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Transcript of Financial markets analysis and research
A
Summer Internship Program
Project Report
On
“Financial Markets: Analysis and Research”
Completed at
Submitted to
IILM-Academy of Higher Learning, Jaipur
in
Partial Fulfilment for award of
Post Graduate Diploma in Management (2015-2017)
Submitted to: Submitted by:
Sunil Sharma Arpit Soni
Placement Manager Roll. No. S01506
IILM-AHL, Jaipur PGDM 2015-17
IILM-AHL, Jaipur
Declaration
I, Arpit Soni S/o Mohan Lal Swarnkar, Roll no. S01506, student of Post Graduate Diploma in
Management (2015-2017) Batch at Integrated Institute of Learning Management- Academy of
Higher Learning, Jaipur, hereby declare that the Summer Internship Project Report entitled
“Financial Markets: Analysis and Research” is an original work and has been submitted to the
College.
A Summer Internship Presentation and Report was Presented and Submitted on 8 Aug. 2016 and the
suggestions as approved by the faculty were duly incorporated.
(Arpit Soni)
Signature of Candidate
Acknowledgement
My internship opportunity I had with Motisons Shares Pvt. Ltd. was a great chance for learning and
professional development. I am obliged to receive this opportunity of working with the
professionals who guided me through this internship period. It‟s been a good experience of learning
outside the classrooms and implementing the knowledge in a corporate environment.
I would like to express my deepest gratitude and special thanks to Mr. Kamal Jain, Marketing
Director, Motisons Shares Pvt. Ltd. who in spite of being busy with his duties, took time out and
allowed me to carry out my internship at their esteemed organisation.
I also express my sincere thanks to Mr. Rohan Sharma, Co-Founder of Motisons Financial
Academy and Company Mentor, who continuously guided me during this internship period and
gave his time for making me learn the corporate environment. I choose this moment to acknowledge
his contribution in sharing his pool of knowledge about Financial Markets with me.
I would also like to acknowledge Mr. Abhishek Kalla, Central Manager and Ms. Prachi Bhola,
Operational Central Manager, Motisons Financial Academy for her careful guidance and support
during my internship which eased my learning.
Last but not the least, I give my sincere thanks to my college Dean sir Dr. Vidhu Mathur, Assistant
Professor Mr. Jitendra Naruka (Finance Faculty), Mr. Sunil Sharma (Placement Manager) and other
faculty members of IILM- Academy of Higher Learning, Jaipur, who provided me with this
opportunity of Summer Internship.
I perceive this opportunity as a big milestone in my career development. I will strive to use my
gained knowledge and skills in the best possible way, and I will continue to work on their
improvement, in order to attain desired career objectives.
Preface
For a Management Student, Summer Internship is a golden chance for developing the capability and
learning the corporate environment so as to mingle with the professionals and receive the
opportunity to work with them in near future.
In this context, I received the opportunity to complete my Summer Internship Program in Motisons
Shares Pvt. Ltd, Jaipur under the guidance of Mr. Rohan Sharma (Co-founder of Motisons Financial
Academy).
This report shows and will guide the readers about the basics of Financial Market and knowledge of
Technical Analysis, Fundamental Analysis and Economic Analysis which I have gained during my
internship period. The report mainly focuses on Technical Analysis which was my core interest of
learning, during this period.
I tried to remain to the point in writing this report. Being a Management Student with Specialisation
in Finance, It‟s my interest in learning in deep the knowledge from Financial Domain. The
knowledge gained during this internship period is partial but really useful to understand the
Financial Markets.
The Research conducted by me during the second month of my internship is based on my personal
learning and knowledge which I have received during this internship period.
Contents
1. Objectives of Summer Internship
1
2. Abstract
2
3. Literature Review
3
4. Research Methodology
4
5. Introduction of Company
5
6. Learning’s from Summer Internship
a. Financial Market
7
b. Analysis of Financial Market
12
c. Technical Analysis
i. Introduction
14
ii. Basics of Charting
17
iii. Types of Charts
21
iv. Trade Cycle
24
v. Candlestick Patterns
26
vi. Trendline
32
vii. Support & Resistance
35
viii. Gap Theory
37
7. Research
40
a. Economic Analysis
40
b. Technical Analysis
41
c. Fundamental Analysis
43
8. Conclusions
46
9. Bibliography
47
1 | P a g e
Objectives of Summer Internship
The summer internship plays a crucial role in development of a Management Student. I did this
Summer internship with the following objectives in my mind :
To gain deep knowledge of Financial Markets.
To receive the opportunity to work with corporate Professionals in real Practical Situations.
To get oriented with corporate environment.
To understand the trading procedures in Share Markets.
To practically implement the knowledge of managerial concepts already learnt, during the
internship while working with the company.
To understand the corporate demands and assess my own abilities, so as to improve
accordingly.
The reason for doing my Summer Internship at Motisons Shares Pvt. Ltd. was that it‟s the company
which could fulfil my objectives and could provide me with required skills, knowledge and
corporate exposure.
As I am Management student with Finance specialisation, my core interest lies in understanding
Financial Markets in detail. At Motisons Shares Pvt. Ltd., I could gain the right exposure and decent
corporate environment to work with the professionals. I used this opportunity as my step to fulfil
my career objectives while learning about Financial Markets and implementing the same.
2 | P a g e
Abstract
Financial Market is the marketplace for traders and investors whether they are retail or institutional
investors. The financial securities comprising shares, debentures, bonds, derivatives are exchanged
among investors and the company.
Economic Analysis is studying the global market and Indian market economy simultaneously to
understand the impact of various factors on the selected company‟s share price movements.
Fundamental analysis is the study of financial reports and analysing the financial performance of
the company. It will help in finding out the intrinsic value of the company. The intrinsic value helps
to judge the future price movement of the company‟s share whether the current market price is
undervalued or overvalued.
Technical Analysis is the forecasting of future financial price movements based on an examination
of past price movements. Technical analysis does not result in absolute predictions about the future
with regard to forecasting. Instead, technical analysis can help investors anticipate what is
"possible" to happen to prices over time.
Technical analysis is study of predicting prices of securities for future the main aim of technical
analysis is to generate returns by charter person decide when to enter and when to exit in the
security.
Technical Analysis is of the stock market relating to factors affecting the supply and demand of
stocks. It helps in understanding the intrinsic value of shares and knowing whether the shares are
undervalued or overvalued.
This report aims at carrying out Economical, Fundamental and Technical Analysis of the securities
of the selected companies and to assist investment decisions in Indian Market.
3 | P a g e
Literature Review
The Indian capital market has changed dramatically over the last few years, especially since 1990.
Changes have also been taking place in government regulations and technology. The expectations
of the investors are also changing. The only inherent feature of the capital market, which has not
changed is the 'risk' involved in investing in corporate securities.
Many Researches have been conducted by academicians regarding the capital Markets and its
analysis.
