FINAL REPORT ON

Fundamental and Technical Analysis

of Equity markets

BY
D.PRUTHVIN GOUD
18BSPHH01C0928

AT
ADITYA BIRLA SUN LIFE INSURANCE LIMITED
DELHI
 FINAL REPORT ON

Fundamental and Technical Analysis

of Equity markets

BY
D.PRUTHVIN GOUD
18BSPHH01C0928

AT
ADITYA BIRLA SUN LIFE INSURANCE LIMITED
DELHI

A report submitted in partial fulfillment of the requirements of

MBA Program of IBS Hyderabad




COMPANY GUIDE FACULTY GUIDE

Mr. Nikesh Ruparel Dr. Padmavathi Vankayalapati

(Executive Associate partner) IBS Hyderabad

Date of Submission: May 12th 2019

 AUTHORISATION

This is to authorize that the project report titled “ FUNDAMENTAL AND

TECHNICAL ANALYSIS OF EQUITY MARKETS AS PER ABSIL
BY USING EQUITY CONCEPTS AND TRADING” is an original work
done by Ms. D.Pruthvin Goud of enrollment number: 18BSPHH01C0928,
MBA 2018-2020, IBS HYDERABAD during her summer internship at
ADITYA BIRLA SUN LIFE INSURANCE, DELHI . This report is
submitted as the partial fulfillment of the requirement of MBA program of
IBS HYDERABAD.

FACULTYGUIDE: COMPANYGUIDE:
Dr. Padmavathi Vankayalapati Mr. Nikesh Ruparel
Professor (Executive Associate partner)
IBS Hyderabad. ABSLI, Delhi
 ACKNOWLEDGMENT

I hereby take this opportunity to thank ADITYA BIRLA SUNLIFE

INSURANCE LIMITED, DELHI for providing me corporate exposure
through the course of SUMMER INTERNSHIP in their company.

I am very thankful to my company guide MR.NIKESH RUPAREL, Executive

ASSOCIATE PARTNER, who allowed me to undertake this project and
helped me at every point throughout the tenure of the project.

I express my deep gratitude to my faculty guide DR. PADMAVATHI

VANKAYALAPATI, IBS HYDERABAD for rendering me valuable guidance
always. She has been a perennial source of inspiration and motivation right
from the inception of this project.

In all humility and reverence, I express my profound sense of gratitude to my

PARENTS, PROFESSORS AND FRIENDS who have willingly spared time,
experience and knowledge to guide me in my project.





D.PRUTHVIN GOUD
18BSPHH01C0928,
IBS, HYDERABAD
INDEX

TOPIC NAME Page no.

Abstract 1
About the company 2
Introduction 4
IPO 5
Mutual funds 7
Systematic investment planning 9
Fundemental analysis 12
Assest allocation 17
Insurance 20
Derivatives 23
Option strategies 29
Technical Analysis 36
Conclusion 46
 Abstract

The internship deals with portfolio management to maximize capital gains through live
trading in equity markets in the initial phase and then derivatives in the second phase.
First, we do a market research on the equity markets, debts, mutual funds & derivatives, to
understand the framework of these markets and how they operate. It is then followed by live
trading on Nifty- intraday in order to practically implement how to manage a portfolio of
shares, based on the requirements on an investor.
An index structured maintained for large cap companies in specific sector- Media sector. The
idea is to do deep analysis of Media sector and the products of the companies while studying
the evolution of Media industry in India, and understand how the products of Media sector
has evolved over time. A Risk Profiling Questionnaire was designed to understand the
variables affecting Investment decision of an individual and there by classifying the
individuals based on their risk profile and recommending an investment plan of the company
Aditya Birla accordingly.
Second phase involves Fundamental analysis of Equity markets & the analysis of different
types of mutual funds simultaneously. This is achieved by maintaining data pertaining to all
the types of mutual funds and best performing funds in market. It also involves selling of the
Life insurance policy devising the marketing strategies of the company. This also involves the
technical analysis of the equity markets in which the advance charts of the companies are
analyzed and their trends are founded.The fundamental analysis is for long term investing
and technical analysis is for short term investing.

1
 About the company

Name: Aditya Birla Sun Life insurance ltd.

Key persons: Kumar Mangalam Birla (Chairman)


Pankaj Razdan (MD and CEO)

Amit Jain (Chief Financial Officer)
Rajesh Nambiar (Chief Marketing Officer)

History
Birla Sun Life Insurance Company Limited was founded in 2000. The company is based
in Mumbai, India. It is a joint venture between Indian Aditya Birla Group and Canadian Sun
Life Financial Inc. In April 2016, Sun Life Financial increased their stake in Birla Sun Life
Insurance to 49%.

The Aditya Birla Group

The Aditya Birla Group is an Indian multinational conglomerate named after Aditya Vikram
Birla, headquartered in the Aditya Birla Centre in Worli, Mumbai, India.It operates in 40
countries with more than 120,000 employees worldwide.The group was founded by Seth
Shiv Narayan Birla in 1857. The group interests in sectors such as viscose staple fibre,
metals, cement (largest in India), viscose filament yarn, branded apparel, carbon black,
chemicals, fertilizers, insulators, financial services, telecom (third largest in India), BPO and
IT services. The group had a revenue of approximately US$41 billion in year 2015.

Aditya Birla Sun Life insurance

Aditya Birla Sun Life Insurance Company Limited (ABSLI), is a backup of Aditya Birla
Capital Ltd (ABCL). is one of the main private segment life coverage organizations in India.
ABSLI was fused on August 4 2000 and started tasks on January 17, 2001. A joint endeavor
between the Aditya Birla Group and Sun Life Financial Inc., a main universal budgetary
administrations association in Canada.

2
Previously known as Birla Sun Life Insurance Company Limited, ABSLI is one of India's
driving life coverage organizations offering a scope of items over the client's life cycle,
including kids feasible arrangements, riches security plans, retirement and benefits
arrangements, wellbeing plans, conventional term plans and Unit Linked Insurance Plans
("ULIPs").

As of December 31st, 2018, all out AUM of ABSLI remained at Rs. 389,548 million. ABSLI
recorded a gross premium pay of Rs. 18,599 million in Q3 FY 2018-19 and enrolling a y-o-y
development of 68% in Individual First Year Premium and as of now positioned seventh in
Individual Business (Individual FYP balanced for 10% single premium). ABSLI has an
across the country dispersion nearness through 425 branches, 9 bank assurance accomplices,
6 appropriation channels, more than 83,000 direct selling specialists, other Corporate Agents
and Brokers and through its site. The organization has more than 10,000 representatives and
in excess of 16 lakhs dynamic clients.

The Company offers a total scope of insurance answers for help secure your family's future
and give budgetary help to your tyke's instruction, riches with assurance arrangements,
wellbeing and health arrangements, retirement arrangements and reserve funds with
assurance answers for help you remain monetarily secure later on with little restrained
investment funds at ordinary interims. ABSLI puts individuals' need first and means to secure
what is of high repute to the client, with confirmation. While, Life Insurance can't anticipate
hazard, it can repay money related misfortunes emerging from hazard

Aditya Birla Capital Limited (ABCL), is the money related administrations stage of the
Aditya Birla Group. With a solid nearness over the disaster protection, resource the
executives, private value, corporate loaning, organized money, venture account, general
protection broking, riches the board, value, cash and item broking, online individual money
the executives, lodging fund, annuity support the board and medical coverage business,
ABCL is focused on serving the start to finish monetary administrations needs of its retail
and corporate clients. Tied down by in excess of 17,000 representatives, ABCL has an across
the country reach and in excess of 2,00,000 operators/channel accomplices.
Sun Life Financial is a main worldwide budgetary administrations association giving
protection, riches and resource the board answers for individual and corporate Clients. Sun
Life Financial has activities in various markets around the world, including Canada, the
United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia,
India, China, Australia, Singapore, Vietnam, Malaysia and Bermuda. As of September 30,
2018, Sun Life Financial had complete resources under administration of CAD 984 billion.
Sun Life Financial Inc. exchanges on the Toronto (TSX), New York (NYSE) and Philippine
(PSE) stock trades under the ticker image SLF.

