A Project Report On

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A PROJECT REPORT On
Introduction of Technical & Fundamental Analysis & How does Technical Analysis help to take Investment Decision" At
Sharekhan Limited
Submitted in Partial Fulfillment of the Requirements of

Post Graduation Diploma in Management (2010-2012) At Udai Institute of Management Studies Jaipur Submitted To-: Submitted By-:
Prof. Ajay Kumar Pandey
Surendra Singh Bhati
Udai Institute of Management Studies Jaipur
ACKNOWLEDGEMENT
Summer training is one of the vital and active parts of the curriculum of management students. The basic idea behind this is to strengthen the students concept through practical training and make them acquainted with actual methods and procedures. I did the work as Management Trainee at Sharekhan Limited at Johri Market, Jaipur for a period of 45 Days starting from 23rd May 2011. I would like to extend my heartfelt gratitude to Mr. Brijesh Shrivastava, Branch Manager of ShareKhan Ltd. Jaipur, for his guidance throughout the project. Without his support and co-operation I would have failed in my endeavors and targets in the summer training. I take this opportunity to say Thank You Sir. I would also like to thank all the Employees of our branch at Johri Market, Jaipur, for providing me the required knowledge, information and material to have a clear idea of what securities market is all about. It is a great pleasure for me to put on records my appreciation and gratitude towards Prof. Ajay Kumar Pandey (Faculty Guide) for his valuable support and suggestions for the improvement and editing of this project report. I would also like to thank Dr. Neeran Gautam (Director UIMS) for his guidance and moral support in my academic persuasion and providing insight to this topic. Last but not the least; I would like to thank Prof. Nishith Saxena for his valuable support during the project directly or indirectly.
Thanking You. Surendra Singh Bhati
PREFACE
As the part of my PGDM curriculum I was required to undergo summer training in a business organization for 45 days. I approached ShareKhan Limited at Johri Market, Jaipur for this purpose and got an opportunity to get training from Mr. Brijesh Shrivastava (Branch Manager) who readily agreed to extend his cooperation. The project was assigned to me by the organization. The topic of my project was Introduction of Technical & Fundamental Analysis & How does Technical Analysis help to take Investment Decision". In this record I have put my best efforts to compile the data to the highest level of accuracy and give my views to the best of my judgment.
Surendra Singh Bhati PGDM 2010-12
CONTENTS
Sr. No. 1 2 3 4 5 6 7 8 Particulars Introduction of Security Market in India Stock Market Development in India Introduction to SEBI Company Profile- Introduction of Sharekhan Ltd. Vision, Mission and Objectives Reason to Choose Sharekhan Ltd. Products and Services Introduction of Fundamental and Technical Analysis Fundamental Analysis Tools Strength of Fundamental Tools Weakness of Fundamental Tools Technical Analysis- History General Steps of Technical Evaluation Basics of Technical Analysis Strength of Technical Analysis Weakness of Technical Analysis Tools of Technical Analysis Technical Analysis: Use of Trend Types of Technical Analysis 9 10 11 12 13 14 Learning Conclusion Findings Recommendation Limitation of Study Bibliography Page No. 5 12 16 19 20 21 22 23 25 27 28 30 31 32 33 35 36 52 54 56 58 58 58 59 60
Introduction of Security Market in India

The securities market essentially has three categories of participants, namely, the issuers of securities, investors in securities and the intermediaries, such as merchant bankers, brokers etc. While the corporate and government raise resources from the securities market to meet their obligations, it is households that invest their savings in the Securities Market. It is advisable to conduct transactions through an intermediary. For example we need to transact through a trading member of a stock exchange if we intend to buy or sell any security on stock exchanges. We need to maintain an account with a depository if we intend to hold securities in demat form. We need to deposit money with a banker to an issue if we are subscribing to public issues. We get guidance if we are transacting through an intermediary. Chose a SEBI registered intermediary, as it is accountable for its activities. The list of registered intermediaries is available with exchanges, industry associations etc. The securities market has two interdependent segments: the primary (new issues) market and the secondary market. The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued.
Securities
Meaning of Securities The definition of Securities as per the Securities Contracts Regulation Act (SCRA), 1956, includes instruments such as shares, bonds, scrip, stocks or other marketable securities of similar nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government. A security is a type of transferable interest representing financial value. Traditionally securities have been categorized between debt and equity securities, and between bearer and registered securities. Representing the full range of investment opportunities, a security can refer to an instrument which allows the holder to claim an ownership position in a corporation (a stock); a creditor relationship with a corporation, a government or its agency (a bond); or other rights to ownership as stipulated in specific contract (a futures contract).
6 Types of securities Share Debentures Bonds Government Securities Derivative products Units of Mutual Funds etc.
Securities Market
A place or places where securities are bought and sold, the facilities and people engaged in such transactions, the demand for and availability of securities to be traded, and the willingness of buyers and sellers to reach agreement on sales. Securities markets include over-the-counter markets, the Bombay Stock Exchange (BSE), National Stock Exchange (NSE), the Chicago Board of Trade and the American Stock Exchange. Functions of Securities Market Securities Markets is a place where buyers and sellers of securities can enter into transactions to purchase and sell shares, bonds, debentures etc. Further, it performs an important role of enabling corporate, entrepreneurs to raise resources for their companies and business ventures through public issues. Transfer of resources from those having idle resources (investors) to others who have a need for them (corporate) is most efficiently achieved through the securities market. Stated formally, securities markets provide channels for reallocation of savings to investments and entrepreneurship. Savings are linked to investments by a variety of intermediaries, through a range of financial products, called Securities.
Types of Securities Market