Grewal S.S and Navjot Grewall (1984) revealed some basic investment rules and rules for selling
shares. They warned the investors not to buy unlisted shares, as Stock Exchanges do not permit
trading in unlisted shares.
Another rule that they specify is not to buy inactive shares, i.e., shares in which transactions take
place rarely. The main reason why shares are inactive is because there are no buyers for them. They
are mostly shares of companies, which are not doing well.
A third rule according to them is not to buy shares in closely-held companies because these shares
tend to be less active than those of widely held ones since they have a fewer number of
shareholders. They caution not to hold the shares for a long period, expecting a high price, but to
sell whenever one earns a reasonable reward.
Preethi Singh (1986) disclosed the basic rules for selecting the company to invest in. She opined
that understanding and measuring return md risk is fundamental to the investment process.
According to her, most investors are 'risk averse'. To have a higher return the investor has to face
greater risks.
According to research by Yasaswy J.N. (1993) , she evaluated the quantum of risks involved in
different types of stocks. Defensive stocks are low risk stocks and hence the returns are relatively
low but steady. Cyclical stocks involve higher risks and hence the rewards are higher when
compared to the growth stocks. Growth stocks belong to the medium risk category and they offer
medium returns which are much better than defensive stocks, but less than the cyclical stocks. The
market price of growth stocks does fluctuate, sometimes even violently during short periods of
boom and bust.
Mamaysky and Wang (2000) examines the effectiveness of technical analysis on US stocks from
1962 to 1996 and finds that over the 31-year sample period, several technical indicators do provide
incremental information and may have some practical value.
Lee and Swaminathan (2000) demonstrate the importance of past trading volume.
Researched have used genetic programming to show that technical trading rules can be profitable
during US foreign exchange intervention.(Neely and Weller ,2001)
Kavajecz and Odders-White (2004) show that support and resistance levels coincide with peaks in
depth on the limit order book 1 and moving average forecasts reveal information about the relative
position of depth on the book. They also show that these relationships stem from technical rules
locating depth already in place on the limit order book.
4 | P a g e
Research Methodology
The study aims at understanding the basics of Financial Market and the Technical analysis basics so
as to analyse a number of company‟s shares performance. As the study describes the existing facts
and figures given in the financial reports and price movements of the selected companies, the
research design followed is descriptive and analytical in nature.
The study also aims at studying the fundamental analysis and economic analysis.
The research has been conducted keeping in mind the knowledge of Fundamental, Economical and
Technical Analysis.
The companies have been selected on the basis of Economic analysis of the global market and
keeping in view the Indian perspective and impact of Global market on Indian market.
For technical analysis, the secondary data has been used to find out the price movements of the
company‟s shares. The data have been extracted from Sharekhan- Trade Tiger software as well as
from NSE websites.
The data used is from different time frames.
The primary source of investigation has been performed and analysis of the selected company‟
shares have been done.
The secondary source of data has been collected from records of the websites, software, and
published annual report of the companies because the primary data will not be possible to collect.
5 | P a g e
INTRODUCTION
Motisons Group was established in 1997, which made its debut in the business world as Jewellers
and soon emerged as one of the renowned Jewellers in Jaipur as well as across the country.
Motisons Group soon expanded and made its presence in different sectors of business world.
The different industrial presence being:
Motisons Jewellers Ltd.
Motisons Commodities Pvt. Ltd.
Motisons Shares Pvt. Ltd.
Motisons BuildTech Pvt. Ltd.
Motisons Townships Pvt. Ltd.
Motisons Hotels & Resorts India Pvt. Ltd.
Motisons Entertainment (India) Pvt. Ltd.
Motisons Financial Academy
Motisons Shares Pvt. Ltd.
Motisons Shares Pvt. Ltd. is one of the leading financial services companies in India with a
growing presence across the globe, serving a diverse customer base of retail and institutional
investors. Motisons Shares Pvt Ltd. has a vast experience in equity and commodity trading services
and has become synonymous with reliability and trust.
The company aims at changing the people‟s perceptions about investing in stock markets with their
user friendly equity trading solutions, exceptional research, competitive brokerage plans, robust
technology and centralised risk management system.
Priorities of Motisons Shares Pvt. Ltd.:
Rich User Experience
Exceptional Relationship approach
Superior Customer Service
6 | P a g e
Organisation Managing Team
Atul Sogani
Managing Director, Motisons Shares Private
Limited
Heading a team of 200+ employees with
devotion and commitment.
Kamal Jain
Marketing Director, Motisons Shares Private Ltd.
Founder, Motisons Financial Academy
Mentoring and monitoring the team of Motisons
Shares and Commodities.
Rohan Sharma
Co-Founder, Motisons Financial Academy
Heading institutional wing of Motisons Financial
Academy
7 | P a g e
Learning’s From Summer Internship Program
Financial Market
In my opinion, Financial Market is the place where Financial Securities like equity, bonds and
commodities etc. are traded on a regular basis.
It is a broad term describing the buying and selling of assets having financial nature such as
currency, equity, bonds and derivatives.
Intermediary functions of financial market: The intermediary functions of financial markets
include the following:
Transfer of resources: Financial markets facilitate the transfer of real economic resources from
lenders to ultimate borrowers.
Enhancing income: Financial markets allow lenders to earn interest or dividend on their
surplus invisible funds, thus contributing to the enhancement of the individual and the national
income.
Productive usage: Financial markets allow for the productive use of the funds borrowed. The
enhancing the income and the gross national production.
Capital formation: Financial markets provide a channel through which new savings flow to aid
capital formation of a country.
Price determination: Financial markets allow for the determination of price of the traded
financial assets through the interaction of buyers and sellers. They provide a sign for the
allocation of funds in the economy based on the demand and to the supply through the
mechanism called price discovery process.
Information: The activities of the participants in the financial market result in the generation
and the consequent dissemination of information to the various segments of the market. So as to
reduce the cost of transaction of financial assets.
Financial Functions of financial market:
Providing the borrower with funds so as to enable them to carry out their investment plans.
Providing liquidity in the market so as to facilitate trading of funds.
Providing liquidity to commercial bank
Facilitating credit creation
Promoting savings
Promoting investment
Facilitating balanced economic growth
Improving trading floors
8 | P a g e
Stock Market:
A stock Market is the aggregation of buyers and sellers of stocks, these may include stocks listed on
stock exchange as well as those only traded privately.
Stock market allows investors to trade shares of listed companies. They are the most vital areas of
market economy as they provide companies with access to capital and investors with a slice of
ownership in the company and the potential of gains based on the company's future performance.
Components of Financial Market:
Components of Financial Market (Source: Wikipedia)
On the Basis of Market Level
1. Primary Market: The market for Issue of new securities on the exchange. Companies,
governments and othe r groups obtain financing through debt or equity based securities. Primary
markets, also known as "new issue markets," are facilitated by underwriting groups, which consist
of investment banks that will set a beginning price range for a given security and then oversee its
sale directly to investors.