INTRODUCTION

Equity markets

3
A stock market, equity market or share market is the aggregation of buyers and sellers (a
loose network of economic transactions, not a physical facility or discrete entity)
of stocks (also called shares), which represent ownership claims on businesses; these may
include securities listed on a public stock exchange, as well as stock that is only traded
privately. Examples of the latter include shares of private companies which are sold
to investors through equity crowd funding platforms. Stock exchanges list shares of common
equity as well as other security types, e.g. corporate bonds and convertible bonds.

Approaches to Investing
There are many different approaches to investing. Many strategies can be classified as
either fundamental analysis or technical analysis. Fundamental analysis refers to analyzing
companies by their financial statements found in SEC filings, business trends, general
economic conditions, etc. Technical analysis studies price actions in markets through the use
of charts and quantitative techniques to attempt to forecast price trends regardless of the
company's financial prospects. One example of a technical strategy is the Trend following
method, used by John W. Henry and Ed Seykota, which uses price patterns and is also rooted
in risk control and diversification.
Additionally, many choose to invest via the index method. In this method, one holds a
weighted or unweighted portfolio consisting of the entire stock market or some segment of
the stock market (such as the S&P 500 or Wilshire 5000). The principal aim of this strategy is
to maximize diversification, minimize taxes from too frequent trading, and ride the general
trend of the stock market (which, in the U.S., has averaged nearly 10% per year, compounded
annually, since World War II).
Responsible investment emphasizes and requires a long term horizon on the basis
of fundamental analysis only, avoiding hazards in the expected return of the
investment; socially responsible investing is also recommended[by whom?] in all types of
investment.
Types of Equity
• Private Equity
• IPO (initial Public Offering)

IPO
Initial public offering or stock market launch is a type of public offering in which shares of a
company are sold to institutional investors and usually also retail investors; an IPO is
underwritten by one or more investment banks, who also arrange for the shares to be listed on
one or more stock exchanges.

4
An IPO is approved by SEBI (Securities and exchange board of India).

IPO
(reservation)

QIB(qualified NII (Non

Instituitional institutional Retail
bidder) investors) (individual)
!

There are three ways for an IPO application

1. Offline. (Refund received through NEFT)

2. Online. (online refund)
3. ASBA. (instant refund)
Information supported by Blocked amount

Underwriter An underwriter is any party that evaluates and assumes another party's risk
for a fee. The fee is often a commission, premium, spread, or interest. Underwriters are
critical to the financial world including the mortgage industry, insurance industry, equity
markets, and common types of debt security trading.
Underwriting services are provided by some large financial institutions, such as banks, or
insurance or investment houses, whereby they guarantee payment in case of damage or
financial loss and accept the financial risk for liability arising from such guarantee.

Book building Book building is the process by which an underwriter attempts to

determine the price to place a securities offering, such as an initial public offering (IPO),
based on demand from institutional investors. An underwriter builds a book by accepting
orders from fund managers, indicating the number of shares they desire and the price they are
willing to pay.

Three types of Bid-Ask

1. Intraday- selling the shares the very same day

2. BTST- buy today sell tomorrow
3. Hold (Delivery)- Buy today sell whenever.
Concept of Short sell

Short selling
It is a way to profit from a declining security (such as a stock or a bond) by selling it without
owning it. Investors expecting a bear market will often enter a short position by selling a
borrowed security at the current market price in the hope of buying it back at a lower price (at
which time he or she would return it to the original owner).

5
Stock Exchange
A stock exchange is an exchange (or bourse)[note 1] where stock brokers and traders can buy
and sell shares of stock, bonds, and other securities. Many large companies have their stocks
listed on a stock exchange. This makes the stock more liquid and thus more attractive to
many investors. The exchange may also act as a guarantor of settlement. Other stocks may be
traded "over the counter" (OTC), that is, through a dealer. Some large companies will have
their stock listed on more than one exchange in different countries, so as to attract
international investors.[7]
Stock exchanges may also cover other types of securities, such as fixed interest securities
(bonds) or (less frequently) derivatives which are more likely to be traded OTC.

Short sellers in the stock market are usually concerned with their expectations of a company's
future earnings (the main factor determining stock price), whereas short sellers of bonds are
most concerned with future bond yields, the determining factor of bond prices. Anticipating
bond prices requires careful attention to interest rate fluctuations. Essentially, as interest rates
jump, bond prices tend to fall (and vice versa). Therefore, a person anticipating interest rate
hikes might look to make a short sale.

Market Capitalization
Market capitalization refers to the total dollar market value of a company's
outstanding shares. Commonly referred to as "market cap," it is calculated by multiplying a
company's shares outstanding by the current market price of one share. The investment
community uses this figure to determine a company's size, as opposed to using sales or total
asset figures.

Segment of companies based on Market Cap

1. Large Cap: Greater than 5000 Cr (1 billion $)
2. Mid Cap: 500-5000Cr (100 million-1 billion$)
3. Small Cap: Less than 5000 Cr (>100 Million $)
Market Circuit Filters
Circuit filter is a mechanism used by stock exchanges to curb excessive volatility in markets.
It is the maximum fluctuation in price allowed during trading. Trading gets suspended if the
maximum permissible limit is hit in either direction.
A group does not have circuit filters while Group B1,B2 Z1 and T have circuit filters of 10%,
20% etc. which is decided by SEBI based on the character of the company.
DaysWeight = (company’s market cap / Total Market cap) * 100
No of Shares= (market cap / Price of share)
Actual change in index = (change in price)(days weightage)*base index

6
 I have attached here the excel sheet where we calculate the market index regularly, and
update it on daily basis.

Mutual Funds
A mutual fund is a professionally managed investment fund that pools money from many
investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have advantages and disadvantages compared to direct investing in individual
securities. The primary advantages of mutual funds are that they provide economies of scale,
a higher level of diversification, they provide liquidity, and they are managed by professional
investors. On the negative side, investors in a mutual fund must pay various fees and
expenses.
Primary structures of mutual funds include open-end funds, unit investment trusts,
and closed-end funds. Eßπxchange-traded funds (ETFs) are open-end funds or unit
investment trusts that trade on an exchange. Mutual funds are also classified by their
principal investments as money market funds, bond or fixed income funds, stock or equity
funds, hybrid funds or other. Funds may also be categorized as index funds, which are
passively managed funds that match the performance of an index, or actively managed
funds. Hedge funds are not mutual funds; hedge funds cannot be sold to the general public
and are subject to different government regulations.

Classification of funds by types of underlying investment

Mutual funds are normally classified by their principal investments, as described in the
prospectus and investment objective. The four main categories of funds are money market
funds, bond or fixed income funds, stock or equity funds, and hybrid funds. Within these

7
categories, funds may be sub-classified by investment objective, investment approach or
specific focus.

