A Summer Internship Project Report

On
“TECHNICAL ANALYSIS AND SYSTEM TRADING “

For

Indira Securities Ltd., Indore

By

Anusha Jain
MBA (General Management)
Batch - 2018-20

Under the guidance of

Prof. Rohan Bhase

Submitted to

In partial fulfillment of the requirement for the award of Degree of

Master Of Business Administration (MBA)

Submitted through

MIT WPU Faculty of Management, Pune

Certificate from institute

Certificate from company

 ACKNOWLEDGEMENT:

Firstly, I express my sincere gratitude to Mr. Dhruv Mishra, Head of training and
development, Indira Securities Ltd., for him belief in me and giving a chance to do market
research for the company. I must also thank my guide Prof Rohan Bhase for providing his
most valuable time and guidance that helped me complete this project.

Sincere thanks must also go to the following:

Indira Securities Ltd. for giving me an opportunity to be a part of it during the internship
period and learn more about their organization.

MIT WPU, FOM, PG, for providing me the opportunity to intern at such a prestigious
company.

My parents, fellow interns and friends for their help and support without which my project
would not have been incomplete.
 SCOPE OF THE STUDY
The study is analytical in nature and is based on secondary data. The main tools used here are
moving averages, Relative strength Index, MACD and line charts. A sample size of 44
selected stocks from NIFTY 50 from NSE India is considered for the study, as the data were
not adequately available of the remaining companies out of which one company from each
sector is considered for the sample based on RSI signal as on 31/12/2016. Hence the study
includes 9 companies. A time span of 5 years from January 2011 to December 2016 is
considered for the study. The data for the study is collected from the, Yahoo Finance contains
Closing price of stocks traded for last 5 years, data is also collected from Capital query and
NSEINDIA.COM, Chart nexus etc. computations of technical indicators are shown in
annexures.
 INDEX

Sr. No Particulars Page No.

1 Introduction

2 Objective of Study

3 Industry/ Sector profile

4 Company Profile

5 Literature Review

6 Research Methodology

7 Analysis
 INTRODUCTION

Stock Market has started gaining momentum. Equity analysis consists of

1) Fundamental analysis &

2) Technical analysis.

Any decision to be taken in investment of shares should be based on actual movement of

share prices of the target scrip.

In Equity Analysis, calculations are based on FACTS & not on HOPE. The core of equity
analysis lies in the attempt to determine future share price movements with the help of
STUDY OF GRAPHS.

The Technical Approach to investment is essentially based on the presumption that prices of
any scrip always moves in a trend which can be determined by the changing attitude of
investor’s toward a variety of economic, monetary, political and psychological forces. The
‘art’ of technical analysis, is to identify a trend reversal at a relatively early stage and ride on
that trend until the weight of the evidence shows or proves the trend has reversed.

Technical analysis focuses exclusively on the study of price charts and trading history to
determine the future price movements.

System trading is a mathematical approach to the stock market. The system is defined to give
you an edge in the stock market. Most of the decisions required to place trades are predefined
by the rules of the system. With system trading, the system decides for you.
 OBJECTIVES

It was a good opportunity to familiarize myself with the stock market, i.e., the capital market
& their co-relation with economic environment.
Indira Securities Ltd. gave me an excellent opportunity to understand thoroughly the
behavioral pattern of stocks and the overall equity market.
The primary objectives of this study are:

1. To understand the equity market.

2. To understand how often investors use technical analysis during investment.

3. To find out the most common chart and trends preferred by investors.

4. How much aware people are of system trading.

5. Make people aware about “TRADEINSTA” App.

 INDUSTRY PROFILE

Indian financial industry is considered as one of the strongest financial sectors among the
world markets. Many industry experts may give various reasons for such industry reputation,
but there is one main undeniable factor responsible for this, the effective control and
governance of the country’s supreme monetary authority the “RESERVE BANK OF INDIA”
(RBI).

Financial sector in India has experienced a better environment to grow with the presence of
higher competition. The financial system in India is regulated by independent regulators in
the field of banking, insurance, mortgage and capital market. Government of India plays a
significant role in controlling the financial market in India.

Ministry of Finance, Government of India controls the financial sector in India. Every year
the finance ministry presents the annual budget on 28th February. The Reserve Bank of India
is an apex institution in controlling banking system in the country. Its monetary policy acts as
a major weapon in India's financial market.

Various governing bodies in financial sector:

1. RBI - Reserve Bank of India is the supreme authority and regulatory body for all the
monetary transactions in India. RBI is the regulatory body for various Banking and Non-
Banking financial institutions in India.

2. SEBI - Securities and Exchange Board of India is one of the regulatory authorities for
India's capital market.

3. IRDA – Insurance regulatory and development authority in India regulates all the
insurance companies in India.

4. AMFI – Association of mutual funds in India regulates all the mutual fund companies in
India.

5. FIPB – Foreign investments promotion board regulates all the foreign direct investments
made in India.
• Ministry of housing is planning to establish a real estate regulatory and governing body by
the end of financial year 2010 - 11.

• Investments in gold is governed by the world gold council, in India we do not have any
regulatory authority for investments in gold.