Fin
anci
al M
arke
t On the basis of Market Level
Primary Market
Secondary Market
On the basis of Security Types
Money Market
Capital Market
Equity Market
Debt Market
Commodity Market
Forex Market
Derivative Market
9 | P a g e
The primary markets are where investors have their first chance to participate in a new security
issuance. The issuing company or group receives cash proceeds from the sale, which is then used to
fund operations or expand the business.
2. Secondary market: It is the market where investors purchase securities or assets from other
investors, rather than from issuing companies themselves. The secondary market, also called
the aftermarket, is the financial market in which previously issued financial instruments such as
Stocks, bonds, options, and futures are bought and sold. The Securities are quoted in the stock
exchange and it provides the continuous and regular market for buying and selling of securities.
On the basis of Security Type:
1. Money Market
The money market is a segment of the financial market in which financial instruments with high
liquidity and very short maturities are traded. The money market is used by participants as a means
for borrowing and lending in the short term, from several days to just under a year. Eg. Treasury
Bill, Certificates of Deposits, Commercial Paper, Inter-bank Term Market, promissory note etc.
This market is exclusively for commercial and cooperative banks in India, which borrow and lend
funds for a period of over 14 days and upto 90 days without any collateral security at market-
determined rates.
2. Capital Markets
A capital market is the one in which individuals and institutions trade financial securities.
Organizations and institutions in the public and private sectors also often sell securities on the
capital markets in order to raise funds. Thus, this type of market is composed of both the primary
and secondary markets.
Any government or corporation requires capital (funds) to finance its operations and to engage in its
own long-term investments. To do this, a company raises money through the sale of securities -
stocks and bonds in the company's name. These are bought and sold in the capital markets.
(i) Equity Market
It‟s a market where ownership of securities are issued and subscribed.
Investing in the cash or "spot" market is highly sophisticated, with opportunities for both big losses
and big gains. In the cash market, goods are sold for cash and are delivered immediately. By the
same token, contracts bought and sold on the spot market are immediately effective. Prices are
settled in cash "on the spot" at current market prices.
10 | P a g e
(ii) Debt Market
The debt market is the market where debt instruments are traded. Debt instruments are assets that
require a fixed payment to the holder, usually with interest. Arrangements are made in such a way
that the borrowers agree to pay the lender the original amount of the loan plus some specified
amount of interest. Examples of debt instruments include bonds (government or corporate) and
mortgages.
3. Commodity Market
A commodity market is a physical or virtual marketplace for buying, selling and trading raw or
primary products.
Commodities are split into two types: hard and soft commodities. Hard commodities are typically
natural resources that must be mined or extracted (such as gold, rubber and oil), whereas soft
commodities are agricultural products or livestock (such as corn, wheat, coffee, sugar, soybeans and
pork).
4. Forex and the Interbank Market
An interbank market is the financial system and trading of currencies among banks and financial
institutions, excluding retail investors and smaller trading parties. While some interbank trading is
performed by banks on behalf of large customers, most interbank trading takes place from the
banks' own accounts.
The forex market is where currencies are traded. The forex market is the largest, most liquid market
in the world
5. Derivative Market
A derivative is a financial contract which derives its value from the performance of another entity
such as an asset, index, or interest rate, called the "underlying". Derivatives are one of the three
main categories of financial instruments, the other two being equities (i.e. stocks) and debt (i.e.
bonds and mortgages).
Derivatives can be used for risk management as well as for speculative purpose
Uses of derivative: Derivatives are used for:
1. Mitigate risk: it avoids risk by entering into derivative contract whose value moves in
opposite direction to underlying position and cancel part or all of it out.
2. Provide leverage: small movement in underlying variable movement can cause large
movement in derivative value, thus provides leverage
3. Creates option ability: value of derivative is linked to specific conditions. A call option
holder has an option to buy an underlying asset at specific price
4. Speculate and make profit: if speculation proved favorable, it help in making profit
5. To obtain exposure when it is directly possible to enter into a contract in underlying asset
11 | P a g e
Derivatives are mainly of 4 types: Forwards, Futures, Swaps and Options
Forwards: An agreement between buyer and seller to exchange a specified asset (commodity,
currency, instruments) at future date at a pre-determined price specified in agreement.
Futures: An agreement between two parties to buy or sell an asset (commodity, instruments) at a
particular price on a future date. Almost similar to forward contract, but futures are standardised
exchange traded contract whereas forwards are non-standardised.
Options: An option is a contract giving the buyer the right, but not the obligation, to buy or sell an
underlying asset (a stock or index) at a specific price on or before a certain date.
Options are of 2 types: Calls and Puts. Calls give the buyer the right but not the obligation to buy a
given quantity of an underlying asset, at a given price on or before a given future date. Puts gives
the buyer the right, but not the obligation to sell a given quantity of underlying asset at a given price
on or before a given date.
Swaps: Swaps are private agreement between two parties to exchange cash flows in the future
according to a pre-arranged formula. These are regarded as portfolios of forward contracts. The two
commonly used swaps are: Interest Rate Swaps, Currency Swaps
12 | P a g e
Analysis of Financial Market
Fundamental Analysis
Fundamental analysis is a stock valuation methodology that uses financial and economic
Analysis to envisage the movement of stock prices. The fundamental data that is analysed could
include a company‟s financial reports and non-financial information such as estimates of its growth,
demand for products sold by the company, industry comparisons, economy-wide changes, changes
in government policies etc.
The outcome of fundamental analysis is a value (or a range of values) of the stock of the company
called its „intrinsic value‟.
To a fundamental investor, the market price of a stock tends to revert towards its intrinsic value. If
the intrinsic value of a stock is above the current market price, the investor would purchase the
stock because he believes that the stock price would rise and move towards its intrinsic value. If the
intrinsic value of a stock is below the market price, the investor would sell the stock because he
believes that the stock price is going to fall and come closer to its intrinsic value.
An
alys
is
Technical Analysis
Quantitative
Data Filtering
Algorithm Trading
Behavioural Use of tools and
Technicals
Fundamental Analysis
Balance Sheet
Profit and Loss
Profitability
Predictions
Economic Analysis
Economic Cycle
Sectoral Analysis
Economic Indicators
Global Market
Asset Allocation
Currency and Bonds
(Source: Self Notes of
Internship Training)
13 | P a g e
To find the intrinsic value of a company, the fundamental analyst initially takes a top-down view of
the economic environment; the current and future overall health of the economy as a whole. After
the analysis of the macro-economy, the next step is to analyse the industry environment which the
firm is operating in. One should analyse all the factors that give the firm a competitive advantage in
its sector, such as, management experience, history of performance, growth potential, low cost of
production, brand name etc. This step of the analysis entails finding out as much as possible about
the industry and the inter-relationships of the companies operating in the industry. The next step is
to study the company and its products.
Economic Analysis
It is a systematic approach in which economists and other professionals will estimate the Economic
environment and its strengths and weaknesses. Economic analysis plays an important role in
determining how a trader will want to position themselves in a market.