The types of securities that a particular fund may invest in are set forth in the
fund's prospectus, a legal document which describes the fund's investment objective,
investment approach and permitted investments. The investment objective describes the type
of income that the fund seeks. For example, a capital appreciation fund generally looks to
earn most of its returns from increases in the prices of the securities it holds, rather than from
dividend or interest income. The investment approach describes the criteria that the fund
manager uses to select investments for the fund.
Bond, stock, and hybrid funds may be classified as either index (or passively-managed) funds
or actively managed funds.
Money market funds
Money market funds invest in money market instruments, which are fixed income securities
with a very short time to maturity and high credit quality. Investors often use money market
funds as a substitute for bank savings accounts, though money market funds are not insured
by the government, unlike bank savings accounts.
In the United States, money market funds sold to retail investors and those investing in
government securities may maintain a stable net asset value of $1 per share, when they
comply with certain conditions. Money market funds sold to institutional investors that invest
in non-government securities must compute a net asset value based on the value of the
securities held in the funds.In the United States, at the end of 2016, assets in money market
funds were $2.7 trillion, representing 14% of the industry.[18]
Bond funds
Bond funds invest in fixed income or debt securities. Bond funds can be sub-classified
according to:
• The specific types of bonds owned (such as high-yield or junk bonds, investment-
grade corporate bonds, government bonds or municipal bonds)
• The maturity of the bonds held (i.e., short-, intermediate- or long-term)
• The country of issuance of the bonds (such as U.S., emerging market or global)
• The tax treatment of the interest received (taxable or tax-exempt)
In the United States, at the end of 2016, assets in bond funds were $4.1 trillion, representing
22% of the industry.[18]
Stock funds
Stock, or equity, funds invest in common stocks. Stock funds may focus on a particular area
of the stock market, such as
• Stocks from only a certain industry
• Stocks from a specified country or region
• Stocks of companies experiencing strong growth

8
• Stocks that the portfolio managers deem to be a good value relative to the value of the
company's business.
• Stocks paying high dividends that provide income
• Stocks within a certain market capitalization range
In the United States, at the end of 2016, assets in Stock funds were $10.6 trillion,
representing 56% of the industry.
Hybrid funds
Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds,
asset allocation funds, target date or target risk funds, and lifecycle or lifestyle funds are all
types of hybrid funds.
Hybrid funds may be structured as funds of funds, meaning that they invest by buying shares
in other mutual funds that invest in securities. Many funds of funds invest in affiliated funds
(meaning mutual funds managed by the same fund sponsor), although some invest in
unaffiliated funds (i.e., managed by other fund sponsors) or some combination of the two.
In the United States, at the end of 2016, assets in hybrid funds were $1.4 trillion, representing
7% of the industry.
Other funds
Funds may invest in commodities or other investments too.

Systematic Investment Planning

A Systematic Investment Plan (SIP) is an investment vehicle offered by mutual funds to
investors, allowing them to invest small amounts periodically instead of lump sums. The
frequency of investment is usually weekly, monthly or quarterly.
In SIPs, a fixed amount of money is debited by the investors in bank accounts periodically
and invested in a specified mutual fund. The investor is allocated a number of units according
to the current Net asset value. Every time a sum is invested, more units are added to the
investors account.
The strategy claims to free the investors from speculating in volatile markets by Dollar cost
averaging. As the investor is getting more units when the price is low and fewer units when
the price is high, in the long run, the average cost per unit is supposed to be lower.
SIP claims to encourage disciplined investment. SIPs are flexible, the investors may stop
investing a plan anytime or may choose to increase or decrease the investment amount. SIP is
usually recommended to retail investors who do not have the resources to pursue the active
investment.
In India, a recurring payment can be set for SIP using Electronic Clearing Services (ECS).
Some mutual funds allow tax benefits under Equity-linked savings schemes. This, however,
has a locking period of three years.

9
Steps to choose Mutual Funds
1. Risk profiling Questionnaire
2. Decide based on returns
3. Charges
4. Apply ratio (shark/tenure)
CAMS: computer aided management system run by the government/ outsourced/ logistic of
funds.

This is a sample of the questionnaire prepared by us for choosing the mutual funds

10
!

11
 !

Fundamental Analysis of Media Industry

We have done a fundamental analysis of our sectors, which includes determining the over
valued and undervalued stocks based on their P/E with respect to the overall P/E of the
particular industry.

Companies in the industry

1. Zee Entertainment 13. Tv Today

2. Sun Tv 14. Music Broadcast
3. PVR 15. Shemaroo ent
4. Dish Tv 16. HT Media
5. Tv 18 Broadcast 17. Saregama India
6. Hathway Cable 18. Balaji Tele Films
7. Jagran Prakasham 19. Zee Media
8. Inox 121212112
20. Hindustan
9. Den Networks 21. GTPL

12
The P/E ratio is calculated using the formula:

Company Name Price EPS EPS P/E

(2018) (2017)

Zee 433.40 19.91 10.77 21.84

Entertainment

Sun Tv 598.35 27.74 24.15 21.62

PVR 1614.35 25.97 19.58 63.34

Dish Tv 37.20 0.31 1.53 124.83

Tv 18 Broadcast 34.9 0.56 0.59 61.96

Hathway Cable 29.5 0.94 -1.86 31.48

Jagran 117.45 8.52 9.67 13.48

Prakasham

Inox 324.15 12.49 3.37 26.31

Den Networks 69.7 -1.59 -13.86

DB Crop 189.7 17.64 20.41 10.76

Entertainment 517 7.38 11.43 70.7

Network
Prime Focus 65.5 -1.89 -0.37

13
Company Name Price EPS EPS P/E
(18) (17)

Tv Today 317 20.7 18.08 15.28

Music Broadcast 58.95 9.06 8.05 6.6

Shemaroo ent 407.05 25.56 22.69 15.88

HT Media 44.45 9.18 2.64 4.79

Saregama India 573.5 17.53 4.43 32.79

Balaji Tele Films 82.2 0.86 0.81 20.87

Zee Media 17.9 1.79 4.07 46.36

Hindustan 111.7 23.3 26.33 4.7

GTPL 69.7 5.43 4.05 12.65

Eros Intl 79.2 8.15 13.92 9.66

UFO Moviez 241.1 26.06 19.65 9.13

Total 500.39

Avg (industry) 25.01

14
Based on the average P/E of industry, we assess the overvalued and unvalued
companies.
OVER VALUED UNDER VALUED

PVR ZEE ENTERTAINMENT

TV 18 SUN TV

HATHWAY JAGRAN PRAKASHAN

INOX D B CORPORARTION

ENTERTAINMENT NETWORK TV TODAY

SAREGAMA MUSIC BROACAST

BALAJI TELE FILMS SHEMAROO

H T MEDIA

ZEE

HINDUSTAN

GTPL

EROS

UFO

15
For Overvalued companies, we find out the PEG ratio in order to determine the Growth
Picks

1. HATHWAY
2. INOX
3. SAREGAMA
Growth Pick= 3

For Undervalued companies, we find out the Top line and Bottom line and Compare
them in order to determine the Value Picks
COMPANY TOPLINE BOTTOMLINE

ZEE ENT INCREASE INCREASE

SUN TV INCREASE INCREASE

JAGRAN DECREASE DECREASE

DB CORP INCREASE DECREASE

TV TODAY INCREASE INCREASE

MUSIC INCREASE INCREASE

SHEMAROO INCREASE INCREASE

HT MEDIA DECREASE INCREASE

ZEE INCREASE INCREASE

HINDUSTAN DECREASE DECREASE

GTPL INCREASE INCREASE

16
 EROS DECREASE DECREASE

UFO INCREASE INCREASE

Value picks = 10.