• Ministry of Finance, Government of India has a control over all the financial bodies in
India.

• Government securities, Public Provident Fund (PPF), National Savings Certificate (NSC),
and Post Office Savings are all under the control of the central government.

Investments are normally categorized on the basis of the risk involved in it. Risk is dependent
on various factors like the past performance of the investment avenue, its governing body,
involvement of the government etc. In this scenario Indian investments are classified in to 3
categories based on risk. They are

1. Low Risk/ No Risk Investments.

2. Medium Risk Investments.

3. High Risk Investments.

Apart from these, there are traditional investment avenues and emerging investment avenues.

Various Investment avenues available in India:

Safe/Low Risk Avenues:

• Savings Account

• Bank Fixed Deposits.

• Public Provident fund.

• National savings certificates.

• Post office savings.

• Government Securities.
Moderate Risk Avenues:

• Mutual Funds.

• Life Insurance.

• Debentures.

• Bonds.

High Risk Avenues:

• Equity Share Market.

• Commodity Market.

• FOREX Market.

Traditional Avenues:

• Real Estate (property).

• Gold/Silver.

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. It is
about understanding the market and grabbing the nerve at the right time, importantly the gut
feel and common sense which shall reap immense profits. Market participants include
individual retail investors, institutional investors such as mutual funds, banks, insurance
companies and hedge funds, and also publicly traded corporations trading in their own shares.

A few decades ago, most buyers and sellers were individual investors, such as wealthy
businessmen, usually with long family histories to particular corporations. Over time, markets
have become more "institutionalized"; buyers and sellers are largely institutions (e.g., pension
funds, insurance companies, mutual funds, index funds, exchange-traded funds, hedge funds,
investor groups, banks and various other financial institutions).The rise of the institutional
investor has brought with it some improvements in market operations.
 COMPANY PROFILE

The Indira Group founded in the year 1987 and since then it has set a benchmark for the
quality services and a very special personal touch. It has reached out deep into the souls of
investment class [right from corporate, to HNI’s, to conscious small investor’s]. Charging
optimum brokerage, providing best quality services, transparency in customer accounts and
personalized advice from our expert research team are the distinct features which have made
it trustworthy and it has won thousands of hearts.

With extending hands of professionalism, ethics, integrity and experience Indira Group shall
be your financial encyclopedia which caters to the investors needs with customized asset
allocation and financial solutions and simultaneously keeping them well informed.

The group is marching ahead with a tremendous speed. The business gained by the group
illustrates the progress achieved. The reason for the success is its personnel who manage the
affairs of the group. The group believes in winning professionals and hence the network of
the group is expanding day by day. It’s the hard work, dedication and professional
management which leading it towards success.

Milestones

1987: Membership of BSE

1995: Membership of NSE

2000: Clearing Membership F&O Segment of NSE

2002: Depository Participant of CDSL

2004: Membership of NCDEX & MCX

2008: Membership Of NSE & CDS

2015: SEBI Registration For Registrar & Transfer Agent

2016: Authorised For Portfolio Management Service

Vision

To be a premier service provider in financial markets by educating & assisting investors. To

reap out profits with fair play for investors using latest technology.

To be the customer’s window providing easy access,Investment options & Solutions leading
to customized asset allocation. To create a better future for you, by helping you build &
manage your wealth.

Key Management Personnel

The persons behind the success of INDIRA GROUP are :

Sanjay Baxi : Director, Indira Commodities Pvt. Ltd , Indira Securities Pvt. Ltd. and Indira
Assets & Reality Pvt. Ltd. He is Post Graduate and having vast experience since 1987 in
Capital Market.

Navy Vijay Ramavat : Professional trader with a vast experience and comprehensive
understanding of the Indian Stock Market who possess the skills to develop complex
algorithms. An innovative leader and trainer who aims to educate the investors and spread
awareness in order to create a more responsive investing scenario in the country. A traveller
at heart who can be spotted reading one of his favourite books during any free time he can
get. Navy finds his centre through meditation, which is also how he musters the energy to
converse with and motivate people to better in their lives.

Group Companies

INDIRA GROUP is a leading group since last 2 decades. The Group has following
constituents:

MEMBER

• National Stock Exchange of India Ltd.

• MCX Stock Exchange (MCX-SX)
• Bombay Stock Exchange Limited
• Central Depository Services (I) Ltd.
• National Commodity & Derivatives Exchange Ltd.
• Indian Commodity Exchange
• Multi Commodity Exchange of India Ltd.
Indira Research – Product Profile

➢ Equity Trading

Every individual has a desire to earn money and for that a rational human takes all the pains
that are necessary to achieve his aim.

One widely used avenue for reaping a reasonable return on investments is speculating in the
stock market. As the saying goes, risk and reward go hand in hand. Here, one octant point is
that one should never be wary of taking a loss in its stride. Ability to cut losses is equally
important or even more important than coming out with a profit.

Based on this ability alone, one should venture into the market. And above all these, one must
keep himself updated about various terms and issues related to the market in order to
understand things in a better way. The Indira group helps such individuals in achieving their
goals.