1. Primary Market 2. Secondary Market
1. Primary Market
The primary market is the financial market for the initial issue and placement of securities. Unlike in the secondary market, no organized stock exchanges are necessary. An organization that needs funds contacts their investment banker who typically assembles a syndicate of securities dealers that will sell the new stock issue.
7 It is the initial market for any item or service. It also signifies an initial market for a new stock issue. The jargon also means a firm, trading market held in a security by a trader who performs the activities of a specialist by being ready to execute orders in that stock. Primary markets bring together buyers and sellers - either directly or through intermediaries - by providing an arena in which sellers investment propositions can be Priced, brought to the marketplace, and sold to buyers. In this context, the seller is called the issuer and the price of whats sold is called the issue price. Role of the Primary Market The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporate, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market. Face Value of a share/debenture The nominal or stated amount (in Rs.) assigned to a security by the issuer. For shares, it is the original cost of the stock shown on the certificate; for bonds, it is the amount paid to the holder at maturity, Also known as par value or simply par. For an equity share, the face value is usually a very small amount (Rs. 5, Rs. 10) and does not have much bearing on the price of the share, which may quote higher in the market, at Rs. 100 or Rs. 1000 or any other price. For a debt security, face value is the amount repaid to the investor when the bond matures (usually, Government securities and corporate bonds have a face value of Rs. 100). The price at which the security trades depends on the fluctuations in the interest rates in the economy. Premium and Discount in a Security Market Securities are generally issued in denominations of 5, 10 or 100. This is known as the Face Value or Par Value of the security as discussed earlier. When a security is sold above its face value, it is said to be issued at a Premium and if it is sold at less than its face value, then it is said to be issued at a Discount.
Issue of Shares
Need to issue shares to the public Most companies are usually started privately by their promoter(s). However, the promoters capital and the borrowings from banks and financial institutions may not
8 be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The way to invite share capital from the public is through a Public Issue. Simply stated, a public issue is an offer to the public to subscribe to the share capital of a company. Once this is done, the company allots shares to the applicants as per the prescribed rules and regulations laid down by SEBI. Kinds of issues Primarily, issues can be classified as a Public, Rights or Preferential issues (also known as private placements). While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively simpler. The classification of issues is illustrated below: 1. Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities. 2. A follow on public offering (Further Issue) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. 3. Rights Issue is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders. 4. A Preferential issue is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital. The issuer company has to comply with the Companies Act and the requirements contained in the Chapter pertaining to preferential allotment in SEBI guidelines which inter-alia include pricing, disclosures in notice etc. Issue price The price at which a company's shares are offered initially in the primary market is called as the Issue price. When they begin to be traded, the market price may be above or below the issue price. Market Capitalization The market value of a quoted company, which is calculated by multiplying its current share price (market price) by the number of shares in issue, is called as market
9 capitalization. E.g. Company A has 120 million shares in issue. The current market price is Rs. 100. The market capitalization of company A is Rs. 12000 million. Price of an issue Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters, which they had considered while deciding the issue price. There are two types of issues, one where company and Lead Merchant Banker fix a price (called fixed price) and other, where the company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to market forces to determine the final price (price discovery through book building process). Cut-Off Price In a Book building issue, the issuer is required to indicate either the price band or a floor price in the prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is called Cut-Off Price. The issuer and lead manager decides this after considering the book and the investors appetite for the stock. Floor price is the minimum price at which bids can be made.
Price Band in a book built IPO The prospectus may contain either the floor price for the securities or a price band within which the investors can bid. The spread between the floor and the cap of the price band shall not be more than 20%. In other words, it means that the cap should not be more than 120% of the floor price. The price band can have a revision and such a revision in the price band shall be widely disseminated by informing the stock exchanges, by issuing a press release and also indicating the change on the relevant website and the terminals of the trading members participating in the book building process. In case the price band is revised, the bidding period shall be extended for a further period of three days, subject to the total bidding period not exceeding ten days. The Price Band It may be understood that the regulatory mechanism does not play a role in setting the price for issue. It is up to the company to decide on the price or the price band, in consultation with Merchant Bankers.
10 Allotment in an IPO/offer for sale Timeframe for getting refund if shares not allotted As per SEBI guidelines, the Basis of Allotment should be completed with 15 days from the issue close date. As soon as the basis of allotment is completed, within 2 working days the details of credit to demat account / allotment advice and dispatch o f refund order needs to be completed. So an investor should know in about 15 days time from the closure of issue, whether shares are allotted to him or not. It would take around 3 weeks after the closure of the book built issue Role of a Registrar to an issue The Registrar finalizes the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. The Lead Manager coordinates with the Registrar to ensure follow up so that the flow of applications from collecting bank branches, processing of the applications and other matters till the basis of allotment is finalized, dispatch security certificates and refund orders completed and securities listed. Listing of Securities Listing means admission of securities of an issuer to trading privileges (dealings) on a stock exchange through a formal agreement. The prime objective of admission to dealings on the exchange is to provide liquidity and marketability to securities, as also to provide a mechanism for effective control and supervision of trading. Listing Agreement At the time of listing securities of a company on a stock exchange, the company is required to enter into a listing agreement with the exchange. The listing agreement specifies the terms and conditions of listing and the disclosures that shall be made by a company on a continuous basis to the exchange. Delisting of securities The term delisting of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange. SEBIs Role in an Issue Any company making a public issue or a listed company making a rights issue of value of more than Rs 50 lakh is required to file a draft offer document with SEBI for its observations. The company can proceed further on the issue only after getting
11 observations from SEBI. The validity period of SEBIs observation letter is three months only i.e. the company has to open its issue within three months period. 2. Secondary Market Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets. Role of the Secondary Market For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduitby facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions. Difference between the Primary Market and the Secondary Market In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity-trading venue in which already existing/pre-issued securities are traded among investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market. Products in the Secondary Markets Following are the main financial products/instruments dealt in the Secondary market, which may be divided broadly into Shares and Bonds: Shares: 1. Equity Shares: An equity share, commonly referred to as ordinary share, represents the form of fractional ownership in a business venture. 2. Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held, at a price. For e.g. a 2:3 rights issue at Rs. 125, would entitle a shareholder to receive 2 shares for every 3 shares held at a price of Rs. 125 per share. Bonus Shares: Shares issued by the companies to their shareholders free of cost based on the number of shares the shareholder owns. 3. Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the companys creditors, bondholders/debenture holders.
12 4. Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remained unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares. 5. Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company. Bond Bond is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bondholder periodic interest payments over the life of the loan. The various types of Bonds are as follows: 1. Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond. 2. Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price. 3. Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements.
Stock Market Development in India

