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Warning: TT: undefined function: 32 I | P a g eUNIVERSITY OF MUMBAIPROJECT REPORT ON“STUDY ON FUNDAMENTAL ANALYSIS SUPPORTED BY CASESTUDIES”T.Y.B.M (SEMESTER VI)ACADEMIC YEAR: 2018- 2019SUBMITTED BYGEETIKA BHATIATHIRD YEAR BACHELOR OF MANAGEMENT STUDIESROLL NO- 5PROJECT GUIDEMS. POOJA LALWANIH. COLL...

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UNIVERSITY OF MUMBAI

PROJECT REPORT ON “STUDY ON FUNDAMENTAL ANALYSIS SUPPORTED BY CASE STUDIES”

T.Y.B.M.S (SEMESTER VI) ACADEMIC YEAR: 2018-2019

SUBMITTED BY GEETIKA BHATIA

THIRD YEAR BACHELOR OF MANAGEMENT STUDIES ROLL NO- 5

PROJECT GUIDE MS. POOJA LALWANI

H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE, MUMBAI – 400 020. 2018-2019 I|Page

PROJECT REPORT ON “STUDY ON FUNDAMENTAL ANALYSIS SUPPORTED BY CASE STUDIES”

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE THIRD YEAR BACHELOR OF MANAGEMENT STUDIES

BY Name: GEETIKA BHATIA ROLL NO: 5 T.Y.B.M.S (SEMESTER VI)

H.R. COLLEGE OF COMMERCE AND ECONOMICS VIDYASAGAR PRINCIPAL K.M. KUNDNANI CHOWK 123, D.W. ROAD, CHURCHGATE, MUMBAI – 400 020.

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CERTIFICATE

This is to certify that Miss Geetika Bhatia student of H.R. College of Commerce & Economics studying in T.Y.B.M.S (Semester VI), has successfully completed her project report on Study on Fundamental Analysis supported by Case Studies in the academic year “2018-2019”. The information submitted is true and original to the best of the knowledge.

___________________________

____________________________

(Signature of Project Guide)

(Signature of Principal)

_____________________________

(Signature of Internal Examiner)

____________________________

(Signature of External Examiner)

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ACKNOWLEDGEMENT

I acknowledge the value assistance provided by H.R. College of Commerce & Economics, for three-year degree course in B.M.S.

I specially thank the Principal PROF. PARAG THAKKAR, the Co-ordinator of B.M.S and project guide Prof Pooja Lalwani for guiding me in the right direction to prepare the project and giving their valuable time, knowledge and guidance to complete the project successfully.

My family and friends were a great source of inspiration throughout my project, their support is deeply acknowledged.

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DECLARATION

I, Miss Geetika Bhatia the student of H.R. College of Commerce & Economics, studying in T.Y.B.M.S. (Semester VI), hereby declare that I have completed the project report on “Study on Fundamental Analysis supported by Case Studies” in the academic year 2018-2019.

The information submitted is genuine and practical to the best of my knowledge.

Date: April 2019

Place: H.R. College, Mumbai

NAME: - Geetika Bhatia (ROLL NO. 5)

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TABLE OF CONTENTS SR. NO.

TOPIC

PAGE NO.

EXECUTIVE SUMMARY

1

INTRODUCTION

2

3.

STATEMENT OF THE PROBLEM

3

4.

OBJECTIVES OF THE STUDY

4

5.

HYPOTHESIS OF THE STUDY

5

6.

SCOPE OF THE STUDY

6

7.

LIMITATIONS OF THE STUDY

6

8.

RESEARCH METHODOLOGY

7

9.

LITERATURE REVIEW

11

10.

PRIMARY DATA

21

(A)

DATA ANALYSIS AND INTERPRETATION

21

(B)

INTERVIEWS

38

1. 2.

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11.