It is a study of forces that determine the distribution of scarce resources. Economic analysis
provides insight into how markets operate, and offers methods for attempting to
predict future market behaviour in response to events, trends, and cycles. Economic analysis is also
used by governments to determine tax rates and evaluate the financial health of the nation or state.
Technical Analysis
Technical analysis is a security analysis methodology for forecasting the direction
of prices through the study of past market data, primarily price and volume.
Technical Analysis can be defined as an art and science of forecasting future prices based on an
examination of the past price movements. Technical analysis is not astrology for predicting prices.
Technical analysis is based on analysing current demand-supply of commodities, stocks, indices,
futures or any tradable instrument.
Technical analysis involve putting stock information like prices, volumes and open interest on a
chart and applying various patterns and indicators to it in order to assess the future price
movements. The time frame in which technical analysis is applied may range from intraday (1-
minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly
or monthly price data to many years.
Technical analysis works on Pareto principle. It considers the market to be 80% psychological
and 20% logical. Fundamental analysts consider the market to be 20% psychological and 80%
logical.
14 | P a g e
Technical Analysis
Technical analysis is a security analysis methodology for forecasting the direction
of prices through the study of past market data, primarily price and volume.
Technical Analysis can be defined as an art and science of forecasting future prices based on an
examination of the past price movements. Technical analysis is not astrology for predicting prices.
Technical analysis is based on analysing current demand-supply of commodities, stocks, indices,
futures or any tradable instrument.
Technical analysis involve putting stock information like prices, volumes and open interest on a
chart and applying various patterns and indicators to it in order to assess the future price
movements. The time frame in which technical analysis is applied may range from intraday
(1 minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes or hourly), daily, weekly or monthly
price data to many years.
Technical analysis works on Pareto principle. It considers the market to be 80% psychological
and 20% logical. Fundamental analysts consider the market to be 20% psychological and 80%
logical.
The basis of Technical Analysis
What makes Technical Analysis an effective tool to analyze price behavior is explained by
following theories given by Charles Dow:
• Price discounts everything
• Price movements are not totally random
• What is more important than why
Technical Analysis: The basic assumptions The field of technical analysis is based on three assumptions:
1. The market discounts everything.
2. Price moves in trends.
3. History tends to repeat itself.
1. The market discounts everything
Technical analysis is criticized for considering only prices and ignoring the fundamental analysis of
the company, economy etc. Technical analysis assumes that, at any given time, a stock‟s Price
reflects everything that has or could affect the company - including fundamental factors.
The market is driven by mass psychology and pulses with the flow of human emotions. Emotions
may respond rapidly to extreme events, but normally change gradually over time. It is believed that
the company‟s fundamentals, along with broader economic factors and market psychology, are all
priced into the stock, removing the need to actually consider these factors separately. This only
leaves the analysis of price movement, which technical theory views as a product of the supply and
demand for a particular stock in the market.
15 | P a g e
2. Price moves in trends
“Trade with the trend” is the basic logic behind technical analysis. Once a trend has been
established, the future price movement is more likely to be in the same direction as the trend than to
be against it. Technical analysts frame strategies based on this assumption only.
3. History tends to repeat itself
People have been using charts and patterns for several decades to demonstrate patterns in price
movements that often repeat themselves. The repetitive nature of price movements is attributed to
market psychology; in other words, market participants tend to provide a consistent reaction to
similar market stimuli over time. Technical analysis uses chart patterns to analyse market
movements and understand trends.
Strengths and Weakness of Technical Analysis
Strength of Technical Analysis
1. Not Just for stocks
Technical analysis has universal applicability. It can be applied to any financial instrument - stocks,
futures and commodities, fixed-income securities, forex, etc.
2. Focus on price Fundamental developments are followed by price movements. By focusing only on price action,
technicians focus on the future. The price pattern is considered as a leading indicator and generally
leads the economy by 6 to 9 months. To track the market, it makes sense to look directly at the price
movements.
More often than not, change is a subtle beast. Even though the market is prone to sudden
unexpected reactions, hints usually develop before significant movements. You should refer to
periods of accumulation as evidence of an impending advance and periods of distribution as
evidence of an impending decline.
3. Supply, demand, and price action
Technicians make use of high, low and closing prices to analyse the price action of a stock. A good
analysis can be made only when all the above information is present separately, these will not be
able to tell much. However, taken together, the open, high, low and close reflect forces of supply
and demand.
4. Support and resistance
Charting is a technique used in analysis of support and resistance level. These are trading range in
which the prices move for an extended period of time, saying that forces of demand and supply are
deadlocked. When prices move out of the trading range, it signals that either supply or demand has
started to get the upper hand. If prices move above the upper band of the trading range, then
demand is winning. If prices move below the lower band, then supply is winning.
5. Pictorial price history A price chart offers most valuable information that facilitates reading historical account of a
security‟s price movement over a period of time. Charts are much easier to read than a table of
numbers.
16 | P a g e
Weaknesses of Technical Analysis
1. Analyst bias
Technical analysis is not hard core science. It is subjective in nature and your personal biases can be
reflected in the analysis. It is important to be aware of these biases when analysing a chart. If the
analyst is a perpetual bull, then a bullish bias will overshadow the analysis. On the other hand, if the
analyst is a disgruntled eternal bear, then the analysis will probably have a bearish tilt.
2. Open to interpretation
Technical analysis is a combination of science and art and is always open to interpretation. Even
though there are standards, many times two technicians will look at the same chart and paint two
different scenarios or see different patterns. Both will be able to come up with logical support and
resistance levels as well as key breaks to justify their position.
3. Too late
Another criticism is for being too late. By the time the trend is identified, a substantial move has
already taken place. After such a large move, the reward to risk ratio is not great. Lateness is a
particular criticism of Dow Theory.
4. Always another level
Technical analysts always wait for another new level. Even after a new trend has been identified,
there is always another “important” level close at hand. Technicians have been accused of sitting on
the fence and never taking an unqualified stance. Even if they are bullish, there is always some
indicator or some level that will qualify their opinion.
17 | P a g e
Basics of charting
Chart:
A chart is simply a graphical representation of a series of prices over a set time frame.
Charts are working tools of technical analysts. They use charts to plot the price movement of a
stock over specific time frames. It‟s a graphical representation to show where the stock prices have
been in the past.
A chart gives us a complete picture of a stock‟s price history over a period of an hour, day, week,
month or many years. It has an x-axis (horizontal) and a y-axis (vertical). Typically, the x-axis
represents time; the y-axis represents price. By plotting a stock‟s price over a period of time, we end
up with a pictorial representation of any stock‟s trading history.
Chart of Ambuja Cement
18 | P a g e
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.
On the basis of Time scale
Tick on tick chart
A tick chart is made up of bars which are based off a number of market transactions (as opposed to
elapsed time). Since tick charts are made up of bars which form after X # of transactions the amount
of time it takes for each bar to close (or series of bars to form) tells us a lot about the volume of the
markets.