An important early event in the development of the stock market in India was the formation of the Native Share and Stock Brokers Association at Bombay in 1875, the precursor of the present-day Bombay Stock Exchange. This was followed by the formation of associations /exchanges in Ahemdabad (1894), Calcutta (1908), and Madras (1937). IN addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subsequently. In order to check such aberrations and promote a more orderly development of the stock market, the central government introduced a legislation called the Securities Contracts (Regulation) Act, 1956. Under this legislation, it is mandatory on the part of stock exchanges to seek government recognition. There were 23 stock exchanges recognized by the central Government. They are located at Ahemdabad, Bangalore, Baroda, Bhubaneshwar, Calcutta, Chennai,(the Madras Stock Exchanges ), Cochin, Coimbatore, Delhi, Guwahati, Hyderabad, Indore, Jaipur, Kanpur, Ludhiana, Mangalore, Mumbai(the National Stock Exchange or NSE), Mumbai (The Stock
13 Exchange), popularly called the Bombay Stock Exchange, Mumbai (OTC Exchange of India), Mumbai (The Inter-connected Stock Exchange of India), Patna, Pune, and Rajkot. Of course, the principle bourses are the National Stock Exchange and The Bombay Stock Exchange, accounting for the bulk of the business done on the Indian stock market. While the recognized stock exchanges have been accorded a privileged position, they are subject to governmental supervision and control. The rules of a recognized stock exchanges relating to the managerial powers of the governing body, admission, suspension, expulsion, and re-admission of its members, appointment of authorized representatives and clerks, so on and so forth have to be approved by the government. These rules can be amended, varied or rescinded only with the prior approval of the government.
Stock Exchange
Organized market place securities featured for the centralization of supply and demand for the transaction of orders by member brokers for institutional and individual investors. A stock exchange is an organization of which the members are stockbrokers. A stock exchange provides facilities for the trading of securities and other financial instruments. Usually facilities are also provided for the issue and redemption of securities as well as other capital events including the payment of income and dividends. BSE (Bombay Stock Exchange) The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own member brokers. It also strives to educate and enlighten the investors by conducting investor education program and making available to them necessary informative inputs.
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A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. NSE (National Stock Exchange) NSE was incorporated in 1992 and was given recognition as a stock exchange in April 1993. It started operations in June 1994, with trading on the Wholesale Debt Market Segment. Subsequently it launched the Capital Market Segment in November 1994 as a trading platform for equities and the Futures and Options Segment in June 2000 for various derivative instruments. NSE has been able to take the stock market to the doorsteps of the investors. The technology has been harnessed to deliver the services to the investors across the country at the cheapest possible cost. It provides a nation-wide, screen-based, automated trading system, with a high degree of transparency and equal access to investors irrespective of geographical location. The high level of information dissemination through on-line system has helped in integrating retail investors on a nation-wide basis. The standards set by the exchange in terms of market practices, Products, technology and service standards have become industry benchmarks and are being replicated by other market participants. Within a very short span of time, NSE has been able to achieve all the objectives for which it was set up. It has been playing a leading role as a change agent in transforming the Indian Capital Markets to its present form. The Indian Capital Markets are a far cry from what they used to be a decade ago in terms of market practices, infrastructure, technology, risk management, clearing and settlement and investor service. Role of a Stock Exchange in buying and selling shares The stock exchanges in India, under the overall supervision of the regulatory authority, the Securities and Exchange Board of India (SEBI), provide a trading platform, where buyers and sellers can meet to transact in securities. The trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens available with the NSE trading members or the Internet based trading facility provided by the trading members of NSE. Demutualisation of stock exchanges Demutualisation refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another.
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Demutualised exchange different from a mutual exchange In a mutual exchange, the three functions of ownership, management and trading are concentrated into a single Group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they further manage the exchange as well. This at times can lead to conflicts of interest in decision-making. A demutualised exchange, on the other hand, has all these three functions clearly segregated, i.e. the ownership, management and trading are in separate hands. Currently, two stock exchanges in India, the National Stock Exchange (NSE) and Over the Counter Exchange of India (OTCEI) are demutualised.
16 Introduction of SEBI The Government of India established the Securities and Exchange Board of India (SEBI) the Regulatory body of stock markets in 1988. Within a short period of time, SEBI became an autonomous body through the SEBI Act passed in 1992, with defined responsibilities that cover both development & regulation of the market. Comprehensive regulatory measures introduced by SEBI ensured that end investors benefited from safe and transparent dealings in securities and also safeguard the investor interest. Securities and Exchange Board of India (SEBI) head office at Mumbai it has offices in Chennai, Calcutta and Delhi. It is the regulator of Securities markets in India. SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts rules in its legislative capacity, it conducts enquiries and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. SEBI has had a mixed history in terms of its success as a regulator. Though it has pushed systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless), it lacked the legal expertise, till recently, needed to sustain prosecutions/enforcement actions. It has recently been announced that it is going to the top law campuses to recruit talent and has found reasonable success there. The basic objectives of the Board were identified as: To protect the interests of investors in securities To promote the development of Securities Market To regulate the Securities Market To made rules and regulation, and restricts unfair trade policys Formulate duties and responsibility of stock brokers. To regulate safe mode of operations in market place. SEBI has contributed to the improvement of the Securities Market by introducing Measures like capitalization requirements, margining and establishment of clearing Corporations that reduced the risk of credit. Today, the board continues on its two-fold mission of integrating the Securities Market at The National level and also diversifying the trading products to increase the number of Traders (including banks, financial institutions, insurance companies, Mutual Funds, Primary dealers etc) transacting through the Exchanges. In this context
17 the introduction of derivatives trading through Indian Stock Exchanges permitted by SEBI in 2000 AD has been a real landmark.
Risks
What are the various types of the risks once starts trading? Market Risk This is the risk of investing in the stock market in general. It refers to a chance that a securities value might decline. Although a particular company may be doing poorly, the value of its stock can go up because the stock market value is collectively going up conversely, a company may be doing very well, but the value of the stock might drop because of negative factors inflation, rising interest rates, political instability etc that are affecting the whole market. All stocks are affecting by market risk. Industry Risk This is risk that affects all companies in a certain industry. For e.g. Utility companies are often viewed as relatively low in risk because the utility industry is stable and operates in a predictable environment with relatively little change. In contrast, internet and other technology industries are usually viewed as high in risk because the industry is changing so quickly and unpredictably. The dotcom bubble burst in the 90s affected the valuation of all stocks in that industrial stocks within an industry are subject to industry risk. Regulatory Risk Virtually every company is subject to some sort of regulation. It refers to the risk that the government will pass new laws or implement new regulations, which will dramatically affect a business. Business Risk These are the risks unique to an individual company. It refers to the uncertainty regarding the organizations ability to perform business or provide service Products, strategies, management, labor force, market share, etc., which are among the key factors investors consider in equity market. What are the instruments traded in the stock markets? There are various types of instruments in the stock market. They include Shares, Mutual Funds, IPO's, Futures and Options.
18 What is a Market Order? A market order is an order to buy or sell a stock at the current market price. It signals a broker to execute the order at the best price currently available. However, as market prices keep changing; a market order cannot guarantee a specific price. What is a Limit Order? To avoid buying or selling a stock at a price higher or lower than we wanted, we need to place a limit order rather than a market order. A limit order is an order to buy or sell a security at a specific price. We could use a limit order when we want to set the price of the stock. In other words, we want to sell/buy particular scrip at a price other than the Current Market Price. However, a limit order guarantees a price but cannot guarantee execution of the trade, because the scrip might not reach the desired price on that particular trading day owing to Market related factors. What is a Stop Loss Order? A stop loss order is a Normal order placed with a broker to sell a security when it reaches a certain predetermined price Trigger Price. Sometimes the market movements defy our expectations. Such market reversals often result in loss bearing transactions. The stop loss trigger price is our defense mechanism- an amount at which we will be able to sustain us against such unanticipated market movements. Our stop loss instruction is an order to sell when the price of contracts reaches a predetermined level - the trigger price. Naturally, this price cannot be more than the price of the stock we are trading. For e.g. If we bought a stock at Rs 10, we place a stop loss order with our broker to sell it, if it reaches Rs 8. This helps us to prevent further loss, in the eventuality that the price of the stock might dip even further. Thus, it helps limit our loss or protect unrealized profits, whichever the case. Good-till-canceled (GTC) or Day Order Or Normal Orders Day orders are orders given to our broker that hold true only during the period of the trading day for which the order have been given. If the order has not been executed on that day, it will not be passed on to the next trading day. Thus these are orders that are only "good until it is canceled" or "good for the day." For e.g. we place a stop loss order with our broker to sell a stock, if its price reaches to level X. Now, if it does not reach limit X, our broker will not sell the stock. However, the stop loss order given to our broker will not hold true for the next day. For, even if the stock reaches level X on Day 2, he will not execute the trade till we instruct him to do so again. What are advances and declines? Advances and declines give us an indication of how the overall market has performed. We get a good overview of the general market direction. As the name suggest ' advances' will inform us how the market has progressed. 'Declines' signal if the market has not performed as per expectations. The Advance- Decline ratio is a technical Analysis tool that indicates market movement. Advance decline ratio is calculated using the formula: [Number of stocks that advanced/number of stocks that declined]
19 Generally, it is seen that in Bullish markets the number of stocks that advance is more than the ones that declined and the converse can be said to hold true in a bearish market. The breadth of market indicator is used to gauge the number of stocks advancing and declining for the day. Remains unchanged' is a term used if the market scenario shows no advancement or decline compared to the earlier day advances and declines are calculated from the previous days closing results. However, a market that is significantly on one side either in terms of advances or declines may have a hard time reversing out of that direction the next day.
Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which is running successfully since 1922 in the country. It is the retail broking arm of the Mumbai-based SSKI Group, which has over eight decades of experience in the stock broking business. Sharekhan offers its customers a wide range of equity related service including trade execution on BSE, NSE, Derivatives, depository services, online trading, investment advice etc. The firms online trading and investment site - www.sharekhan.com - was launched on Feb 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has a registered base of over one lakh customers. The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication to offering customers best-of-breed technology and superior market information. The objective has been to let customers make informed decisions and to simplify the process of investing in stocks. Share khans ground network includes over 1288 centers in 325 cities in India which provide a host of trading related services. Sharekhan has always believed in investing in technology to build its business. The company has used some of the bestknown names in the IT industry, like Sun Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, Verisign Financial Technologies India Ltd, Spider Software Pvt. Ltd. to build its trading engine and content.
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Vision, Mission & Objectives