SECONDARY DATA

44

(A)

CHAPTER 1: WHAT IS FUNDAMENTAL ANALYSIS

44

(B)

CHAPTER 2: ECONOMY ANALYSIS

45

(C)

CHAPTER 3: INDUSTRY ANALYSIS

46

(D)

CHAPTER 4: COMPANY ANALYSIS

47

(E)

CHAPTER 5: TOP DOWN APPROACH

48

(F)

CHAPTER 6: BOTTOM UP APPROACH

49

(G)

CHAPTER 7: FINANCIAL STATEMENTS

51

(H)

CHAPTER 8: RATIO ANALYSIS AND INTERPRETATION

56

CASE STUDIES

68

(A)

BATA INDIA LTD

68

(B)

MMP INDUSTRIES LTD.

74

13.

CONCLUSION

85

14.

BIBLIOGRAPHY

86

15.

APPENDIX

87

12.

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EXECUTIVE SUMMARY Fundamental Analysis (FA) is a holistic approach to study a business. When an investor wishes to invest in a business for the long term (say 3 – 5 years) it becomes extremely essential to understand the business from various perspectives. It is critical for an investor to separate the daily short-term noise in the stock prices and concentrate on the underlying business performance. Over the long term, the stock prices of a fundamentally strong company tend to appreciate, thereby creating wealth for its investors. We have many such examples in the Indian market. To name a few, one can think of companies such as Infosys Limited, TCS Limited, Page Industries, Eicher Motors, Bosch India, Nestle India, etc. Each of these companies have delivered on an average over 20% compounded annual growth return (CAGR) year on year for over 10 years. To give you a perspective, at a 20% CAGR the investor would double his money in roughly about 3.5 years. Higher the CAGR faster is the wealth creation process. Some companies such as Bosch India Limited have delivered close to 30% CAGR. Therefore, you can imagine the magnitude, and the speed at which wealth is created if one would invest in fundamentally strong companies. Fundamental Analysis is the technique that gives you the conviction to invest for a long term by helping you identify these attributes of wealth creating companies. Wealth is created only by making intelligent long-term investments. Fundamental Analysis is based on the premise that every share has a certain intrinsic value at a period of time. This intrinsic value changes from time to time as a consequence of both internal and external factors. The theory of fundamental analysis submits that one should purchase a share when it is available below its intrinsic value and sell it when it rises above its intrinsic value. When the market value of a share is below its intrinsic value it is undervalued, whereas if the market value of a share is above its intrinsic value it is overvalued. Fundamentalists seek to purchase under-priced shares and sell overpriced ones. They believe that although the market price may deviate from the intrinsic value in the short term, in the long term the market price will be equal to the intrinsic value. Hence, this study tells you how to analyse a security in order to determine its fair value (also known as intrinsic value), by evaluating relevant economic, financial, non-financial and other quantitative and qualitative factors.

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INTRODUCTION

It is said that fundamental analysis is the study of the company and not the stock, meaning that the focus is on the business activities of the enterprise. Fundamental analysis stands for the entire study of the basic underlying elements, which have an impact upon economy. It represents a whole methodology, whose objective is to forecast price action and market trends in the future by examining economic indicators, government and central bank policies, societal factors and other force majeure events, such as war, natural disasters etc. Fundamental Analysis involves examining the economic, financial and other qualitative and quantitative factors related to a security in order to determine its intrinsic value. It attempts to study everything that can affect the security's value, including macroeconomic factors (like the overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Fundamental analysis, which is also known as quantitative analysis, involves delving into a company’s financial statements (such as profit and loss account and balance sheet) in order to study various financial indicators (such as revenues, earnings, liabilities, expenses and assets). Such analysis is usually carried out by analysts, brokers and savvy investors.

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STATEMENT OF PROBLEM

This project aims at undertaking a comprehensive study on how Fundamental Analysis helps develop a solid understanding of the business and industry due to the in-depth, extensive research and analysis required to conduct fundamental analysis. This project is supported by case studies to get a deeper understanding of how Fundamental Analysis is used. Thus, the research is titled, “Study on Fundamental Analysis supported by Case Studies”.