Periods when bars are forming faster indicates more volume moving the markets. When bars are
slower to form this is indication of lower volume.
It is used for algorithmic trading
Intraday chart
Intraday refers to “within a day” chart.
These are important for the short term traders who wish to trade over a course of a single trading
session. The analysis based prediction is valid for the same day or the next day morning hours.
The traders use real time charts in an attempt to get benefit from short term price fluctutations.
Short term traders typically use five minute, 15 minute, 30 minute or hourly charts when trading
within a day.
Daily charts:
It is a chart where each data point is comprised of the price movement for a single day of trading.
This type of chart typically shows high, low, open, and close for the whole day. The data used is
generally end of the day data. The prediction from the analysis of daily chart is valid for a week.
Weekly charts:
A chart where each data point is comprised of the price movement for a single week of trading. This
type of chart typically shows high, low, open, and close for the whole week and does not show the
day-to-day movements of the security. This type of chart is used by technical analysts to gauge the
long-term trend of a given asset. The prediction based on the analysis of the weekly charts is valid
for next month.
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Monthly charts:
A chart where each data point is comprised of the price movement for a Single month of trading.
This type of chart typically shows high, low, open, and close for the whole month. This type of
chart is used by technical analysts to gauge the long-term trend of a given asset. The predictions
based on the analysis of the weekly charts are valid for either quarter or half year.
Yearly charts:
A chart where each data point is comprised of the price movement for a Single Year of trading. This
type of chart typically shows high, low, open, and close for the whole Year. This type of chart is
used by technical analysts to gauge the long-term trend of a given asset. The predictions based on
the analysis of the Yearly charts are valid for a decade.
The Price Scale
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. The problem,
however, is in the structure of the scale itself. A scale can either be constructed in a
linear (arithmetic) or logarithmic way, and both of these options are available on most charting
services.
If a price scale is constructed using a linear scale, the space between each price point (10, 20, 30,
40) is separated by an equal amount. A price move from 10 to 20 on a linear scale is the same
distance on the chart as a move from 40 to 50. In other words, the price scale measures moves in
absolute terms and does not show the effects of percent change.
If a price scale is in logarithmic terms, then the distance between points will be equal in terms of
percent change. A price change from 10 to 20 is a 100% increase in the price while a move from 40
to 50 is only a 25% change, even though they are represented by the same distance on a linear scale.
On a logarithmic scale, the distance of the 100% price change from 10 to 20 will not be the same as
the 25% change from 40 to 50. In this case, the move from 10 to 20 is represented by a larger space
one the chart, while the move from 40 to 50, is represented by a smaller space because, percentage-
wise, it indicates a smaller move.
In Figure 1, the logarithmic price scale on the right leaves the same amount of space between 10
and 20 as it does between 20 and 40 because these both represent 100% increases.
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Logarithmic Price Scale
Linear Price Scale
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Types of Price charts
1. Line charts:
Formed by connecting the closing prices of a specific stock or market over a period
of time.
Useful for providing clear visual illustration of trend of stock price movement.
Only gives one information at one point of time.
Line Chart- Asian Paints
2. Bar charts:
Used to see price action in a stock over a given period of time.
Shows high price at the top and lowest price at the bottom of the bar.
Small lines on either of the vertical bar show opening price and closing price.
Small tick on the left side shows opening price
Small tick on the right side shows closing price.
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Bar Chart- Asian Paints
3. Candlestick charts:
Provides visual insight to current market psychology.
Originated from Japan
Displays high, open, close and low price of the specific stock during a particular time
period.
Each candlestick represent one period of data.
These are represented in white or black combination colours or generally Green
colour for positive closing period and Red colour for negative closing period.
The thick coloured portion Red or Green is called as “Real Body”
The thin line above and below the Real Body is called as Shadows or Tails.
The Highest Price is marked by Top of the Upper Shadow.
The Lowest Price is marked by Bottom of the Lower Shadow.
If the Stock Price closes higher than its opening price, it is said to have a positive
closing for the period. It is coloured Green.
If the Stock Price closes lower than its opening price, it is said to have a negative
closing for the period. It is coloured Red.
Easy to decipher and interpret the open, high, low and close positions of the stock.
The green candle shows more buying pressure and red candle represents more selling
pressure.
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CandleSticks Chart- Aurobindo Pharmaceuticals
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Trade Cycle
4 Phases of Trade Cycle
1. Accumulation Phase:
This phase occurs after the market has bottomed and the innovators, value investors and insiders,
early adoptors enter to buy in large lot size. They figure out the worst has already happened.
2. Markup Phase: At this stage, the market has been stable for a while and is beginning to move
higher. The early majority are getting on the bandwagon. This group includes technicians who,
seeing that the market is putting in higher lows and higher highs, recognize that market direction
and sentiment have changed
As this phase matures, more investors jump on the bandwagon as fear of being in the market is
supplanted by greed and the fear of being left out.
As this phase come to an end, the late majority jump in and market volumes begin to increase
substantially.
120-130
•Extreme Positivity
•Profit Booking
80-85
•Bubble Burst
60-65
•Exit by Technical And Long term Investors
45-50
•Mass Exit
•News Outflow
45
•Entry of Value Investor/ Insider
65-70
•Technical Analysts Enter
90-100
•Mass Participation
•News outflow
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While the late majority are getting in, the smart money and insiders are unloading. But as prices
begin to level off, or as the rise slows down, those laggards who have been sitting on the sidelines
see this as a buying opportunity and jump in en masse. Prices make one last parabolic move, known
in technical analysis as a selling climax, when the largest gains in the shortest periods often occur.
But the cycle is nearing the top of the bubble. Sentiment moves from neutral to bullish to
downright euphoric during this phase.
3. Distribution Phase: In the third phase of the market cycle, sellers begin to dominate. This
part of the cycle is identified by a period in which the bullish sentiment of the previous phase turns
into a mixed sentiment. Prices can often stay locked in a trading range that can last a few weeks or
even months investors are gripped by periods of complete fear interspersed with hope and even
greed as the market may at times appear to be taking off again. Valuations are extreme in many
issues and value investors have long been sitting on the sidelines. Sentiment slowly but surely
begins to change, but this transition can happen quickly if accelerated by a strongly negative
geopolitical event or extremely bad economic news. Those who are unable to sell for a profit settle
for a breakeven or a small loss.
4. Mark Down Phase: The fourth and final phase in the cycle is the most painful for those who
still hold positions. Many hang on because their investment has fallen below what they paid for it.
It is only when the market has plunged 50% or more that the laggards, many of whom bought
during the distribution or early mark-down phase, give up or capitulate.
Phases of Trade Cycle (source: stockcharts)
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Candle Stick Patterns
One candle Pattern
The one candle patterns are also known as “Umbrella Lines”
Hammer :
The lower shadow should be at least two
times the length of the body.
No or very small upper shadow.
The real body is at the end of trading range.
Colour – not of much significance.
Hammer- At the 52 week Low
Next day confirmation required.