Vision: To be the best retail broking brand in the Indian equities market Mission: To educate and empower the individual investor to make better investment decisions through quality advice and superior service Objectives: To ensure satisfaction through teamwork and professional management To provide good quality of services on a continuous basis to the satisfaction of clients. To extend effective guidance to brokers, to clearing house Corporation, companies and investor in E-Stock Trading. To eliminate paper work and bring in front of electronic stock market in India.
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Reason to Choose Sharekhan Limited Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia Money broker's poll held recently, SSKI won the for 2004' award. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutional individual investors.
Technology
With its online trading account one can buy and sell shares in an instant from any PC with an internet connection. One can get access to its powerful online trading tools that will help him take complete control over his investment in shares.
Accessibility
Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXE CUTION services for investors. These services are accessible through its centers across the country over the internet (through the website www.sharekhan.com) as well as over the Voice Tool.
Knowledge
In a business where the right information at the right time can translate into direct profits, one can get access to a wide range of information on Sharekhan limiteds content-rich portal. One can also get a useful set of knowledge-based tools that will empower him to take informed decisions.
Convenience
One can call its Dial-N-Trade number to get in vestment advice and execute his transactions. Sharekhan ltd. has a dedicated call -centre to provide this service via a Toll Free Number 1800-22-7500 & 1800-22-7050 from anywhere in India.
Customer Service
Sharekhan limiteds customer service team will assist one for any help that one may require relating to transactions, billing, demat and other queries. Its customer service can be contacted via a toll-free number, email or live chat on www.sharekhan.com.
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Investment Advice
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Introduction of Fundamental analysis & Technical Analysis

Equity Analysis is the systematic study of the performance of companies in stock market with help of fundamental analysis and technical analysis. Equity analysis consists of fundamental analysis & technical analysis. While decision in investment of shares should be based on actual movement of share prices measured more in money & percentage term & nothing else. In equity analysis, calculations are based on FACTS & not on HOPE. The subject of equity analysis is the attempt to determine future share price movement with the help of Ratio Analysis & Study of Graph. Equity analysis does not discuss how to buy & sell shares, but does discuss the methods, which enables the investor to arriving at buying & selling decision. The Technical Approach to investment is essentially a reflection of the idea that prices move in a trend that is determined by the changing attitude of investors toward a variety of economic, monetary, political and psychological forces. The art of technical analysis, for it is an art, is to identify a trend reversal at a relatively early stage and ride on that trend until the weight of the evidence shows or proves the trend has reversed. Objectives: 1. To study the importance of Technical Analysis. 2. To study the different tools of Fundamental & Technical Analysis 3. To study the factors that influence investment decision
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Fundamental Analysis
Fundamental analysis is the examination of the underlying forces that affect the well being of the economy, industry groups, and companies. As with most analysis, the goal is to derive a forecast and profit from future price movements. At the company level, fundamental analysis may involve examination of financial data, management, business concept and competition. At the industry level, there might be an examination of supply and demand forces for the products offered. For the national economy, fundamental analysis might focus on economic data to assess the present and future growth of the economy. To forecast future stock prices, fundamental analysis combines economic, industry, and company analysis to derive a stock's current fair value and forecast future value. If fair value is not equal to the current stock price, fundamental analysts believe that the stock is either over or under valued and the market price will ultimately gravitate towards fair value. Fundamentalists do not need the advice of the random walkers and believe that markets are weak-form efficient. By believing that prices do not accurately reflect all available information, fundamental analysts look to capitalize on perceived price discrepancies. The massive amount of numbers in a company's financial statement can be bewildering and intimidating to many investors. On the other hand, if anyone knows how to read them, the financial statements are a gold mine of information Financial statement analysis is the biggest part of fundamental analysis. Also known as quantitative analysis, it involves looking at historical performance data to estimate the future performance of stocks. Followers of quantitative analysis want as much data as they can find on revenue, expenses, assets, liabilities and all the other financial aspects of a company. Fundamental analysts look at this information to gain insight on a company's future performance. This doesn't mean that they ignore the company's stock price; they just avoid focusing on it exclusively
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Fundamental Analysis Tools:These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market. 1. Earnings per Share EPS 2. Price to Earnings Ratio P/E 3. Projected Earnings Growth PEG 4. Price to Book P/B 5. Dividend Payment Ratio 6. Dividend Yield 7. Book Value 1. Earnings per share EPS: EPS denotes Earnings per Share. It is a ratio that denotes the net profit or loss credited to the share holders for every share held. It is a widely used ratio that plays a very important role in valuation of the shares of the company. It is useful to use earnings per share (EPS) for as a comparison tool. One calculate earnings per share by taking the net earnings and divide by the outstanding shares. EPS = Net Earnings / Outstanding Shares 2. Price to Earnings Ratio P/E: The P/E looks at the relationship between the stock price and the company s earnings. The P/E is the most popular metric of stock analysis. The P/E ratio is calculated by taking the share price and dividing it by the company s EPS. P/E = Stock Price / EPS The P/E gives an idea of what the market is willing to pay for the companys earnings. The higher the P/E the more the market is willing to pay for the companys earnings. Conversely, a low P/E may indicate a vote of no confidence. 3. Projected Earnings Growth PEG: This ratio is used to look at future earnings growth is called the PEG ratio. Calculate the PEG by taking the P/E and dividing it by the projected growth in earnings. PEG = P/E / (projected growth in earnings) For example, a stock with a P/E of 30 and projected earning growth next year of 15% would have a PEG of 2 (30 / 15 = 2). It shows a relationship that the lower the number the less we pay for each unit of future earnings growth. So even a stock with high P/E, but high projected earnings growth may be good value. Looking at the opposite situation; a low P/E stock with low or no projected earnings growth, we see that what looks like a value may not work out that way. For example, a stock with a P/E of 8 and flat earnings growth equals a PEG of 8. This could prove to be an expensive investment.
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A few important things to remember about PEG: It is about year-to-year earnings growth it relies on projections, which may not always be accurate. 4. Price to Book P/B : This measurement looks at the value the market places on the book value of the company. Calculate the P/B by taking the current price per share and dividing by the book value per share. P/B = Share Price / Book Value per Share Like the P/E, the lower the P/B, the better the value. Value investors would use a low P/B is stock screens, for instance, to identify potential candidates. 5. Dividend Payment Ratio: The DPR measures what a company s pays out to investors in the form of dividends. Calculate the DPR by dividing the annual dividends per share by the Earnings per Share. DPR = Dividends per Share / EPS For example, if a company paid out Rs.1 per share in annual dividends and had Rs.3 In EPS, the DPR would be 33%. (1 / 3 = 33%) The real question is whether 33% is good or bad and that is subject to interpretation. Growing companies will typically retain more profits to fund growth and pay lower or no dividends. Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits. 6. Dividend Yield: This measurement tells us what percentage return a company pays out to shareholders in the form of dividends. Older, well-established companies tend to payment a higher percentage than do younger companies and their dividend history can be more consistent. Calculate the Dividend Yield by taking the annual dividend per share and divide by the stock s price. Dividend Yield = annual dividend per share / stock's price per share For example, if a company s annual dividend is Rs.1.50 and the stock trades at Rs. 25, the Dividend Yield is 6%. (1.50 / 25 = 0.06) 7. Book Value: Another way to determine a company s value is to go to the balance statement and look at the Book Value. The Book Value is simply the company s assets minus its liabilities. Book Value = Assets - Liabilities
27 In other words, if anyone wanted to close the doors, how much would be left after settling all the outstanding obligations and sold off all the assets. A company that is a viable growing business will always be worth more than its book value for its ability to generate earnings and growth. Book value appeals more to value investors who look at the relationship to the stock's price by using the Price to Book ratio. To compare companies, one should convert to book value per share, which is simply the book value divided by outstanding shares.
Strength of Fundamental Analysis