Asset Allocation

Asset allocation is the rigorous implementation of an investment strategy that attempts to

balance risk versus reward by adjusting the percentage of each asset in an
investment portfolio according to the investor's risk tolerance, goals and investment time
frame.[1] The focus is on the characteristics of the overall portfolio. Such a strategy contrasts
with an approach that focuses on individual assets.

• Ratios taken into consideration:

1) ASSET TURNOVER
2) CURRENT RATIO
3) INTEREST COVERAGE RATIO
4) DEBT RATIO

Company ASSET TO CURRENT INT DEBT Total

Name RATIO RATIO COVERAGE RATIO

HATHWAY 0.34(12) 0.43(12) 1.78(12) 0.49(10) 46

INOX 1.53(1) 1.23(8) 4.68(8) 0.38(9) 26

SAREGAM 0.94(4) 1.17(9) 13.21(5) 0.03(2) 20

A

ZEE ENT 0.88(5) 2.93(4) 20.15(4) 0.2(6) 19

SUN TV 0.66(9) 3.08(3) 1580.43(1) 0.11(4) 13

DB CORP 1.28(2) 2.57(5) 73.98(3) 0.02(1) 11

17
 TV TODAY 1.02(3) 3.46(2) 258.54(2) 0.22(7) 14

MUSIC 0.48(11) 5.03(9) 6.02(6) 0..08(3) 21

SHEMARO 0.69(8) 1.58(6) 4.46(9) 0.38(9) 32

O

HT MEDIA 0.49(10) 0.24(13) 4.81(7) 0.56(11) 41

GTPL 0.87(6) 0.67(11) 3.99(11) 0.34(8) 36

ZEE MEDIA 0.66(9) 0.75(10) 4.38(10) 0.18(5) 34

UFO 0.73(7) 1.38(7) 2.34(13) 0.03(2) 29

Fund Allocation

Company Name No of shares Price Allocated Value Actual Value

DB CORP 1064395 187.9 20 CR 199999820.5

SUN TV 159134 628.4 10 99999905.6

TV TODAY 315457 317 10 99999869

ZEE ENT 225225 444 10 99999900

SAREGAMA 118363 591.4 7 69999878.2

MUSIC 1198630 58.4 7 69999992

INOX 212121 330 7 69999930

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 UFO 296610 236 7 69999960

SHEMAROO 169532 412.9 7 69999762.8

ZEE MEDIA 2695417 18.55 5 49999985.35

GTPL 722021 69.25 5 49999954.25

HT MEDIA 666666 45 3 29999970

HATHWAY 689655 29 2 19999995

CASH IN 1177.3
HAND

As we achieve the cash in hand, it is used to calculate the NAV of the portfolio.

NAV= AUM/No. of units

Where, AUM – Asset under Management

No of units – Number of units is total fund to be allocated divided by 10
(in this case: No of units = 10 Cr / 10 = 1 Cr

NAV is set to 10 initially.

Updated NAV = (Total funds + Cash in hand) / No. of units
= (10 Cr + 319) / 1 Cr = 10.0000319

We update NAV and market index daily in order to determine if the portfolio is able to beat
the benchmark of the market index.

19
INSURANCE

Insurance is a contract, represented by a policy, in which an individual or entity receives

financial protection or reimbursement against losses from an insurance company. The
company pools clients' risks to make payments more affordable for the insured.
Insurance policies are used to hedge against the risk of financial losses, both big and small,
that may result from damage to the insured or her property, or from liability for damage or
injury caused to a third party.
We were asked to sell one policy each at least amounting to 50K for which we were
explained about the different life insurance and health insurance plans.
Life insurance:
Life insurance is a contract between an insurer and a policyholder in which the insurer
guarantees payment of a death benefit to named beneficiaries upon the death of the insured.
The insurance company promises a death benefit in consideration of the payment of premium
by the insured. We have three types of life insurances : term plan, Traditional plan, Ulip plan.
But in our internship, we dealt with only traditional plans.
Term Plan:
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate
of payments for a limited period of time, the relevant term. After that period expires,
coverage at the previous rate of premiums is no longer guaranteed and the client must either
forgo coverage or potentially obtain further coverage with different payments or conditions.
If the life insured dies during the term, the death benefit will be paid to the beneficiary. Term
insurance is typically the least expensive way to purchase a substantial death benefit on a
coverage amount per premium dollar basis over a specific period of time.
Traditional Plan:
A traditional whole life policy is a type of life insurance contract that provides
for insurance coverage of the contract holder for his/her entire life. Unlike term life
insurance, which covers the contract holder until a specified age limit, a traditional whole life
policy never runs out.
ULIP Plan: Unit Linked Insurance Plan:
It is a market linked product that aggregates the very best of investment and insurance. It is a
plan that is linked to the capital market and offers flexibility to trade in equity or debt funds
as per risk appetite. Such dual benefits backed by the flexibilities of the ULIP’s turn them
attractive in terms of investment.

Health Insurance:
Health Insurance is a kind of insurance that provides coverage for medical expenses to the
policy holder. Depending on the health insurance plan chosen the policy holder can get
coverage for critical illness expenses, surgical expenses, hospital expenses etc.

20
Premium:

A policy's premium is its price, typically expressed as a monthly cost. The premium is
determined by the insurer based on your or your business's risk profile, which may include
creditworthiness. For example, if you own several expensive automobiles and have a history
of reckless driving, you will likely pay more for an auto policy than someone with a single
mid-range sedan and a perfect driving record. However, different insurers may charge
different premiums for similar policies; so, finding the price that is right for you requires
some legwork.
Pay term:
Premium paying term is the total number of years for the policy holder to pay the premium.
Definition: Policy term is normally equal to the premium paying term. However, some
insurance policies give the insured the autonomy to choose a premium paying term lower
than the policy term.
Policy Term:
Policy term is the duration for which the policy provides you cover. Policy paying term is the
duration for which you have to pay the premium. Example - policy term in whole
life policy is 100 Yrs, but premium paying term can be 21.
Proposer:
Proposer or policyholder is the person or organization to which the insurer issues the policy.
He/she purchases the policy and pays the premium.
Life to be Insured:
Life assured or insured is the person(s) whose life is covered in the insurance contract.

 In the event of a contingency, the insured can claim the amount or in the event of the death
of the assured, the nominee will receive the insurance amount.

What is the difference between life insurance and general insurance?

Life insurance is a type of insurance that insures against the loss of life. Most types of life
insurance work on a similar notion, even if their details might be different. Here, the life of a
person, typically call the insured is protected against loss. This means that when that person
will die, the insuring company will pay an agreed amount to the person’s family in order to
help them with financial difficulties that may arise after the person’s death. In order to avail
this sum, the insured must pay a premium to the insuring company through their lifetime, or
for the duration specified in the policy.

General insurance, on the other hand, words under similar principals. In it, the insured
must also pay a premium to the company, and in lieu of that, they may be accessible to a
payout later. However, instead of insuring against loss of life, general insurance insures
against financial losses incurred on the basis of assets. Such as financial loss incurred by the

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theft or damage of a asset, such as machinery, or stock. The premium and the payout depend
upon what the insured item is as well as its cost and value.

What are the types of life insurance?

Life-based contracts tend to fall into two major categories:

• Protection policies – designed to provide a benefit, typically a lump sum payment, in the
event of a specified occurrence. A common form—more common in years past—of a
protection policy design is term insurance.
• Investment policies – the main objective of these policies is to facilitate the growth of
capital by regular or single premiums. Common forms (in the U.S.) are whole
life, universal life, and variable life policies.