If Volume is Low on formation of Hammer, this implies only profit booking been done. The
volume should rise on upcoming days
If volume is high on formation of Hammer, this implies both profit booking and new buying
have been done. The volumes should fall on upcoming days.
If volume is low on hammer formation of hammer and also on next 2-3 days, it implies it
will make another low
(Source: Steve Nison “The Candlestick Course”)
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Hanging Man:
The lower shadow should be at least two times the
length of the body.
No or very small upper shadow.
The real body near the highest top of trading range.
Colour – not of much significance.
Volume is average on Hanging Day, on upcoming
days the volume should decrease.
Next day confirmation required.
Hanging Man- 52 week high within next 2-3 days.
Forms because of News Outflow and value investor‟s selling test
Shooting Star:
Upper Shadow at least twice of body.
No or very small lower shadow.
The real body is at the end of trading range.
Colour – not much significant.
Shooting star- at the end of uptrend
Next day confirmation required.
Should be formed at 52 week high
Shooting Star forms with a gap
On the day of shooting star, the volume is low, but on next
day it should be high and then should decrease on upcoming
days.
If the volume is high on day of shooting star, it should decrease on upcoming days.
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Inverted Hammer:
Upper Shadow at least twice of body.
No or very small lower shadow.
The real body is at the end of trading
range.
Colour – not much significant.
Inverted Hammer- at the end of
downtrend.
Next day confirmation required.
If the volume is high on day of shooting
star, it should decrease on upcoming
days.
Should be formed at 52 week low
Inverted Hammer forms without a gap
Two candles Pattern:
Bullish Engulfing:
The candlestick body of previous day overshadowed by next day‟s candlestick.
The colour of first candle is Red which is similar to previous one and body of second candle
is of Green colour.
Large volume on the engulfing day.
Full Read Body to Real Body Coverage is called
Engulfing
Next day confirmation of reversal required.
Bullish engulfing- end of downtrend
Shape and Size Matters
Position of the candle should be such that the Lower shadow on day of engulfing should be
making 52 week Low.
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Bearish Engulfing:
The candlestick body of previous day
overshadowed by next day‟s candlestick.
The colour of first candle is Green which is
similar to previous one and body of second
candle is Red.
Large volume on the engulfing day.
Next day confirmation of reversal required.
Bearish engulfing- end of uptrend
Shape and Size matters.
Position of the candle should be such that the
Upper shadow on day of engulfing should be
making 52 week High
Piercing:
Opens lower than previous close; closes at least 50% of previous real body.
Piercing : At the end of downtrend.
Large volume during these 2 trading days is a
significant confirmation.
Colour should be Green on the day of piercing
The body of Red candle should be atleast 50%
covered with lower volume.
Confirmation on next day is required
The volume should be increasing on upcoming days.
Forms in a downtrend
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Dark Cloud Cover:
Dark Cloud Cover: Opens higher than previous close; closes at least 50% of previous real
body.
Dark Cloud Cover: At the end of Uptrend.
Large volume during these 2 trading days is a significant
confirmation.
Forms in Uptrend
Colour should be Red on the day of Dark Cloud Cover.
The body of Green candle should be atleast 50% covered with
Higher volume.
Confirmation on next day is required
Volume Should be Decreasing on upcoming days.
Bullish Harami:
Large candlestick followed by a small candle that is within the
previous session‟s large real body.
Bullish Harami- Second day opens higher than close of
previous day and closes lower than open of prior session
Next day reversal confirmation is required.
Bullish Harami- at the end of Uptrend.
Volume should be low on day on Bullish Harami day, it should
be increasing on upcoming days.
Bearish Harami:
Large candlestick followed by a small candle that is within the
previous session‟s large real body.
Bearish Harami- Second day opens lower than close of previous
day and closes higher than open of prior session
Next day reversal confirmation is required.
Bearish Harami- at the end of Downtrend.
Reversal will be more forceful, if the size of candles is large.
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Three Candle Pattern:
Evening star: Formed by tall Green body candle followed by
a small real body that gaps above the first real body to form a
“star” and a third red candle that closes well into first session‟s
green real body.
Morning Star: Formed by tall Red body candle followed by a small
real body that gaps above the first real body to form a “star” and a third
Green candle that closes well into first session‟s Red real body.
Evening Star- at end of Uptrend
Morning Star- at end of Downtrend
A gap between first and second session adds to probability of
reversal.
Gap before and after the star day is more desirable.
Doji:
Same opening and closing price.
Likelihood of a reversal increases if subsequent
candlesticks confirm the doji‟s reversal potential.
Period of indecision.
Next day confirmation required for reversal
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Trendline
Trend refers to any repetitive action in price movement.
Trendline refers to the direction and the speed of the price during a time series within a chart.
Trend Lines are an important tool in technical analysis for both trend identification and
confirmation. A trend line is a straight line that connects two or more price points and then extends
into the future to act as a line of support or resistance. Many of the principles applicable to support
and resistance levels can be applied to trend lines as well.
Uptrend
Price movements are in uptrend if 1 Higher Bottom + 2 Higher Tops are noticed.
Uptrend Line: An uptrend line has a positive slope and is formed by connecting two or
more low points. The second low must be higher than the first for the line to have a positive slope.
Uptrend lines act as support and indicate that net-demand (demand less supply) is increasing even
as the price rises. A rising price combined with increasing demand is very bullish, and shows a
strong determination on the part of the buyers. As long as prices remain above the trend line, the
uptrend is considered solid and intact. A break below the uptrend line indicates that net-demand has
weakened and a change in trend could be imminent.
Chart of JSW Steel
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Downtrend
Price movements are in downtrend if 1 Lower Bottom + 2 Lower tops are noticed.
Downtrend line: A downtrend line has a negative slope and is formed by connecting two or
more high points. The second high must be lower than the first for the line to have a negative slope.
Downtrend lines act as resistance, and indicate that net-supply (supply less demand) is increasing
even as the price declines. A declining price combined with increasing supply is very bearish, and
shows the strong resolve of the sellers. As long as prices remain below the downtrend line, the
downtrend is solid and intact. A break above the downtrend line indicates that net-supply is
decreasing and that a change of trend could be imminent.
Chart of Justdial
Sideways: Price movements are in Sideways when No higher Bottom and No Lower Bottom are
noticed during a period. It means the price movements form same Top and same Bottom series.
Chart of HDFC
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General rule of drawing a trendline:
The general rule in technical analysis is that it takes two points to draw a trend line and the third
point confirms the validity.
At the time of breakout the volume should be high
Angle of trendline:
The best considered angle is 45°. Too steep trendline is not considered as a meaningful support or
resistance levels. Even if the trendline is formed with three valid points but trading on the basis of
such steep trendline may prove to be difficult.
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Support and Resistance
Support and resistance represent key junctures where the forces of supply and demand meet.
These lines appear as thresholds to price patterns. They are the respective lines which stops
the prices from decreasing or increasing.