Long-Term Trends - Fundamental analysis is good for long-term investments based on long-term trends, very long-term. The ability to identify and predict long-term economic, demographic, technological or consumer trends can benefit patient investors who pick the right industry groups or companies Value Spotting Sound fundamental analysis will help identify companies that represent a good value. Some of the most legendary investors think longterm and value. Fundamental analysis can help uncover companies with valuable assets, a strong balance sheet, stable earnings, and staying power. Business Acumen - One of the most obvious, but less tangible, rewards of fundamental analysis is the development of a thorough understanding of the business. After such painstaking research and analysis, an investor will be familiar with the key revenue and profit drivers behind a company. Earnings and earnings expectations can be potent drivers of equity prices. Even some technicians will agree to that. A good understanding can help investors avoid companies that are prone to shortfalls and identify those that continue to deliver. In addition to understanding the business, fundamental analysis allows investors to develop an understanding of the key value drivers and companies within an industry. A stock's price is heavily influenced by its industry group. By studying these groups, investors can better position themselves to identify opportunities that are high-risk (tech), low-risk (utilities), growth oriented (computer), value driven (oil), non-cyclical (consumer staples), cyclical (transportation) or income-oriented (high yield). Knowing Who's Who - Stocks move as a group. By understanding a company's business, investors can better position themselves to categorize stocks within their relevant industry group. Business can change rapidly and with it the revenue mix of a company. This happened too many of the pure
28 Internet retailers, which were not really Internet companies, but plain retailers. Knowing a company's business and being able to place it in a group can make a huge difference in relative valuations.
Weaknesses of Fundamental Analysis

Time Constraints - Fundamental analysis may offer excellent insights, but it can be extraordinarily time-consuming. Time-consuming models often produce valuations that are contradictory to the current price prevailing on Wall Street. When this happens, the analyst basically claims that the whole street has got it wrong. This is not to say that there are not misunderstood companies out there, but it is quite brash to imply that the market price, and hence Wall Street, is wrong. Industry/Company Specific - Valuation techniques vary depending on the industry group and specifics of each company. For this reason, a different technique and model is required for different industries and different companies. This can get quite time-consuming, which can limit the amount of research that can be performed. Subjectivity - Fair value is based on assumptions. Any changes to growth or multiplier assumptions can greatly alter the ultimate valuation. Fundamental analysts are generally aware of this and use sensitivity analysis to present a base-case valuation, a best-case valuation and a worst-case valuation. However, evenon a worst-case valuation, most models are almost always bullish, the only question is how much so. Analyst Bias - The majority of the information that goes into the analysis comes from the company itself. Companies employ investor relations managers specifically to handle the analyst community and release information. As Mark Twain said, "there are lies, damn lies, and statistics." When it comes to massaging the data or spinning the announcement, CFOs and investor relations managers are professionals. Only buy-side analysts tend to venture past the company statistics. Buy-side analysts work for mutual funds and money managers. They read the reports written by the sell-side analysts who work for the big brokers. The brokers are also involved in underwriting and investment banking for the companies. Even though there are restrictions in place to prevent a conflict of interest, brokers have an ongoing relationship with the company under analysis. When reading these reports, it is important to take into consideration any biases a sell-side analyst may have. The buy-
29 side analyst, on the other hand, is analyzing the company purely from an investment standpoint for a portfolio manager. If there is a relationship with the company, it is usually on different terms. In some cases this may be as a large shareholder. Definition Of Fair Value - When market valuations extend beyond historical norms, there is pressure to adjust growth and multiplier assumptions to compensate. If Wall Street values a stock at 50 times earnings and the current assumption is 30 times, the analyst would be pressured to revise this assumption higher. There is an old Wall Street adage: the value of any asset (stock) is only what someone is willing to pay for it (current price). Just as stock prices fluctuate, so too do growth and multiplier assumptions. Are we to believe Wall Street and the stock price or the analyst and market assumptions? It used to be that free cash flow or earnings were used with a multiplier to arrive at a fair value. In 1999, the S&P 500 typically sold for 28 times free cash flow. However, because so many companies were and are losing money, it has become popular to value a business as a multiple of its revenues. This would seem to be OK, except that the multiple was higher than the PE of many stocks! Some companies were considered bargains at 30 times revenues
Conceptual Framework on Technical Analysis

The methods used to analyze securities and make investment decisions fall into two very broad categories: fundamental analysis and technical analysis. Fundamental analysis involves analyzing the characteristics of a company in order to estimate its value. Technical analysis takes a completely different approach; it doesn't care one bit about the "value" of a company or a commodity. Technicians or chartists are only interested in the price movements in the market. Despite all the fancy and exotic tools it employs, technical analysis really just studies supply and demand in a market in an attempt to determine what direction, or trend, will continue in the future. In other words, technical analysis attempts to understand the emotions in the market by studying the market itself, as opposed to its components. Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders.
30 Some rely on chart patterns; others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued the only thing that matters is a security's past trading data and what information this data can provide about where the security might move in the future. The field of technical analysis is based on three assumptions: Market discounts everything. Price moves in trends History tends to repeats itself.
Technical Analysis
History
The premises of technical analysis were derived from empirical observations of financial markets over hundreds of years. Perhaps the oldest branch of technical analysis is the use of candlestick techniques by Japanese traders at least as early as the 18th century, and still very popular today. Dow Theory, a theory based on the collected writings of Dow Jones co-founder and Editor Charles Dow, inspired the increasingly widespread use and development of technical analysis from the end of the 19th century. Modern technical analysis considers Dow Theory its cornerstone. New tools and theories have been produced and existing tools have been enhanced at a rapid rate in recent decades, with an increasing emphasis on computer-assisted techniques Technical Analysis is the forecasting of future financial price movements based on an examination of past price movements. Like weather forecasting, technical analysis does not result in absolute predictions about the future. Technical analysis help the investors anticipate what is "likely" to happen to prices over time. Technical analysis uses a wide variety of charts that show price over time. Those that use technical analysis look for peaks, bottoms, trends, patterns and other factors affecting a stock's price movement and then make buy/sell decisions based on those factors. It is a technique many people attempt, but few are truly successful at it.
31 Technical analysis is not concerned with why a price is moving (e.g. poor earnings, difficult business environment, poor management, or other fundamentals) but rather whether it is moving in a particular direction or in a particular chart pattern. Technical analysts believe that profits can be made by "trend following." In other words if a particular stock price is steadily rising (trending upward) then a technical analyst will look for opportunities to buy this stock. Until the technical analyst is convinced this uptrend has reversed or ended, all else equal, he will continue to own this security. Additionally, technical analysts look for various price patterns to form on a price chart and will take positions in anticipation of the expected move following that pattern. The various tools of technical analysis assist the technician in determining when trends have formed, ended, etc. and when particular patterns are unfolding. The world of technical analysis is huge today. There are literally hundreds of different patterns and indicators that investors claim to have success with.
General Steps to Technical Evaluation

Many technicians employ a top-down approach that begins with broad-based macro analysis. The larger parts are then broken down to base the final step on a more focused/micro perspective. Such an analysis might involve three steps: Broad market analysis through the major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite. Sector analysis to identify the strongest and weakest groups within the broader market. Individual stock analysis to identify the strongest and weakest stocks within select groups. The beauty of technical analysis lies in its versatility. Because the principles of technical analysis are universally applicable, each of the analysis steps above can be performed using the same theoretical background. We don't need an economics degree to analyze a market index chart. Charts are charts; it does not matter if the time frame is 2 days or 2 years. It does not matter if it is a stock, market index or commodity. The technical principles of support, resistance, trend, trading range and other aspects can be applied to any chart. While this may sound easy, technical analysis is by no means easy. Success requires serious study, dedication and an open mind.
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Basis of Technical Analysis

