample Size:

For this study seven IT companies are selected which are listed under Indian stock market.

2.8.4 Chapter scheme:

Chapter 1 Introduction: It contains information of equity analysis and Indian IT sector,

background, concept, overview, meaning of fundamental and technical analysis, role of IT

sector, and impact of IT sector on Indian economy.

Chapter 2 Review of Literature and ResearchDesign:It contains the information about

the introduction, Review of Literature, Statement of problems, Scope of study, Objective of

study, Methodology, Limitation, and chapter schemes.

Chapter 3 Industry profile and Company profile:It contains the information related to the

origin and growth of Indian IT sector and Indian stock market, types of stock market, recent

trends etc. and also the information related to top IT companies working in India and listed in

stock market, and all details about it.

Chapter 4 Results, Analysis, and Discussions: It is the analysis showing the various

opinions of the investors relating to the direct equity investment and investment in IT sector.

Chapter 5 Summary of Finding, Conclusion & Suggestion: It contains the findings,

conclusion, and suggestion related to the various investment avenues. Bibliography.


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3.1: Introduction:

The computer systems design and related services industry is among the economy's

largest and fastest sources of employment growth. Employment increased by 616,000 over

the 1994-2004 periods, posting a staggering 8.0-percent annual growth rate. The projected

2004-14 employment increase of 453,000 translates into 1.6 million jobs, and represents a

relatively slower annual growth rate of 3.4 percent as productivity increases and offshore

outsourcing take their toll. ("Industry output and employment projections to 2014" by Jay M.

Berman, Bureau of Labor Statistics) However, the main growth catalyst for this industry is

expected to be the persistent evolution of technology and business' constant effort to absorb

and integrate these resources to enhance their productivity and expand their market

opportunities. Employment of computer and information systems managers is expected to

grow between 18 to 26 percent for all occupations through the year 2014. (Career Guide to

Industries 2006-07)

The Indian IT sector is growing rapidly and it has already made its presence felt in all

parts of the world. IT has a major role in strengthening the economic and technical

foundations of India. Indian professionals are setting up examples of their proficiency in IT,

in India as well as abroad.

3.2: IT sectors- an overview:

The computer systems design and related services industry is among the economy's

largest and fastest sources of employment growth. Employment increased by 616,000 over

the 1994-2004 periods, posting a staggering 8.0-percent annual growth rate.

The projected 2004-14 employment increase of 453,000 translates into 1.6 million

jobs, and represents a relatively slower annual growth rate of 3.4 percent as productivity

increases and offshore outsourcing take their toll. ("Industry output and employment

projections to 2014" by Jay M. Berman, Bureau of Labor Statistics) However, the main

growth catalyst for this industry is expected to be the persistent evolution of technology and

business' constant effort to absorb and integrate these resources to enhance their productivity

and expand their market opportunities. Employment of computer and information systems

managers is expected to grow between 18 to 26 percent for all occupations through the year

2014. (Career Guide to Industries 2006-07)


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The sector can be classified into these broad categories -

1. IT Services2. Engineering Services3.

ITES-BPO Services

4. E Business

3.2.1: IT Services:

It can further be categorized into Information Services (IS) outsourcing, packaged software

support and installation, systems integration, processing services, hardware support and

installation and IT training and education.

3.2.2: Engineering Services:

Include Industrial Design, Mechanical Design, Electronic System Design (including

Chip/Board and Embedded Software Design), Design Validation Testing,

Industrialization and Prototyping.


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3.2.3: IT Enabled Services:

These are services that use telecom networks or the Internet. For example, Remote

Maintenance, Back Office Operations, Data Processing, Call Centers, Business Process

Outsourcing, etc.

3.2.4: E Business:

(Electronic business) is carrying out business on the Internet; it includes buying and selling,

serving customers and collaborating with business partners.

Major Trends:

Graph No. 3.1 showing major trends in Hiring

The bar chart shows that the recruitment of engineers and IT professionals in the

industry is growing at the Compound annual rate of 14.5% approximately. In the FY06,

the direct employment in the IT-ITES sector was 1.3 million people and the indirectemployment was 3 million approximately.