A support line refers to that level beyond which a stock‟s price will not fall. It denotes that
price level at which there is a sufficient amount of demand to stop and possibly, for a time,
turn a downtrend higher. Similarly a resistance line refers to that line beyond which a stock‟s
price will not increase. It indicates that price level at which a sufficient supply of stock is
available to stop and possibly, for a time, head off an uptrend in prices. Trend lines are often
referred to as support and resistance lines on an angle.
Support: A support is a horizontal floor where interest in buying a commodity is strong enough to
overcome the pressure to sell. Support level is the price level at which sufficient demand
exists to, at least temporarily, halt a downward movement in prices. Logically 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.
Chart of HDFC
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Resistance: A resistance is a horizontal ceiling where the pressure to sell is greater than the pressure to buy.
Thus a Resistance level is a price at which sufficient supply exists to; at least temporarily, halt an
upward movement. Logically 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.
Support can turn into resistance: Once the price penetrates below the support level, the
earlier or the broken support level can turn into resistance. The break of support level signals that
the forces of supply have overcome the forces of demand. Therefore, if the price returns to this
level, there is likely to be an increase in supply, and hence resistance
Resistance turning into support: As the price increases above resistance, it signals changes
in demand and supply. The breakout above resistance proves that the forces of demand have
overcome the forces of supply. If the price returns to this level, there is likely to be an increase in
demand and support can be established at this point.
Chart of M&M
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Gap Theory
A gap is an area on a price chart in which there were no trades. Normally this occurs after the close
of the market on one day and the next day‟s open. Lots of things can cause this, such as an earnings
report coming out after the stock market had closed for the day. If the earnings were significantly
higher than expected, this could result in the price opening higher than the previous day‟s close. If
the trading that day continues to trade above that point, a gap will exist in the price chart. Gaps can
offer evidence that something important has happened to the fundamentals or the psychology of the
crowd that accompanies this market movement.
Gaps appear more frequently on daily charts, where every day is an opportunity to create an
opening gap. Gaps can be subdivided into four basic categories:
• Common gap
• Breakaway gap
• Runaway/ Continuation gap
• Exhaustion gap
Common Gaps:
Sometimes referred to as a trading gap or an area gap, the common gap is usually uneventful.
This gap occurs characteristically in nervous markets and is generally closed within few days.
Getting closed means that the price action at a later time (few days to a few weeks) usually
retraces to at the least the last day before the gap. This is also known as filling the gap.
A common gap usually appears in a trading range or congestion area and reinforces the
apparent lack of interest in the stock at that time.
Chart of Tata Steel
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Breakaway Gaps:
They occur when the price action is breaking out of their trading range or congestion area.
A congestion area is just a price range in which the market has traded for some period of time,
usually a few weeks or so. The top of the congestion area is usually resistance, the area near
the bottom of the congestion area is support.
To break out of these areas requires market enthusiasm and either many more buyers than sellers for
upside breakouts or more sellers than buyers for downside breakouts.
Runaway Gaps:
Runaway gaps are also called measuring gaps and are best described as gaps that are caused
by increased interest in the stock
Increased buying interest happens all of a sudden and the price gaps above the previous day‟s close.
This type of runaway gap represents an almost panic state in traders. Also, a good uptrend can have
runaway gaps caused by significant news events that cause new interest in the stock.
Runaway gaps can also happen in down trends. This usually represents increased liquidation
of that stock by traders and buyers who are standing on the sidelines
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Chart of Wipro
Exhaustion Gap:
Exhaustion gaps are those that happen near the end of a good up or down trend. They are
many times the first signal of the end of that move. They are identified by high volume and large
price difference between the previous day‟s close and the new opening price. They can
easily be mistaken for runaway gaps if one does not notice the exceptionally high volume.
Chart of Maruti
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Research (Conducted on 23 June, 2016)
Economic Analysis
Brief about Brexit: Britain has been a member of European Union since 1973. But a series of crisis
have shaken the British confidence in the EU. In 2014, Prime Minister David Cameron to mollify
anti-immigration voters in his party, promised a referendum on Britain‟s exit from EU if he won the
2015 elections. After the votings, 52% of voters voted for exit of Britain from EU. As the result
came in, the value of British Pound fell by 10%. Stock Market around the world fell on 23rd
June,
2016.
Analysis:
The Brexit has impacted the financial markets of almost every big nation. The Indian Market has
also suffered because of it but not to the higher magnitude. Majorly the impact has shown its
devastating power on the shares of the companies who were in trade with Britain and had major
source of revenue from European Union.
The market will go into risk off mode for sometime and money will move out of riskier assets to
safer assets. The suffered companies will be automobile companies and IT companies who derive
portions of their revenues from Eurozone.
IT giants TCS, Infosys, HCL Tech derives 25-30% of revenue from Eurozone. Tata Motor‟s Jaguar
Land Rover derives 24% sales volume and 35-40% component supplies from Europe. Britain‟s exit
from EU can make JLR expensive as compared to other luxury Cars.
The investors‟ sentiments will move from trading in riskier asset to moving on for defensive stocks.
Defensive Stocks: A defensive stock is one that investors tend to want to own during uncertain
times, and one that they definitely want to own during hard times. These are also deemed as non-
cyclical stocks, so they are not as dependent on the overall economic cycle
Defensive stocks accommodate greed by offering a higher dividend yield than can be made in low
interest rate environments. They also alleviate fear because they are not usually as risky as regular
stocks and it usually takes a major catastrophe to derail their business model.
In Indian Financial Market defensive stocks are mainly Pharmaceutical companies and FMCG
sector Companies.
Narrowing down the research, I preferred to focus on Pharmaceutical Companies.
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Technical Analysis
Under Pharmaceutical Sector, the companies I preferred to perform technical analysis were Pfizer,
Cipla, Dr. Reddy‟s Laboratories, Sunpharma Industries Ltd.
Pfizer:
Seeing the chart of Pfizer as on 23rd
June, 2016. The chart show very less volume. It means less
investors are interested in trading with this stock. So this stock may not be give appropriate returns
after investments. So it‟s not a good option to invest in such company‟s shares.
Dr. Reddy’s laboratories:
Company‟s volumes are high as compared to Pfizer. It means more investors trade with the share of
this company. The Closing price of Company‟s shares stands at Rs. 3171.55.It has taken the support
of the trendline recently. So it has the possibility of rising up. The upper trendline can act as the
resistance level for the share price, but it‟s possible to earn returns if more investor shifts to
Dr.Reddy‟s shares and a break of trendline can occur with higher volume.
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Sun Pharmaceutical Industries:
Company‟s volumes are high enough, indicating more trading occurs with it‟s shares. The chart
shows the formation of Dragonfly Doji candlestick on 22nd
June 2016. But overall trend as shown
in the chart is Downward sloping. The downward trendline is also acting as a resistance for the
share‟s price movement. To break through this downward trendline, it would require very high
volume on upcoming days. On 9 June 2016, It has made the lowest closing price of 8-9 months.