At the turn of the century, the Dow Theory laid the foundations for what was later to become modern technical analysis. Dow Theory was not presented as one complete amalgamation, but rather pieced together from the writings of Charles Dow over several years. Of the many theorems put forth by Dow, three stand out: Price Discounts Everything Price Movements Are Not Totally Random What Is More Important than Price Discounts Everything - This theorem is similar to the strong and semi-strong forms of market efficiency. Technical analysts believe that the current price fully reflects all information. Because all information is already reflected in the price, it represents the fair value, and should form the basis for analysis. After all, the market price reflects the sum knowledge of all participants, including traders, investors, portfolio managers, buy-side analysts, sell-side analysts, market strategist, technical analysts, fundamental analysts and many others. It would be folly to disagree with the price set by such an impressive array of people with impeccable credentials. Technical analysis utilizes the information captured by the price to interpret what the market is saying with the purpose of forming a view on the future. Prices Movements Are Not Totally Random - Most technicians agree that prices trend. However, most technicians also acknowledge that there are periods when prices do not trend. If prices were always random, it would be extremely difficult to make money using technical analysis. A technician believes that it is possible to identify a trend, invest or trade based on the trend and make money as the trend unfolds. Because technical analysis can be applied to many different time frames, it is possible to spot both short-term and long-term trends. What" Is more important Than "Why" - A technical analyst knows the price of everything, but the value of nothing". Technicians, as technical analysts are called, are only concerned with two things: 1. What is the current price? 2. What is the history of the price movement?
33 The price is the end result of the battle between the forces of supply and demand for the company's stock. The objective of analysis is to forecast the direction of the future price. By focusing on price and only price, technical analysis represents a direct approach. Fundamentalists are concerned with why the price is what it is. For technicians, the why portion of the equation is too broad and many times the fundamental reasons given are highly suspect. Technicians believe it is best to concentrate on what and never mind why. Why did the price go up? It is simple, more buyers (demand) than sellers (supply). After all, the value of any asset is only what someone is willing to pay for it. Who needs to know why?
Strength of Technical Analysis

Focus on Price - If the objective is to predict the future price, then it makes sense to focus on price movements. Price movements usually precede fundamental developments. By focusing on price action, technicians are automatically focusing on the future. The market is thought of as a leading indicator and generally leads the economy by 6 to 9 months. To keep pace with 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 knee-jerk reactions, hints usually develop before significant moves. A technician will refer to periods of accumulation as evidence of an impending advance and periods of distribution as evidence of an impending decline. Supply, Demand And Price Action - Many technicians use the open, high, low and close when analyzing the price action of a security. There is information to be gleaned from each bit of information. Separately, these will not be able to tell much. However, taken together, the open, high, low and close reflect forces of supply and demand.
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The annotated example above shows a stock that opened with a gap up. Before the open, the number of buy orders exceeded the number of sell orders and the price was raised to attract more sellers. Demand was brisk from the start. The intraday high reflects the strength of demand (buyers). The intraday low reflects the availability of supply (sellers). The close represents the final price agreed upon by the buyers and the sellers. In this case, the close is well below the high and much closer to the low. This tells us that even though demand (buyers) was strong during the day, supply (sellers) ultimately prevailed and forced the price back down. Even after this selling pressure, the close remained above the open. By looking at price action over an extended period of time, we can see the battle between supply and demand unfold. In its most basic form, higher prices reflect increased demand and lower prices reflect increased supply. Support / Resistance - Simple chart analysis can help identify support and resistance levels. These are usually marked by periods of congestion (trading range) where the prices move within a confined range for an extended period, telling us that the forces of supply and demand 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. Pictorial Price History - Even if we are a tried and true fundamental analyst, a price chart can offer plenty of valuable information. The price chart is an easy to read
35 historical account of a security's price movement over a period of time. Charts are much easier to read than a table of numbers. On most stock charts, volume bars are displayed at the bottom. With this historical picture, it is easy to identify the following: Reactions prior to and after important events. Past and present volatility. Historical volume or trading levels. Relative strength of a stock versus the overall market Assist With Entry Point - Technical analysis can help with timing a proper entry point. Some analysts use fundamental analysis to decide what to buy and technical analysis to decide when to buy. It is no secret that timing can play an important role in performance. Technical analysis can help spot demand (support) and supply (resistance) levels as well as breakouts. Simply waiting for a breakout above resistance or buying near support levels can improve returns. It is also important to know a stock's price history. If a stock we thought was great for the last 2 years has traded flat for those two years, it would appear that Wall Street has a different opinion. If a stock has already advanced significantly, it may be prudent to wait for a pullback. Or, if the stock is trending lower, it might pay to wait for buying interest and a trend reversal Weakness of Technical Analysis Analyst Bias - Just as with fundamental analysis, technical analysis is subjective and personal biases can be reflected in the analysis. It is important to be aware of these biases when analyzing 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. Open To Interpretation - Furthering the bias argument is the fact that technical analysis is 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. While this can be frustrating, it should be pointed out that technical analysis is more like an art than a science, somewhat like economics. Is the cup half-empty or half-full? It is in the eye of the beholder.
36 Too Late - Technical analysis has been criticized for being too late. By the time the trend is identified, a substantial portion of the 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. Always Another 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. Traders Remorse - Not all technical signals and patterns work. When we begin to study technical analysis, we will come across an array of patterns and indicators with rules to match. For instance: A sell signal is given when the neckline of a head and shoulders pattern is broken. Even though this is a rule, it is not steadfast and can be subject to other factors such as volume and momentum. In that same vein, what works for one particular stock may not work for another. A 50-day moving average may work great to identify
support and resistance for IBM, but a 70-day moving average may work better for TCS. Even though many principles of technical analysis are universal, each security will have its own idiosyncrasies.
Tools of Technical Analysis

Line charts - A style of charts that is created by connecting a series of data points together with a line. This is the most basic type of charts used in finance and connecting a series of past prices together with a line generally creates it.
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Bar chart - A style of chart used by some technical analysts, on whom as illustrated below, the top of the vertical line indicates the highest price a security traded at during the day, and the bottom represents the lowest price. The closing price is displayed on the right side of the bar, and the opening price is shown on the left side of the bar. A single bar like the one below represents one day of trading.
These are the most popular type of chart used in technical analysis. The visual representation of price activity over a given period of time is used to spot trends and patterns. Candlestick - Candlestick charting can be traced back to the 1700's as a tool used for rice trading. One of the great rice traders of the 1800's, Homma is widely credited for developing the candlestick charting basics used today. In the west, Candlestick Charting has grown in popularity and use, thanks to the efforts of Steve Nisson and Greg Morris. Candlestick charts are visually appealing and can be a valuable tool in the technicians toolbox as it gives insight into current investor sentiment, allowing for the determination of short term tops and bottoms. Originating in Japan over 300 years ago, candlestick charts have become quite popular in recent years. For a candlestick chart, the open, high, low and close are all required. A daily candlestick is based on the open price, the intraday high and low, and the close. A weekly candlestick is based on Monday's open, the weekly high-low range and Friday's close. Candlestick is based on the open price, the intraday high and low, and
38 the close. A weekly candlestick is based on Monday's open, the weekly high-low range and Friday's close.
White (clear) candlesticks form when the close is higher than the open and black (solid) candlesticks form when the close is lower than the open. The white and black portion formed from the open and close is called the body (white body or black body). The lines above and below are called shadows and represent the high and low.
The candle is comprised of two parts, the body and the shadows. The body encompasses the open and closing price for the period. The candle body is black if the security closed below the open, and white if the close was higher than the open for the period. The candlestick shadow encompasses the intra-period high and low. Long
39 shadows show that the trading extended well beyond the opening and/or closing price, while short shadows, show that trading was confined closely to the open and/or closing price.
Long, and Short Bodies; Marubozo and Spinning Tops