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OBJECTIVES OF THE STUDY

The main objectives of this study are: 1. To make projection of a company on its business performance. 2. To evaluate the company management and make internal business decisions. 3. To understand the macroeconomic variables which will impact the company’s progress. 4. To analyse the different approaches used in Fundamental analysis. 5. To study the different financial statements used. 6. To understand ratio analysis and its interpretation.

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HYPOTHESIS OF THE STUDY

Hypothesis is a testable prediction which is expected to occur. It can be a false or a true statement that is tested in the research to check its authenticity. The hypothesis should be clear and precise. It should be limited in scope and must be specific. There are two types of hypothesis, they are: •

Null Hypothesis (Ho)

•

Alternate Hypothesis (Ha)

Following are the hypothesis of the study: 1. Ho: Majority of the investors use Fundamental Analysis. Ha: Majority of the investors use Technical Analysis.

2. Ho: Equity shares is the most sought out investment tool. Ha: Equity shares is not the most sought out investment tool.

3. Ho: Most investors prefer Long term investing. Ha: Most investors prefer Short term investing.

4. Ho: Investors consider High return as the most attractive element while investing. Ha: Investors do not consider High return as the most attractive element while investing.

5. Ho: Market forecast is the most important factor that influences decisions in making investments. Ha: Market forecast is not the most important factor that influences decisions in making investments. 6. Ho: Price to earnings ratio is the most important ratio while investing in a company. Ha: Price to earnings ratio is not the most important ratio while investing in a company.

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SCOPE OF THE STUDY

The scope of the research extends to identifying the intrinsic value of the company by using the published financial details of the company. It deals with an in-depth study of the various ratios used in fundamental analysis and the different financial statements issued by the company.

LIMITATIONS OF THE STUDY ➢ The sample size was limited to 102 respondents. ➢ The sample was taken from the population residing in India only. The results are not applicable to the whole world. ➢ The paucity of time and resources was a major constraint. ➢ My research is biased towards citizens in the metropolitan and urban region and not the rural areas. ➢ The class of people is limited as it does not include people from the lower income level. ➢ The limited knowledge of the respondents regarding the topic may hamper the true conclusion of the study. ➢ Being an opinion survey, a lot of subjectivity is involved in the study.

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RESEARCH METHODOLOGY RESEARCH METHODS Primary as well as Secondary research was employed in this project. ➢ Primary research is the first-hand research that the researcher collects, by interacting with the sample population and the conclusions and analysis he/she draws from the data that has been obtained. ➢ Primary research in this project involved interacting with 102 individuals to understand and comprehend if they use fundamental analysis in their daily investments.

➢ Secondary research is the background research done by the researcher on already existing information regarding the topic. ➢ This helps the researcher in determining whether previous research papers have been written on that particular topic and if and how new ground on that particular topic can be covered. ➢ It also helps the researcher in building a base for the questions to be asked to the sample population and to construct an informative questionnaire and ask all the right questions. ➢ Secondary research in this project involved reading and examining various research papers, articles, case study to understand Fundamental Analysis.

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QUANTITATIVE DATA: SURVEYS ➢ This method captures information through the input of responses to a research instrument containing questions (such as a Questionnaire). ➢ Information can be input either by the respondents themselves (E.g.: An Online Survey) or, the researcher can input the data (E.g.: a phone survey, a one-on-one survey, a mall intercept, etc). ➢ The main methods for distributing surveys are via a website, postal mail, phone, or in person. ➢ However, newer technologies are creating additional delivery options including through wireless devices, such as smart phones and technologies wherein the information gets recorded in real time and can be viewed and intercepted very easily through pie charts and bar graphs. ➢ Survey for this study was undertaken via an online questionnaire. Questions included views of the people from various backgrounds.

QUALITATIVE DATA COLLECTION ➢ Qualitative data collection requires researchers to interpret the information gathered, most often without the benefit of statistical support. If the researcher is well trained in interpreting respondents’ comments and activities, this form of research can offer very good information. However, it may not hold the same level of relevancy as quantitative research due to the lack of scientific controls with this data collection method.