Cipla:
Company‟s volumes are high. It has recently made more than 52 week‟s low candlestick on 25th
may, 2016. The downward trendlline is also acting as the resistance level for the share price. The
support for the price is far beneath. There may be chances of free fall in prices or it‟s also possible
to break the resistance level if the more buyers come into picture, as it‟s a defensive stock there are
high chances of increase in buyers which can increase the prices further.
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Fundamental Analysis
Cipla:
March'16 Dec.'15 Sept.'15 June'15 March'15
Net Profit/(Loss) For
the Period
34.62 265.98 407.38 690.05 213.9
Net Sales/Income
from operations
2,682.52 2,603.66 2,982.09 3,466.91 2,607.32
Increase/Decrease in
Stocks
263.19 32.06 49.74 -116.64 -205.92
Consumption of
Raw Materials
754.54 890.15 926.97 1,061.68 1,043.90
Depreciation 114.74 111.65 108.3 106.12 111.48
Other Expenses 849.32 720.46 788.29 928.91 824.16
Basic EPS 0.43 3.31 5.08 8.59 2.66
(source: Moneycontrol)
Analysis of March 2016 quarterly result:
Profit- Minimum
Sales- Average
Increase in Inventory- Maximum
Consumption of Raw Material- Minimum
Depreciation- Average
Other Expenses- Increased
EPS- Minimum
The profits have decreased regularly in past three quarters. The sales have remained nearly the same
as of previous quarter. The other expenses have increased with a higher increment in the inventory
levels. So there seems no extraordinary item which has led to continuous decrease in profits of the
company. So it can be said that the company is performing below expectations.
Sun Pharmaceutical Industries: (source: Moneycontrol)
March'16 Dec.'15 Sept.'15 June'15 March'15
Net Profit/(Loss) For
the Period
61.71 -146.65 -601.32 -387.1 -78.01
Net Sales/Income
from operations
1,674.87 1,809.95 1,774.05 1,871.10 1,672.85
Other Operating
Income
223.01 44.35 46.65 168.42 72.39
Other Income 349.59 28.49 -143.17 -17.67 214.6
Basic EPS 0.3 -0.6 -2.5 -1.6 -0.32
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Analysis:
Profit- First time Profit
Sales Income- Nearly same as March 2015, but minimum of the year
Other operating Income- Maximum
Other Incomes- Maximum
EPS- Minimum
The profits of the company have been seen for the first time in whole year. But its source of profit is
not due to increment in sales. The sales are lowest of the whole year. The revenue has come from
other operating activities of the company. The company may have chances of declining profits
again as the company is not performing well in its core business.
Dr.Reddy’s Laboratories:
March'16 Dec.'15 Sept.'15 June'15 March'15
Net Profit/(Loss) For
the Period
-5.7 236.8 647.52 475.85 571.42
Net Sales/Income
from operations
2,346.20 2,418.10 2,873.47 2,512.89 2,671.28
Increase/Decrease in
Stocks
46.1 -18.3 -18.55 -38.07 130.07
Depreciation 181.1 167.2 159.43 141.39 136.77
Other Expenses 746.1 664.1 672.16 576.03 591.62
Other Income 121.9 34.8 59.42 90.97 87.26
Exceptional Items -355.9 -- -- -- --
(source: Moneycontrol)
Analysis:
Profits- First time Loss
Sales Income- Decreased
Inventory- Increased
Depreciation- Increased
Other Expenses- Increased
Other Income- Maximum
Exceptional Item- Maximum loss of 355 crore
Company has seen first time loss in the last quarter. The reason was mainly loss because of
exceptional item. The sales are nearly same as of previous quarter. Other expenses of the company
have increased but with it other incomes have also increased. There is also an increment in the
inventory levels of the company. So the company has chances of increase in its profits again, as the
exceptional loss has already been adjusted in this quarter.
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Research Conclusion:
Based on the research of pharmaceutical sector in Indian Market and according to application of
economic, technical and fundamental analysis, in my opinion the shares of Dr. Reddy‟s
Laboratories can give higher returns as compared to other Pharmaceutical companies. The
fundamental analysis clearly shows chances of increase in the company‟s profitability in next
quarter. The increase in profitability as well as it being a defensive stock, it will bring positivity in
the minds of the investors towards its shares.
The Other pharmaceutical companies can also give earnings as they are also defensive stocks.
According to economic analysis, the IT sector and sectors having high exposure to European
Market will be among the sufferers. So it will be much better to invest in safe stocks rather than
riskier assets.
In Accordance with the research paper published by Yasaswy J.N. (1993), “The risk return trade
off in shares”, The Hindu Daily, Vol. 116, Feb 12,1993 the research conducted by me also shows
that defensive stocks are much helpful in case of instability in the economy. Whenever a country
suffers any instability due to any event or any news, the mass moves their investments from growth
or riskier assets to defensive stocks to receive a regular and steady income.
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SIP Learning’s and Conclusions
The Summer Internship Program helped me in learning the depth of Financial Markets. I also
understood the general terminologies frequently used while trading and analysis.
The Technical and Fundamental Analysis is what I was always eager to learn about, at Motisons
Shares Pvt. Ltd., I received this opportunity to gain knowledge about the same.
The live exposure to the market on daily basis gave me an understanding of how the Market
pressures feels like.
The Technical Analysis is a vast and extensive field in core Finance, which requires a higher
dedication, discipline and regular practical implication of learning‟s. It helps the person in analysing
the performance of any company in terms of its market price of shares, managing the funds
properly, so that the funds can be utilised as and when the opportunity occurs & also maintain the
profitability by investing in right stocks at the right time.
I have always been fond of learning the Financial Markets in depth, that‟s exactly the same what I
have learned during this internship at Motisons Shares Pvt. Ltd.
The corporate exposure, the polishing of concepts and real trading environment was all I wished for
& I received that during my internship.
I am obliged to receive the opportunity of working with Motisons Shares Pvt. Ltd. as my first step
into corporate world.
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Bibliography
References Books:
NSE-NCFM Technical Analysis Module
NSE- NCFM Fundamental Analysis Module
The CandleStick Course- Steve Nison
Reference Websites:
Wikipedia
Investopedia
Stockcharts
Moneycontrol
Economic Times
NSE
Reference Software:
Sharekhan- Trade Tiger
Reference Articles:
1. Grewal S.S and Navjot Grewall (1984), “Profitable investment in shares”, Vision Books Pvt.
Ltd. 36 Connaught Place, New Delhi 1984.
2. Preethi Singh3(1986), “ Investment Management”, Himalaya Publishing House , Bombay
Nagpur and Delhi ,1986.
3. Yasaswy J.N. (1993), “The risk return trade off in shares”, The Hindu Daily, Vol. 116, Feb
12,1993.
4. C. Boobalan (2014) “Technical Analysis in Selected Stocks of Indian Companies”, PG and
Research Department of Commerce, SVM College, ISSN no. 2347-856X, 2014.