A long body is a candlestick with a very long body when compared with other recent candles. White bodies show intense buying pressure, where as black bodies show intense selling pressures. Long white candles are generally bullish, but are also found at blowout tops, so they must be interpreted with surrounding candles. Similar long black candles are generally bearish, but are also found at capitulation bottoms. Long bodies with no upper and lower shadows are called Marubozo's. Marubozo's are more powerful than long candles as they show a steady advance (or decline if black) throughout the trading period. A short candle is the opposite of a long candle and usually implies consolidation, as the stock traded in a narrow range during the period. Short candles with long upper and lower shadows are called spinning tops, and are potential reversal signs, as it shows that despite trading in a wide range, the security closed close to the open. A spinning top becomes a doji as the closing price approaches the open price.
1. Long and Short Bodies - Long white candlesticks show strong buying
pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness. Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive.
40 After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.
2. Marubozu - Even more potent long candlesticks are the Marubozu brothers,
Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and he close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.
3. Long versus Short Shadows The upper and lower shadows on candlesticks can
provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlestick with long shadows show that traded extended well past the open and close.
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Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, and bid prices higher. However, sellers later forced prices down from their highs, and the weak close created a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session and the strong close created a long lower shadow.
4. Spinning Tops
Candlesticks with a long upper shadow, long lower shadow and small real body is called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close and the shadows indicate that both bulls and bears were active during the session. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.
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Doji-:
Doji's are powerful reversal indicating candlesticks and are formed when the security opens and closes at the same level, implying indecision in the stock price. Depending on the location and length of the shadows, doji's can be categorized into the following formations: doji, long legged-doji, butterfly doji, gravestone doji, 4 price doji, etc. Doji's become more significant when seen after an extended rally of long bodied candles (bullish or bearish) and are confirmed with an engulfing. (A long candlestick formed over the next period which engulfs the doji body). 1. A long legged-doji is formed when the stock opens at a level, trades in a considerable trading range only to close at the same level as it opened. Long legged-doji's become more powerful when proceeded by small candles, as a sudden burst of volatility in a relative unvolatile stock; can imply a trend change is coming. 2. Dragonfly Doji's are doji's that opened at the high of a session, had a considerable interperiod decline, then find support to rally back to close at the same level as the open. Dragonfly Doji's are often seen after a moderate decline, and are bottom reversal indicators when confirmed with a bullish engulfing. 3. Gravestone Doji's are the opposite of the Dragonfly Doji and are top reversal indicators when confirmed with bearish engulfing. As the name implies,
43 gravestone doji's look like a gravestone, and could signal impending doom for a stock. 4. Price doji's occur when the stock opens trades and closes at virtually the same level for the period. These are very rare, except with thinly traded securities.
Engulfings
An engulfing occurs when the candle body engulfs the previous candles body. White engulfing candles are bullish engulfings, where as black engulfing candles are bearish engulfings. Bullish engulfings are commonly found at short term bottoms, where as bearish engulfings at tops. Many candlesticks, such as dojis, hammers, hanging mans need confirmation of a trend change with an engulfing (bullish engulfing at bottoms, bearish engulfings at tops). Hammers/ Hanging Man
Hammers and hanging man's are short body candles with little or no upper shadow, and a lower shadow at least twice as long as the candle body. Hammers are formed
44 after declines, and hanging man's after advances. When confirmed they become powerful reversal signals, especially the hammer. The expression "hammers out a bottom" refers to when after the open, the downtrend in a stock continues, until at some point, enough buying interest is generated, to bring prices close to where they open. Confirmation comes from a bullish engulfing, showing the trader that the up trend is established. The color of the hanging man/hammer is unimportant, but some consider white hammers and black hanging man's more potent reversal signals.
Gaps
A gap occurs when a candlestick body doesn't fall within the range of the previous candlestick body, a more loosely interpreted definition of a gap, requires no overlap between the shadows, making it obvious on a bar chart as well. We will often hear "All Gaps Get Filled", which is untrue. While the vast majority of gaps do get filled, we can find some charts, where a gap has never filled. Depending on how we define a gap, should base over definition of a gap fill. For instance I consider a gap when 2 bodies don't overlap, so I wait for a body fill to call the gap close. If one was using the criteria of shadow overlap, a gap fill would occur with a shadow fill. Gaps are typically continuation patterns, and sometimes mark the 50% point of a move. They become more significant as the stock approaches the level of the gap as it often acts as a magnet. During a gap fill, it is considered bearish closing below the bottom of the gap and bullish closing above it. Once formed gap's will often serve as strong support/resistance levels even after being closed for some time. 1. Exhaustion gaps signify the end of market bottoms and tops, where initially overwhelming buying pressure, is soon consumed by selling pressure (and vice versa for bottoms). Exhaustion gaps have significant volume associated with them, and are often closed within 3 trading days. Sometimes an exhaustion gap will be followed by another gap at the same levels, some examples are shooting stars, doji stars, abandoned baby, etc. These 2 gap formation are powerful reversal signal's.
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2. Three Gap Play occurs when a stock gaps in the direction of the trend for close to three consecutive periods, with the final gap is an exhaustion gap that is larger then the previous gaps with respect to size and volume. After the exhaustion gap, the trend changes all of the gaps immediately get filled. After the final gap is filled, the stock turns and continues well beyond the initial exhaustion gap. Although pretty rare, they can be very profitable if recognized early and swing traded 3. Evening Star The evening star consists of three candlesticks: 1. A long white candlestick. 2. A small white or black candlestick that gaps above the close (body) of the previous candlestick. This candlestick can also be a doji, in which case the pattern would be an evening doji star. 3. A long black candlestick. The long white candlestick confirms that buying pressure remains strong and the trend is up. When the second candlestick gaps up, it provides further evidence of residual buying pressure. However, the advance ceases or slows significantly after the gap and a small candlestick forms, indicating indecision and a possible reversal of trend. If the small candlestick is a doji, the chances of a reversal increase. The third long black candlestick provides bearish confirmation of the reversal
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After advancing from 68 to 91 in about two weeks, AT&T (T) formed an evening star (red oval). The middle candlestick is a spinning top, which indicates indecision and possible reversal. The gap above 91 was reversed immediately with a long black candlestick. Even though the stock stabilized in the next few days, it never exceeded the top of the long black candlestick and subsequently fell below 75.
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Bearish Abandoned Baby