What is Term insurance, Group life insurance and Permanent life

insurance?
Term assurance provides life insurance coverage for a specified term. The policy does not
accumulate cash value. Term insurance is significantly less expensive than an equivalent
permanent policy but will become higher with age. Policy holders can save to provide for
increased term premiums or decrease insurance needs (by paying off debts or saving to
provide for survivor needs).
Mortgage life insurance insures a loan secured by real property and usually features a level
premium amount for a declining policy face value because what is insured is the principal
and interest outstanding on a mortgage that is constantly being reduced by mortgage
payments. The face amount of the policy is always the amount of the principal and interest
outstanding that are paid should the applicant die before the final installment is paid.

Group life insurance (also known as wholesale life insurance or institutional life
insurance) is term insurance covering a group of people, usually employees of a company,
members of a union or association, or members of a pension or superannuation fund.
Individual proof of insurability is not normally a consideration in its underwriting. Rather, the
underwriter considers the size, turnover, and financial strength of the group. Contract
provisions will attempt to exclude the possibility of adverse selection. Group life insurance
often allows members exiting the group to maintain their coverage by buying individual
coverage. The underwriting is carried out for the whole group instead of individuals.

Permanent life insurance is life insurance that covers the remaining lifetime of the
insured. A permanent insurance policy accumulates a cash value up to its date of maturation.
The owner can access the money in the cash value by withdrawing money, borrowing
the cash value, or surrendering the policy and receiving the surrender value.
The three basic types of permanent insurance are whole life, universal life, and endowment.

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DERIVATIVES
A derivative is a financial security with a value that is reliant upon or derived from, an
underlying asset or group of assets (a benchmark). The derivative itself is a contract between
two or more parties, and its price is determined by fluctuations in the underlying asset. The
most common underlying assets include stocks, bonds, commodities, currencies, interest
rates, and market indexes.

These assets are commonly purchased through brokerages (Investopedia offers a list of
the best online brokers).
Derivatives can either be traded over-the-counter (OTC) or on an exchange. OTC derivatives,
which constitute a greater proportion of derivatives, generally have greater counterparty
risk (the likelihood that one of those involved in a transaction might default) than exchange-
traded derivatives, which are standardized and more heavily regulated.
Originally, derivatives were used to ensure balanced exchange rates for goods traded
internationally. With differing values of national currencies, international traders needed a
system to account for these differences. Today, derivatives are based upon a wide variety of
transactions and have many more uses. There are even derivatives based on weather data,
such as the amount of rain or the number of sunny days in a region.

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 • Derivatives are securities that derive their value from an underlying asset or
benchmark.
• Common derivatives include futures contracts, forwards, options, and swaps.
• Most derivatives are not traded on exchanges and are used by institutions to hedge
risk or speculate on price changes in the underlying asset.
• Exchange-traded derivatives like futures or stock options are standardized and
eliminate or reduce many of the risks of over-the-counter derivatives
• Derivatives are usually leveraged instruments, which increases their potential risks
and rewards.

COMMON FORMS OF DERIVATIVES

There are many different types of derivatives that can be used for risk management or for
speculation. Here are several of the most common.

Forwards
Forward contracts (or "forwards") are similar to futures, but they are not traded on an
exchange, only over-the-counter. When a forward contract is created, the buyer and seller
may have customized the terms, size and settlement process for the derivative. As OTC
products, forward contracts carry a greater degree of counter party risk for both buyers and
sellers.
Counter party risks are a kind of credit risk in that the buyer or seller may not be able to live
up to the obligations outlined in the contract. If one party of the contract becomes insolvent,
the other party may have no recourse and could lose the value of its position. Once created,
the parties in a forward contract can offset their position with other counter parties, which can
increase the potential for counter party risks as more traders become involved in the same
contract.

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Futures
A futures contract (or simply, futures) is an agreement between two parties for the purchase
and delivery of an asset at an agreed upon price at a future date. Futures are exchange-traded,
and the contracts are standardized. Traders will use a futures contract to hedge their risk or
speculate on the price of an underlying asset.
There are many types of futures available for investors to trade including:
• Commodity futures such as crude oil, natural gas, corn, and wheat
• Stock index futures such as the S&P 500
• Currency futures including the Euro and the British pound
• Gold, silver
• U.S. Treasuries or bonds
The futures markets typically uses high leverage meaning that the investor doesn't need to put
up 100% of the contract amount when entering into a trade. Instead, the broker would require
an initial margin amount, which consists of a fraction of the total contract amount. The
amount held by the broker can vary depending on the size of the contract, the
creditworthiness of the investor, and the broker's terms and conditions.
The futures markets are regulated by the Commodity Futures Trading Commission (CFTC).
The CFTC is a federal agency created by Congress in 1974 with the goal of ensuring the
integrity of futures market pricing, including preventing abusive trading practices, fraud, and
regulating brokerage firms engaged in futures trading.

Futures Hedging
Futures can be used to hedge the price movement of the underlying asset. The goal of
hedging is to prevent losses from potentially unfavorable price changes rather than to
speculate. Many companies that hedge are using or producing the underlying asset in a
futures contract. For example, a producer of corn could use futures to lock in a specific price
for selling corn and reduce risk by guaranteeing the company will receive the fixed price for
the corn. If the price of corn decreased, the company would have a gain on the hedge to
partially offset losses from selling the corn in the market at the lower prices. With such a gain
and loss offsetting each other, the hedging effectively locks in an acceptable market price.

Options
An option is similar to a futures contract in that it is an agreement between two parties to buy
or sell an asset at a predetermined future date for a specific price. The key difference between
options and futures is that, with an option, the buyer is not obliged to "exercise" his
agreement to buy or sell—it's an opportunity, not an obligation (as a futures contract is). As
with futures, options may be used to hedge or speculate on the price of the underlying asset.
Options are a versatile investment product. These investments are two-sided trades that
involve a buyer and a seller. Each call option has a bullish buyer and a bearish seller, while
put options have a bearish buyer and a bullish seller. The premium is partially based on
the strike price—the price for buying or selling security until the expiration date. Another
factor in the premium price is the expiration date.

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Swaps
Swaps are another common type of derivative, often used to exchange one kind of cash flow
with another. For example, one might use an interest rate swap to switch from a variable
interest rate loan to a fixed interest rate loan, or vice versa.

Risk and Profits From Buying Call Options

The call options let the holder buy an underlying security at the stated strike price by the
expiration date called the expiry. The holder has no obligation to buy the asset if they do not
want to purchase the asset. The risk to the call option buyer is limited to the premium paid.
Fluctuations of the underlying stock have no impact.
Call options buyers are bullish on a stock and believe the share price will rise above the strike
price before the option's expiry. If the investor's bullish outlook is realized and the stock price

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increases above the strike price, the investor can exercise the option, buy the stock at the
strike price, and immediately sell the stock at the current market price for a profit.
Their profit on this trade is the market share price less the strike share price plus the expense
of the option—the premium and any brokerage commission to place the orders. The result
would be multiplied by the number of option contracts purchased, then multiplied by 100—
assuming each contract represents 100 shares.
However, if the underlying stock price does not move above the strike price by the expiration
date, the option expires worthlessly. The holder is not required to buy the shares but will lose
the premium paid for the call.