A trend in salary hikes along with abundant growth opportunities, IT sector is one of

the highest paying sectors. The average increase in salary in IT sector across the levels was

around 16% and the average increase in the ITeS BPO sector across the levels was in

between16%-18% Requisites for balanced salaries

Review of compensation according to the skills Developing talent in-house


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Entry of talented freshersin the industry

IT: Success Factors:

Increasing number of skilled professionals in IT. The demographic factor.

Approximately 60% of the population of India lies in the age group of 15-65. More than

half of the population of India is below the age of 25. So in the future, the number of working

people is going to be more than the number of dependents. In the year 2006, Total enrollment

in colleges was 9.3 million and India produced 441,000 Technical graduates. India has the

second largest English-speaking workforce in the world.

3.3: The Indian IT Industry:The Information Technology (IT) sector in India holds the distinction of advancing

the country into the new-age economy. The growth momentum attained by the overall

economy since the late 1990s to a great extent can be owed to the IT sector, well supported

by a liberalized policy regime with reduction in telecommunication cost and import duties on

hardware and software. Perceptible is the transformation since liberalization - India today is

the world leader in information technology and business outsourcing. Correspondingly, the

industrys contribution to IndiasGDP has grown significantly from 1.2% in 1999-2000 toaround 4.8% in FY06, and has been estimated to cross 5% in FY07. The sector has been

growing at an annual rate of 28% per annum since FY01. Indian IT companies have globally

established their superiority in terms of cost advantage, availability of skilled manpower

and the quality of services. They have been enhancing their global service delivery

capabilities through a combination of organic and inorganic growth initiatives. Global giants

like Microsoft, SAP, Oracle, and Lenovo have already established their captive centers in

India. These companies recognize the advantage India offers and the fact that it is among

the fastest growing IT markets in the Asia-Pacific region.

Sector structure/Market size:

The Indian information technology industry has played a key role in putting India on

the global map. Thanks to the success of the IT industry, India is now a power to reckon with.

According to the National Association of Software and Service Companies (NASSCOM), the

apex body for software services in India, the revenue of the information technology sector


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has risen from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an

estimated 5.8 per cent in FY 2008-09.

India's IT growth in the world is primarily dominated by IT software and services

such as Custom Application Development and Maintenance (CADM), System Integration, IT

Consulting, Application Management, Infrastructure Management Services, Software testing,

Service-oriented architecture and Web services.

The government expects the exports turnover to touch US$ 80 billion by 2011,

growing at an annual rate of 30 per cent per annum, from the earlier few million dollars

worth exports in early 1990s.

Graph No. 3.2 showing IT market structure


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Functioning of Software segment is explained pictorially in the figure below:


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3.4: MAJOR IT COMPANIES:

S. NO. COMPANY

1 TCS

2 INFOSYS

3 WIPRO

4 HP

5 IBM

6 SATYAM

7 HCL

8 PATNI

9 POLARIS

10 CISCO

11 KPIT CUMMINS

12 I-FLEX SOLUTIONS

13 MICROSOFT

14 DELL

15 LARSEN & TURBO

3.5: Nature of competition:

Nature of competition is an essential factor that determines the demand for the

particular product, its profitability and the price of the concerned company scripts. The

companys ability to withstand the local as well as the multinational competition counts

much. If too many firms are present in the organized sector, the competition would be severe.

The competition would lead to a decline in the price of the product. The investor before

investing in the script of a company should analyze the market share of the particular

company's product and should compare it with the top five companies.


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Key Positives & Negatives for the Indian IT Industry:

Positives Negatives

Growth in IT spending Rupee Appreciation

Opening up of newer geographies like

Europe

Anticipated slowdown in the US economy

Strong volume growth Wage inflation

Increase in offshore spending Higher attrition rate

M&A to increase reach, clients and

offerings

Lack of proper infrastructure

Setting training and development centers to

train fresh entrants

Competition from low cost countries, China,

Philippines, Vietnam

3.6: Growth of Indian IT industry:

India's IT industry has recorded phenomenal growth over the last decade. During the

period from 1992-2001, the compounded annual growth rate of the Indian IT services

industry has been over 50%. The software sector in India has grown at almost double the rate

of the US software sector.

The statistics of the India's IT industry substantiates the huge momentum acquired by

the IT sector in the recent past. During the financial year 2000-2001, the software industry

in India accounted for $8.26 billion. The corresponding figure was $100 million 10 yearsback.