The bearish abandoned baby resembles the evening doji star and also consists of three candlesticks: 1. A long white candlestick. 2. A doji that gaps above the high of the previous candlestick. 3. A long black candlestick that gaps below the low of the doji. The main difference between the evening doji star and the bearish abandoned baby are the gaps on either side of the doji. The first gap up signals a continuation of the uptrend and confirms strong buying pressure. However, buying pressure subsides after the gap up and the security closes at or near the open, creating a doji. Following the doji, the gap down and long black candlestick indicate strong and sustained selling pressure to complete the reversal. Further bearish confirmation is not required.
Delta (DAL) formed an abandoned baby to mark a sharp reversal that carried the stock from 57.50 to 47.50. Although the open and close are not exactly equal, the small white candlestick in the middle captures the essence of a doji. Indecision is reflected with the small body and equal upper and lower shadows. In addition, the middle candlestick is separated by gaps on either side, which add emphasis to the reversal
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Blending Candlesticks
Candlestick patterns are made up of one or more candlesticks and these can be blended together to form one candlestick. This blended candlestick captures the essence of the pattern and can be formed using the following: The open of first candlestick The close of the last candlestick The high and low of the pattern
By using the open of the first candlestick, close of the second candlestick, and high/low of the pattern, a Bullish Engulfing Pattern or Piercing Pattern blends into a Hammer. The long lower shadow of the Hammer signals a potential bullish reversal. As with the Hammer, both the Bullish Engulfing Pattern and the Piercing Pattern require bullish confirmation.
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Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing and Dark Cloud Cover Patterns require bearish confirmation.
Comparison of Candle Stick with Traditional Bar Charts
50 Many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.
Merits of Candle Stick Bulls vs. Bear - A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The bottom (intrasession low) of the candlestick represents a touchdown for the Bears and the top (intra-session high) a touchdown for the Bulls. The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, I have narrowed the field to 6 types of games (or candlesticks):
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1. Long white candlesticks indicate that the Bulls controlled the ball (trading) for most of the game. 2. Long black candlesticks indicate that the Bears controlled the ball (trading) for most of the game. 3. Small candlesticks indicate that neither team could move the ball and prices finished about where they started. 4. A long lower shadow indicates that the Bears controlled the ball for part of the game, but lost control by the end and the Bulls made an impressive comeback. 5. A long upper shadow indicates that the Bulls controlled the ball for part of the game, but lost control by the end and the Bears made an impressive comeback. 6. A long upper and lower shadow indicates that the both the Bears and the Bulls had their moments during the game, but neither could put the other away, resulting in a standoff
What Candlesticks Don't Tell Us

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first. With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more volatile. The example above depicts two possible high/low sequences that would form the same candlestick. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close.
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The second sequence shows three rather sharp moves: a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close. The first sequence portrays strong, sustained buying pressure, and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples, and there are hundreds of potential combinations that could result in the same candlestick. Candlesticks still offer valuable information on the relative positions of the open, high low and close. However, the trading activity that forms a particular candlestick can vary.
Technical analysis: the use of trend

One of the most important concepts in technical analysis is that of trend. The meaning in finance isnt all that different from the general definition of the term- a trend is really nothing more than the general direction in which a security or market is headed. Take a look at the chart below:
53 It isnt hard to see that the trend in figure is up. However, it isnt always this easy to see a trend.
There are lots of ups and downs in this chart, but there isnt a clear indication of which direction this security is headed.
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The Importance of Trend

It is important to be able to understand and identify trends so that you can trade with them rather than trade against them. Two important sayings in technical analysis are the trend is your friend and dont buck the trend Illustrating how important trend analysis is for technical trade.
Types of Trend
There are three types of trend: 1. Up Trends 2. Downtrends 3. Trend Line As the names imply, when each successive peak and trough is higher, its referred to as an upward trend. If the peaks and troughs are getting lower. Its a downtrend. When there is little movement up or down in the peaks and troughs, its a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In any case, the market can really only trend in these three ways: up, down or nowhere.
Uptrend
Describes the price movement of a financial asset when the overall direction is upward. A formal uptrend is when each successive peak and trough is higher than the ones found earlier in the trend.
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Notice how each successive peak and trough is located above the previous ones. For example, the peak at trend is higher than the peak at uptrend. The uptrend will be deemed broken if the next low on the chart falls below trend.
Downtrend
Describes the price movement of a financial asset when the overall direction is downtrend. A formal downtrend occurs when each successive peak and trough is lower than the ones found earlier in the trend.
Notice how each successive peak and trough is lower than the previous one. For example, the low trend is lower than the low at Point. The downtrend will be deemed broken once the price closes above the high at high direction trend. Downtrend is the opposite of uptrend.
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Trend lines
A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market o r a stock. Drawing a trend line is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of the reversals. As you see in above Figure, an upward trend lines is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trend line helps traders to anticipate the point at which a stocks price will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the downward trend. This line rep resents the resistance level that a stock faces every time the price moves from a low to a high.
Learnings:
Importance of information technology in the field of stock broking is immense. Stock broking companies run with the help of IT. The terminal through which the brokers buy and sell share is a software that completely depends on the internet. For Sharekhan, this terminal has been designed by the software company Spider. Buying and selling through internet is fast. As soon as the prices of shares go up or come down, they can be sold or purchased. Customer Relationship is very necessary for the company to retain the customers.
57 In Sharekhan I have learned how to maintain good relations with the customers by giving them the proper service and solving their queries regarding the share market. I have also learned how to maintain good relation with the employees and the co-trainees. In Sharekhan Ltd. I have learned a lot relating to the stock market. Learned about various products of the Sharekhan Limited. Learned about various products used in the share market especially Demat accounts and Mutual Funds. Learned how to use online trading terminal. Learned how to take appointments. Learned how to approach the customers. Learned how to open and close the calls. Learned how to interact with people, how to convince them and guide them in trading. Learned the various policies of the company. Learned to manage time properly. Got the practical knowledge of the market. Had a practical experience of working in a reputed organization.
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Conclusion
With the help of project, it can be concluded that Technical & Fundamental Analysis play a very important role in the share market. Lot of investors are investing their money after seeing the trend of charts. With the help of Fundamental Analysis we can know the past performance of the companies. Fundamental Analysis considers the long-term performance of companies and this helps the investors to invest their money for long term as well as can get the good returns. Technical Analysis comprises short-term analysis of companies. Technical Analysis really just studies supply and demand in the market in an attempt to determine what direction or trend will continue in the future. The study of technical as well as fundamental analysis can give detail information about the well running companies in the market. Before investing in any company one should study these two concepts.
Findings
It is observed that Technical analysis is of great significance while investing in equities. It provides right signal at right time in most of the cases. Use of various indicators makes the analytical task a lot easier and thus helps greatly in indecisive times. As observed during various major events like Election, Budget etc one must be very cautious and should keep in mind on the Technical indicators for short term perspective. Besides this trend, confirmation from volume activities and Oscillators provide buying and selling signal especially for long term perspective.
Recommendations
Technical analysis is helpful in more than 80% cases but still there is need to decide trade off between profit and loss. So investment must be done carefully. Risk should be minimized for an uncertain period by hedging our investment or keeping away from market during volatile times if we are not sure of which way the market will move. Generally when market becomes range bound and we are not in position to find out which way the market will move, we should liquidate our positions.
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Limitations of Study
To understand the overall working of share market, the period of 45 days was not enough. Moreover, very few investor and agents have a detail knowledge of the study. The data provided by the investor and the agents cant be held true as 100% correct.
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Bibliography Books-:
Security Analysis & Portfolio Management- Sudhindra Bhat Security Analysis & Portfolio Management- Rohini Singh Websites-: www.bseindia.com www.nseindia.com www.moneycontrol.com www.sharekhan.com www.shrekhanlearnings.com www.investopedia.com www.etintelligence.com www.stockcharts.com

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Submitted in Partial Fulfillment of the Requirements of

Prof. Ajay Kumar Pandey

Surendra Singh Bhati

Udai Institute of Management Studies Jaipur

Thanking You. Surendra Singh Bhati

Udai Institute of Management Studies Jaipur

Surendra Singh Bhati PGDM 2010-12

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Udai Institute of Management Studies Jaipur

Introduction of Security Market in India

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Types of Securities Market

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Stock Market Development in India

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Vision, Mission & Objectives

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Reason to Choose Sharekhan Limited Experience

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Products and Services of Sharekhan Limited

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Introduction of Fundamental analysis & Technical Analysis

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Strength of Fundamental Analysis

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Weaknesses of Fundamental Analysis

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Conceptual Framework on Technical Analysis

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General Steps to Technical Evaluation

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Basis of Technical Analysis

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Strength of Technical Analysis

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Tools of Technical Analysis

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Long, and Short Bodies; Marubozo and Spinning Tops

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