Risk and Profits From Selling Call Options

Selling call options is known as writing a contract. The writer receives the premium fee. In
other words, an option buyer will pay the premium to the writer—or seller—of an option.
The maximum profit is the premium received when selling the option. An investor who sells
a call option is bearish and believes the underlying stock's price will fall or remain relatively
close to the option's strike price during the life of the option.
If the prevailing market share price is at or below the strike price by expiry, the option
expires worthlessly for the call buyer. The option seller pockets the premium as their profit.
The option is not exercised because the option buyer would not buy the stock at the strike
price higher than or equal to the prevailing market price.
However, if the market share price is more than the strike price at expiry, the seller of the
option must sell the shares to an option buyer at that lower strike price. In other words, the
seller must either sell shares from their portfolio holdings or buy the stock at the prevailing
market price to sell to the call option buyer.
The contract writer incurs a loss. How large of a loss depends on the cost basis of the shares
they must use to cover the option order, plus any brokerage order expenses, but less any
premium they received.
As you can see, the risk to the call writers is far greater than the risk exposure of call buyers.
The call buyer only loses the premium. The writer faces infinite risk because the stock price
could continue to rise increasing losses significantly.

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Risk and Profits From Buying Put Options

Put options are investments where the buyer believes the underlying stock's market price will
fall below the strike price on or before the expiration date of the option. Once again, the
holder can sell shares without the obligation to sell at the stated strike per share price by the
stated date.
Since buyers of put options want the stock price to decrease, the put option is profitable when
the underlying stock's price is below the strike price. If the prevailing market price is less
than the strike price at expiry, the investor can exercise the put. They will sell shares at the
option's higher strike price. Should they wish to replace their holding of these shares they
may buy them on the open market.
Their profit on this trade is the strike price less the current market price, plus expenses—the
premium and any brokerage commission to place the orders. The result would be multiplied
by the number of option contracts purchased, then multiplied by 100—assuming each
contract represents 100 shares.
The value of holding a put option will increase as the underlying stock price decreases.
Conversely, the value of the put option declines as the stock price increases. The risk of
buying put options is limited to the loss of the premium if the option expires worthlessly.

Risk and Profits From Selling Put Options

Selling put options is also known as writing a contract. A put option writer believes the
underlying stock's price will stay the same or increase over the life of the option—making
them bullish on the shares. Here, the option buyer has the right to make the seller, buy shares
of the underlying asset at the strike price on expiry.
If the underlying stock's price closes above the strike price by the expiration date, the put
option expires worthlessly. The writer's maximum profit is the premium. The option isn't
exercised because the option buyer would not sell the stock at the lower strike share price
when the market price is more.

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However, if the stock's market value falls below the option strike price, the put option writer
is obligated to buy shares of the underlying stock at the strike price. In other words, the put
option will be exercised by the option buyer. The buyer will sell their shares at the strike price
since it is higher than the stock's market value.
The risk for the put option writer happens when the market's price falls below the strike price.
Now, at expiration, the seller is forced to purchase shares at the strike price. Depending on
how much the shares have appreciated, the put writer's loss can be significant.
The put writer—the seller—can either hold on to the shares and hope the stock price rises
back above the purchase price or sell the shares and take the loss. However, any loss is offset
somewhat by the premium received.
Sometimes an investor will write put options at a strike price that is where they see the shares
being a good value and would be willing to buy at that price. When the price falls, and the
option buyer exercises their option, they get the stock at the price they want, with the added
benefit of receiving the option premium.

OPTION STRATERGIES
STRANGLE
A strangle is an options strategy where the investor holds a position in both a calland put with
different strike prices, but with the same expiration date and underlying asset. This strategy is
profitable only if the underlying asset has a large price move. This is a good strategy if you
think there will be a large price movement in the near future but are unsure of the direction.

Strangles come in two forms: long and short. A long strangle simultaneously buys an out of
the money call and an out-of-the-money put option. This strategy has large profit potential
since the call option has theoretically unlimited upside if the underlying asset rises in price
while the put option can profit if the underlying asset falls. The risk on the trade is limited to
the premium paid for the two options.

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Conversely, a short strangle simultaneously sells an out-of-the-money put and an out-of-the-
money call. This is a neutral strategy with limited profit potential. The maximum profit is
equivalent to the net premium received for writing the two options, less trading costs.

1)LONG STRANGLE

A long strangle gives you the right to sell the stock at strike price A and the right to buy the
stock at strike price B.The goal is to profit if the stock makes a move in either direction.
However, buying both a call and a put increases the cost of your position, especially for a
volatile stock. So you’ll need a significant price swing just to break even.

2)SHORT STRANGLE
A short strangle gives you the obligation to buy the stock at strike price A and the obligation
to sell the stock at strike price B if the options are assigned. You are predicting the stock price
will remain somewhere between strike A and strike B, and the options you sell will expire
worthless. By selling two options, you significantly increase the income you would have
achieved from selling a put or a call alone. But that comes at a cost. You have unlimited risk
on the upside and substantial downside risk. To avoid being exposed to such risk, you may
wish to consider using an iron condor instead.

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STRADDLE
A straddle is an options strategy that involves buying both a put and a call option for the
underlying security with the same strike price and the same expiration date. A trader will
profit from a straddle when the price of the security rises or falls from the strike price by an
amount more than the total cost of the premium paid.

1)LONG STRADDLE

A long straddle is an options strategy where the trader purchases both a long call and a long
put on the same underlying asset with the same expiration date and strike price. The strike
price is at-the-money or as close to it as possible. Since calls benefit from an upward move,
and puts benefit from a downward move in the underlying security, both of these components
cancel out small moves in either direction, Therefore the goal of a straddle is to profit from a
very strong move, usually triggered by a newsworthy event, in either direction by the
underlying asset.

2)SHORT STRADDLE
A short straddle is an options strategy comprised of selling both a call option and a put
option with the same strike price and expiration date. It is used when the trader believes the
underlying asset will not move significantly higher or lower over the lives of the options
contracts. The maximum profit is the amount of premium collected by writing the options.
The potential loss can be unlimited, so it is typically a strategy for more advanced traders.

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LONG CALL CONDOR

A long call condor consists of four different call options of the same expiration. The strategy
is constructed of 1 long in-the-money call, 1 short higher middle strike in-the-money call, 1
short middle out-of-money call, 1 long highest strike out-of-money call.
An alternative way to think about this strategy is an in-the-money bull call spread (debit
spread) coupled with an out-of-the money bear call spread (credit spread) with the bear call
spread at higher strikes than the bull call spread.

In all circumstances the maximum loss is limited to the net debit paid (assuming the distances
between all four strikes prices are equal). The maximum loss would occur should the
underlying be below the lowest long call strike at expiration or at or above the highest long
call strike. At the lowest strike all the options would expire worthless, and the debit paid to
initiate the position would be lost. At expiration, all the options above the highest strike
would be in-the-money and the resulting profits and losses would offset

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The maximum gain would occur if the underlying security is between the two short call
strikes at expiration. In that case, the lower strike long call is worth its maximum value. The
profit would be the difference between the strikes less the premium paid to initiate the
position.

SHORT CALL CONDOR

To

construct a short condor, the investor sells one call while buying another call with a higher
strike and sells one put while buying another put with a lower strike. Typically, the call
strikes are above and the put strikes below the current level of underlying stock, and the
distance between the call strikes equals the distance between the put strikes. All the options
must be of the same expiration.

An alternative way to think about this strategy is as a short strangle and long an even wider
strangle. It could also be considered as a bear call spread and a bull put spread.