As per the report of a study undertaken by NASSCOM-McKinsey, the software

export from Indian IT industry is likely to reach 50 billion US dollars in the year 2008. This

growth rate of the software sector for the year 2008 has been projected on the basis of the

35% per year growth rate achieved in the last couple of years. Export of software and

services from India is expected to add almost 41 billion US dollars to the annual revenue of

the Indian government in the current year. The share of technology industry in India's GDP is


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expected to reach 5.5% in 2008; while the corresponding figure in 1998 was as small as

1.2%. The study of NASSCOM has revealed that the growth of India's IT industry has

prompted the growth of Indian exports by almost 36%. Another favorable effect of India's IT

boom is the expansion of opportunities of employment. By the end of fiscal year 2008, the ITsector of India is expected to employ around 2 million skilled Indian youths.

The growth of India's IT sector has brought about many other positive changes in the

Indian economy. The purchasing power of a large section of Indian population has increased

dramatically. This has resulted in an increase in the average standard of living of the majority

of population of the country. The increase in purchasing power of the common people has

propelled the growth rate of the other sectors of the economy as well.

India is now home to a number of IT giants. The operations of IT firms like Wipro,

Infosys, Accenture, Capgemini, Tata Consultancy Services and many more in different

locations of India have changed the entire scenario of the Indian job market. The ITES sector

has also come up to complement the growth of Indian IT sector.

As it can be seen from the table above, researcher has clocked the highest Sales

CAGR of 99% in the past five years, followed by HCL Infosystems (50%), Infosys (24%)

and Wipro (22%). However, the highest margins are enjoyed by the software majors Infosys

(28%), closely followed by Educomp (27%) and TCS (24%).


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Outsourcing:

A research by Gartner forecasts India as the undisputed leader in the outsourcing

space in the year 2008. India's most prized resource is its readily available technical work

force. India has the second largest English-speaking scientific professionals in the world,

second only to the US. It is estimated that India has over 4 million technical workers, over

1,832 educational institutions and polytechnics, which train more than 67,785 computer

software professionals every year. The enormous base of skilled manpower is a major draw

for global customers. According to NASSCOM software and services exports (including

exports of IT services, BPO, engineering services and R&D and software products) reached

US$47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and

services revenue of US$ 59.6 billion.

Domestic Markets:

India's domestic market has also become a force to reckon with, as the existing IT

infrastructure evolves both in terms of technology and depth of penetration.

According to NASSCOM, domestic IT market (including hardware) reached US $24.3 billion

in FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent.

India Inc's demand for IT services and products has bolstered growth in the domestic

sector with deal sizes going up remarkably and contracts worth US$ 50 million-US$100

million up for grabs. Such growth in the software and services sector has been achieved

because of spectacular growths in some segments. According to research firm Gartner, India's

personal computer (PC) market is likely to grow by 13.7 per cent to 11.1 million units in

2009, aided by a surge in demand for laptops. The laptop market is expected to grow by 37

per cent from 2009 to 3.69 million units and constitute a third of the total PC market.

The securities market has essentially three categories of participants (i) the investors,

(ii) the issuers, (iii) the intermediaries. The Securities and Exchange Board of India (SEBI),

Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and the Department of

Economic Affairs (DEA) of the Ministry of Finance regulate these participants.


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3.7: Market Segments and their Products:

The Exchange (NSE) provides trading in four different segments - Wholesale Debt

Market, Capital Market, Futures and Options and Currency Derivatives Segment as

mentioned below.

(i) Wholesale Debt Market (WDM) Segment:

This segment at NSE commenced its operations in June 1994. It provides the trading

platform for wide range of debt securities which includes State and Central Government

securities, T-Bills, PSU Bonds, Corporate debentures, Commercial Papers, Certificate of

Deposits etc.

(ii) Capital Market (CM) Segment:

This segment at NSE commenced its operations in November 1994. It offers a fully

automated screen based trading system, known as the National Exchange for Automated

Trading (NEAT) system. Various types of securities e.g. equity shares, warrants, debentures

etc. are traded on this system.

(iii) Futures & Options (F&O) Segment:

This segment provides trading in derivatives instruments like index futures, index

options, stock options, and stock futures, and commenced its operations at NSE in June 2000.

(iv) Currency Derivatives Segment (CDS) Segment:

This segment at NSE commenced its operations on August 29, 2008, with the launch

of currency futures trading in trad

A Project Report on Equity Analysis on Indian IT Sector

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