RESEARCH DESIGN ➢ The research design comprised a method of primary data collection using a survey given to 102 respondents. The design also included secondary data expressed through a review of past literature in the concerned area, indicating that a certain segment of the study was exploratory in nature. ➢ The design used descriptive tools such as pie chart and bar graphs to highlight the data analysis.

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Survey started: December 2018 Survey ended: January 2019

RESEARCH INSTRUMENT The research tool used was that of a survey comprising 17 questions as well as personal interviews that covered different areas of the research problem. The questions were multiple choice in nature and closed ended and only one question was open ended. It was compulsory for all 102 respondents to answer all the questions. The survey was anonymous but certain demographic details such as age and occupation were asked for. The questionnaire made is enclosed in the annexure.

SAMPLE SIZE Sample size is the number of respondents who have been surveyed or the number of people who have filled up the questionnaire. The sample size of my research project is 102 respondents.

SAMPLING UNIT A decision has to be taken concerning a sampling unit before selecting samples. Sampling unit may be a geographical one such as state, district, village or a construction unit such as house, flat, etc. In my research project, the sampling unit consists of respondents who can invest across India.

SAMPLING DESIGN The study used the technique of Random Sampling for the survey. This refers to a basic sampling design where a subset of the population is randomly selected to be a part of the sample. The sample of this study was limited to 102 respondents.

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STATISTICAL TECHNIQUE The study employed the use of bar graphs and pie charts to interpret and express the data in the form of percentages. Graphs allow for descriptive secondary analysis of data. The survey had a total of 102 respondents. The responses to each question were expressed as percentages and then a pie chart was prepared for each question, excepting a few. For those exceptions a horizontal bar graph was prepared. Each graph was accompanied by a key that contained the response options for the specific question and the colour corresponding to each response in the chart. The graphs allowed for interpretation of the responses from the point of view of which response option had been chosen by the majority of the respondents versus a minority.

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LITERATURE REVIEW Article 1:

“Fundamental analysis helps you know if the stock is undervalued or overvalued” DNA Newspaper Published on: December 1st, 2015

A method of security valuation which involves examining the company's financials and operations, especially sales, earnings, growth potential, assets, debt, management, products, and competition. Fundamental analysis takes into consideration only those variables that are directly related to the company itself, rather than the overall state of the market or technical analysis data. Fundamental analysis is critical component in stock analysis. It is quite accessible, extremely valuable. The problem of fundamental analysis is however that it can very easily get quite complicated, but it doesn't have to be. A fundamental analysis is all about getting an understanding of a company, the health of its business and its future prospects. It includes reading and analyzing annual reports and financial statements to get an understanding of the company's comparative advantages, competitors and its market environment. The end goal of performing fundamental analysis is to produce a value that an investor can compare with the security's current price, with the aim of figuring out what sort of position to take with that security (underpriced = buy, overpriced = sell) Fundamental analysis is built on the idea that the stock market may price a company wrong from time to time. Profits can be made by finding under-priced stocks and waiting for the market to adjust the valuation of the company. By analysing the financial reports from companies, you will get an understanding of the value of different companies and understand the pricing in the stock market. After analysing these factors, you have a better understanding of whether the price of the stock is undervalued or overvalued at the current market price. Fundamental analysis can also be performed on a sectors' basis and in the economy as a whole. Example of this is that if the current market price of a stock is lower than the intrinsic price, the investor should purchase the stock because he expects the stock price to rise and move towards its true value. Alternatively, if the current market price is above the intrinsic price, the stock is considered overbought and the investor sells the stock because he knows that the stock price will fall and move closer to its intrinsic value. To determine the true price of the company's stock, the following factors need to be considered.

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In the long run, the stock price should reflect its fundamental true value. However, in the short run, a stock might have great fundamentals but still be moving in wrong direction. This can be due to other factors, such as news releases and changes in future outlook, which also have effect on the price. Trends in the market and investors' emotions also effect the short-term fluctuation in stock prices resulting in the current market price deviating from its true value.

One questi...