The maximum loss would occur should the underlying stock be above the upper call strike or
below the lower put strike at expiration. In that case either both calls or both puts would be
in-the-money. The loss would be the difference between either the call strikes or the put
strikes (whichever are in-the-money), less the premium received for initiating the position.

The maximum gain would occur should the underlying stock be between the lower call strike
and upper put strike at expiration. In that case all the options would expire worthless, and the
premium received to initiate the position could be pocketed.

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LONG CALL BUTTERFLY

Combining two short calls at a middle strike, and one long call each at a lower and upper
strike creates a long call butterfly. The upper and lower strikes (wings) must both be
equidistant from the middle strike (body), and all the options must have the same expiration
date.

The long call butterfly and long put butterfly, assuming the same strikes and expiration, will
have the same payoff at expiration.
However, they may vary in their likelihood of early exercise should the options go into-the-
money or the stock pay a dividend.
While they have similar risk/reward profiles, this strategy differs from the short iron
butterfly in that it usually requires a debit to enter all four legs of the spread.

The maximum profit would occur should the underlying stock be at the middle strike at
expiration. In that case, the long call with the lower strike would be in-the-money and all the
other options would expire worthless. The profit would be the difference between the lower
and middle strike (the wing and the body), less the premium paid for initiating the position, if
any.

The maximum loss would occur should the underlying stock be outside the wings at
expiration. If the stock were below the lower strike all the options would expire worthless; if
above the upper strike all the options would be exercised and offset each other for a zero
profit. In either case the premium paid to initiate the position would be lost.

Yes. The short calls that form the body of the butterfly are subject to exercise at any time,
while the investor decides if and when to exercise the wings. The components of this position
form an integral unit, and any early exercise could be disruptive to the strategy. In general,
since the cost of carry makes it optimal to exercise a call option on the last day before

34
expiration, this usually does not pose a problem. But the investor should be wary of using this
strategy where dividend situations or tax complications have the potential to intrude.
And be aware, a situation where a stock is involved in a restructuring or capitalization event,
such as a merger, takeover, spin-off or special dividend, could completely upset typical
expectations regarding early exercise of options on the stock.

SHORT CALL BUTTERFLY

A short call butterfly consists of two long calls at a middle strike and short one call each at a
lower and upper strike. The upper and lower strikes (wings) must both be equidistant from
the middle strike (body), and all the options must have the same expiration date.

The short call butterfly and short put butterfly, assuming the same strikes and expiration, will
have the same payoff at expiration They may, however, vary in their likelihood of early
exercise should the options go into-the-money or the stock pay a dividend.
While they have similar risk/reward profiles, this strategy differs from the long iron
butterfly in that a positive cash flow occurs up front, and any negative cash flow is uncertain
and would occur somewhere in the future.

The maximum loss would occur should the underlying stock be at the middle strike at
expiration. In that case, the short call with the lower strike would be in-the-money and all the

other options would expire worthless. The loss would be the difference between the lower
and middle strike (the wing and the body), less the premium received for initiating the
position.
The maximum profit would occur should the underlying stock be outside the wings at
expiration. If the stock were below the lower strike all the options would expire worthless; if
above the upper strike all the options would be exercised and offset each other for a zero
profit. In either case the investor would pocket the premium received for initiating the
position.

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 TECHNICAL ANALYSIS
Technical analysis is a trading discipline employed to evaluate investments and identify
trading opportunities by analyzing statistical trends gathered from trading activity, such as
price movement and volume. Unlike fundamental analysts, who attempt to evaluate a
security's intrinsic value, technical analysts focus on patterns of price movements, trading
signals and various other analytical charting tools to evaluate a security's strength or
weakness.
Technical analysis can be used on any security with historical trading data. This includes
stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial,
we’ll usually analyze stocks in our examples, but keep in mind that these concepts can be
applied to any type of security. In fact, technical analysis is far more prevalent in
commodities and forex markets where traders focus on short-term price movements.
Technical analysis as we know it today was first introduced by Charles Dow and the Dow
Theory in the late 1800s. Several noteworthy researchers including William P. Hamilton,
Robert Rhea, Edson Gould and John Magee further contributed to Dow Theory concepts
helping to form its basis. In modern day, technical analysis has evolved to included hundreds
of patterns and signals developed through years of research. Technical analysts believe past
trading activity and price changes of a security can be valuable indicators of the security's
future price movements. They may use technical analysis independent of other research
efforts or in combination with some concepts of intrinsic value considerations but most often
their convictions are based solely on the statistical charts of a security. The Market
Technicians Association (MTA) is one of the most popular groups supporting technical
analysts in their investments with the Chartered Market Technicians (CMT) designation a
popular certification for many advanced technical analysts.
There are two primary methods used to analyze securities and make investment
decisions: fundamental analysis and technical analysis. Fundamental analysis as we have
seem involves analyzing a company’s financial statements to determine the fair value of the
business, while technical analysis assumes that a security’s price already reflects all publicly-
available information and instead focuses on the statistical analysis of price movements.
Technical analysis attempts to understand the market sentiment behind price trends by
looking for patterns and trends rather than analyzing a security’s fundamental attributes.
Charles Dow released a series of editorials discussing technical analysis theory. His writings
included two basic assumptions that have continued to form the framework for technical
analysis trading.
1. Markets are efficient with values representing factors that influence a security’s price,
but
2. Market price movements are not purely random but move in identifiable patterns and
trends that tend to repeat over time
The efficient market hypothesis (EMH) essentially means the market price of a security at
any given point in time accurately reflects all available information, and therefore represents
the true fair value of the security. This assumption is based on the idea that the market price
reflects the sum total knowledge of all market participants. While this assumption is generally

36
believed to be true, it can be affected by news or announcements about a security that may
have varied short-term or long-term influence on a security’s price.Technical analysis only
works if markets are weakly efficient.
The second basic assumption underlying technical analysis, the notion that price changes are
not random, leads to the belief of technical analysts that market trends, both short-term and
long-term, can be identified, enabling market traders to profit from investing based on trend
analysis.
Today, technical analysis is based on three main assumptions:
1: The market discounts everything.
Many experts criticize technical analysis because it only considers price movements and
ignores fundamental factors. Technical analysts believe that everything from a company’s
fundamentals to broad market factors to market psychology are already priced into the stock.
This removes the need to consider the factors separately before making an investment
decision. The only thing remaining is the analysis of price movements, which technical
analysts view as the product of supply and demand for a particular stock in the market.
2: Price moves in trends.
Technical analysts believe that prices move in short-, medium-, and long-term trend. In other
words, a stock price is more likely to continue a past trend than move erratically. Most
technical trading strategies are based on this assumption.
3: History tends to repeat itself.
Technical analysts believe that history tends to repeat itself. The repetitive nature of price
movements is often attributed to market psychology, which tends to be very predictable based
on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these
emotions and subsequent market movements to understand trends. While many form of
technical analysis have been used for more than 100 years, they are still believed to be
relevant because they illustrate patterns in price movements that often repeat themselves.
How Technical Analysis Is Used

Technical analysis attempts to forecast the price movement of virtually any tradable
instrument that is generally subject to forces of supply and demand, including stocks, bonds,
futures and currency pairs. In fact, some view technical analysis as simply the study of supply
and demand forces as reflected in the market price movements of a security. Technical
analysis most commonly applies to price changes, but some analysts track numbers other
than just price, such as trading volume or open interest figures.
Across the industry there are hundreds of patterns and signals that have been developed by
researchers to support technical analysis trading. Technical analysts have also developed
numerous types of trading systems to help them forecast and trade on price movements.
Some indicators are focused primarily on identifying the current market trend, including
support and resistance areas, while others are focused on determining the strength of a trend
and the likelihood of its continuation. Commonly used technical indicators and charting
patterns include trendlines, channels, moving averages and momentum indicators.

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In general, technical analysts look at the following broad types of indicators:
• price trends
• chart patterns
• volume and momentum indicators
• oscillators
• moving averages
• support and resistance levels
•

LONG TERM AND SHORT TERM

Technical analysis is the examination of past price movements to forecast future price
movements. Technical analysts are sometimes referred to as chartists because they relyalmost
exclusively on charts for their analysis.

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IMPORTANT KEY TERMS

Overall Trend: The first step is to identify the overall trend. This can be accomplished
with trend lines, moving averages or peak/trough analysis. As long as the price remains
above its uptrend line, selected moving averages or previous lows, the trend will be
considered bullish.

Support: Areas of congestion or previous lows below the current price mark support
levels. A break below support would be considered bearish.

Resistance: Areas of congestion and previous highs above the current price mark the
resistance levels. A break above resistance would be considered bullish.

Momentum: Momentum is usually measured with an oscillator such as MACD. If MACD

is above its 9-day EMA (exponential moving average) or positive, then momentum will
be considered bullish, or at least improving.

Buying/Selling Pressure: For stocks and indices with volume figures available, an
indicator that uses volume is used to measure buying or selling pressure. When Chaikin
Money Flow is above zero, buying pressure is dominant. Selling pressure is dominant
when it is below zero.

Relative Strength: The price relative is a line formed by dividing the security by a
benchmark. For stocks it is usually the price of the stock divided by the S&P 500. The
plot of this line over a period of time will tell us if the stock is outperforming (rising) or
underperforming (falling) the major index.

The final step is to synthesize the above analysis to ascertain the following:
l Strength of the current trend.
l Maturity or stage of current trend.
l Reward to risk ratio of a new position.
l Potential entry levels for new long position.

CHARTS
A price chart is a sequence of prices plotted over a specific timeframe. In statistical
terms, charts are referred to as time series plots.

Candlestick Chart
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.

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TREND LINES
Technical analysis is built on the assumption that prices trend. Trend lines are an
important tool in technical analysis for both trend identification and confirmation. A
trend line is a straight line that connects two or more price points and then extends into
the future to act as a line of support or resistance. Many of the principles applicable to
support and resistance levels can be applied to trend lines as well.

Down Trend line

A down trend line has a negative slope and is formed by connecting two or more high
points. The second high must be lower than the first for the line to have a negative
slope. Down trend lines act as resistance and indicate that net-supply (supply less
demand) is increasing even as the price declines. A declining price combined with
increasing supply is very bearish and shows the strong resolve of the sellers. As long as
prices remain below the down trend line, the downtrend is considered solid and intact. A
break above the down trend line indicates that net-supply is decreasing and a change of
trend could be imminent.

Up Trend line
An up trend line has a positive slope and is formed by connecting two of more low
points. The second low must be higher than the first for the line to have a positive
slope. Up trend lines act as support and indicate that net-demand (demand less supply)
is increasing even as the price rises. A rising price combined with increasing demand is
very bullish and shows a strong determination on the part of the buyers. As long as
prices remain above the trend line, the uptrend is considered solid and intact. A break
below the up trend line indicates that net-demand has weakened and a change in trend could
be imminent.

Types of Patterns-
Reversal Patterns
1. Bump and Run
2. Double Top
3. Double Bottom
4. Head and Shoulders Top
5. Head and Shoulders Bottom
6. Rounding Bottom
7. Triple Top
8. Triple Bottom
Continuation Patterns
9. Cup with Handle
10. Flag, Pennant
11. Symmetric Triangle
12. Ascending Triangle
13. Descending Triangle
14. Rectangle

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We also carried out the technical analysis of certain companies in

our sector using candlestick charts of five years to find out the
shapes of patterns.
The illustrations below show the same:

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Difference Between Technical Analysis And Fundamental
Analysis

Fundamental analysis and technical analysis, the major schools of thought when it comes to
approaching the markets, are at opposite ends of the spectrum. Both methods are used for
researching and forecasting future trends in stock prices, and like any investment strategy or
philosophy, both have their advocates and adversaries.
Fundamental analysis is a method of evaluating securities by attempting to measure
the intrinsic value of a stock. Fundamental analysts study everything from the overall
economy and industry conditions to the financial condition and management of
companies. Earnings, expenses, assets and liabilities are all important characteristics to
fundamental analysts.
Technical analysis differs from fundamental analysis in that the stock's price and volume are
the only inputs. The core assumption is that all known fundamentals are factored into price;
thus, there is no need to pay close attention to them. Technical analysts do not attempt to
measure a security's intrinsic value, but instead use stock charts to identify patterns and
trends that suggest what a stock will do in the future.

Limitations Of Technical Analysis

The major hurdle to the legitimacy of technical analysis is the economic principle of
the efficient markets hypothesis. According to the EMH, market prices reflect all current and
past information already and so there is no way to take advantage of patterns or mis pricing to
earn extra profits, or alpha. Economists and fundamental analysts who believe in efficient
markets do not believe that any actionable information is contained in historical price and
volume data, and furthermore that history does not repeat itself; rather, prices move as
a random walk.
A second criticism of technical analysis is that it works in some cases but only because it
constitutes a self-fulfilling prophesy. For example, many technical traders will place a stop-
loss order below the 200-day moving average of a certain company. If a large number of
traders have done so and the stock reaches this price, there will be a large number of sell
orders, which will push the stock down, confirming the movement traders anticipated. Then,
other traders will see the price decrease and also sell their positions, reinforcing the strength
of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have
little bearing on where the asset's price will be weeks or months from now. In sum, if enough
people use the same signals, they could cause the movement foretold by the signal, but over
the long run this sole group of traders cannot drive price.

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Conclusion

We have discussed different types of initial public offerings of which we have applied it by
choosing a recent IPO and determining its price band, date of issue, bank associated,
company’s P/E etc .
Also market indices, such as Nifty and Sensex, while analyzing the large , mid and small
capitalization companies and the difference between them. We have also been tracking and
updating the index of our particular stocks.
The fundamental analysis of petrochemical sector helped us analyze the companies as over or
under valued based on their P/E multiple/ratio as compared to the sector or industry P/E.
We determined the growth and value picks from the analysis and then created a portfolio
using the same. We allocated funds to each stock in the portfolio based on the weightage
given to them according to the important ratios governing the sector.
We used the AUM and no of units to determine the NAV of the portfolio and we regularly
update it to see if the portfolio is able to beat the market index benchmark.
Through this we are learning to keep a watch on the market and also create a portfolio of our
own.
The insurance we were supposed to do helped us learn the concepts and terminology used in
insurance such as pay term, life to be insured and also we were able to determine how
policies are done and we applied this knowledge to pitch our clients.

We learnt the concepts of derivatives (futures and Options) in which we also determined
futures on two commodities each such as cotton and crude oil.
We learnt the different strategies in options such as Straddle and Strangle and applied them
on low and high volatile stocks of the sector by determining its ticket price and strike prices
at ATM, OTM and ITM.

Finally we did the technical analysis of stocks by understanding the patterns of change in
prices of the stocks, we learnt to differentiate between the fundamental and technical analysis
of equity stocks. In the technical part, we also understood the different types of charts, trend
lines etc which helped us to gain better understanding of the market.

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