➢ Derivatives

Financial derivatives came into the spotlight along with the rise in uncertainty of post-1970.
When the US announced an end to the Bretton Woods System of fixed exchange rates
leading to introduction of currency derivatives followed by other innovations, including stock
index futures but there eruption in India is off lately in June 2000. There are still
apprehensions about derivatives. There are also many myths though the reality is different
especially for exchange-traded derivatives which are well regulated with all the safety
mechanisms in place.

➢ Commodities

The Way To Make Small Fortune In The Commodity Market Is To Start With A Large
Fortune. Financial markets have emerged in many colors, shapes & sizes. Think of
commodity futures & options as a game: the highest stakes money game in the world. Like
any other game, it has also got some rules. But, if you don’t have patience, guts, knowledge
& good health, all the rules in the world are just so many words.

Commodities are not only essential to life, they are absolutely necessary for Quality of life.
With this perception, “Indira Commodities [P] Limited” the youngest venture of Indira Group
was formalized in the year 2004. The company rigorously exercises to provide quality
services in the field of commodity market & trading. Commodity includes all kinds of goods.
FCRA defines "goods" as "every kind of movable property other than actionable claims,
money and securities".

At present, all goods and products of agricultural (including plantation), mineral and fossil
origin are allowed for futures trading under the auspices of the commodity exchanges
recognized under the FCRA.
 ➢ NRI's Services

Non-Resident Indian (NRI) means a “person resident outside India” who is a citizen of India
or is a person of Indian origin"[as per FEMA regulations].

➢ Depository Services

Trading in the shares of the Company is now compulsorily under the demat form. With SEBI
making demat form mandatory on most of the traded scrip, electronic transfer will be the only
way everyone will trade. No stamp duty is required for transfer of securities in the electronic
form. In case of transfer of physical shares, stamp duty of 0.5 percent is payable on the
market value of shares being transferred.

➢ Currency

Currencies are the money of different countries, and currency trading is the buying and
selling of these currencies. There are almost as many different currencies as there are
countries, but the most popular currencies for trading are the US Dollar, the Euro, the British
Pound (Sterling), and the Japanese Yen. The currency markets are some of the most popular
day trading markets, and they therefore have some of the highest volume (number of
contracts) and liquidity. This high volume and liquidity makes the currency markets attractive
to all types of traders, including individual day traders, trading companies, financial and non
financial companies, banks, and governments.

➢ Mutual Funds

Mutual funds really captured the public's attention in the 1980s and '90s when mutual fund
investment hit record highs and investors saw incredible returns. However, the idea of
pooling assets for investment purposes has been around for a long time. Here we look at the
evolution of this investment vehicle, from its beginnings in the Netherlands in the eighteenth
century to its present status as a growing, international industry with fund holdings
accounting for trillions of dollars in the United States alone. Since their creation, mutual
funds have been a popular investment vehicle for investors. Their simplicities along with
other attributes provide great benefit to investors with limited knowledge, time, or money.

➢ PMS

PMS, offers professional management of your investments with an aim to deliver consistent
returns. It helps to grow exponentially on the crest of stock market, with the backing of an
expert. It relieves you from all monitoring hassles with benefits like regular reviews, strong
risk management flexibility and makes it an ideal investment avenue for high net worth
investors.
We at Indira Securities Pvt. Ltd. measure our success through the success of our clients.
Among our key objectives, first one is to protect your capital, and second one is to see it grow
at a healthy rate. In order to fulfill these objectives, we strive to build up a portfolio of stocks
carefully chosen through a focused and disciplined approach. Neither are we the market
timers, trying to predict the tops and bottoms of the market nor do we fancy chances of
making money in current "hot" investment ideas. Our stock selection criterion mainly focuses
on bottom-up company analysis. At company level, we seek and identify attractively valued
companies with strong or improving fundamentals. Broadly the strategy is to acquire the
equities of those strong and profitable businesses which are being run by smart and credible
managements and then evaluate all those on charts through technical analysis for better
timings and levels.

With us, one will get the benefits of professional money management along with the
flexibility, control and potential tax advantages of owning individual stocks or other
securities. Our discretionary portfolio management services take care of all the required
needs in managing the equity investments of the clients.

➢ Merchant Banking

Indira Securities Pvt. Ltd. in association with Pantomath Advisory Services Group presents
never-before opportunity for your next-level growth Being pioneers in Capital & Commodity
markets, Indira Group has now ventured into Corporate Advisory and Merchant Banking
Services in association with Pantomath Advisory Services Group (SEBI registered Category I
Merchant Banker) for next step in the capital markets.
 LITERATURE REVIEW

The role of the technical analysis and the trading strategies based on it in the optimization of
the investment decisions has been studied to a great extent in academic and professional
circles. Despite the fact that the participants in the financial markets actively use technical
analysis in the formulation of trading strategies (Menkhoff, 1998; Cheung & Chinn, 1999;
Gehrig &Menkhoff, 2006), the existing literature on this topic is quite controversial. On the
one hand, the initial assumptions of technical analysis are at odds with the widely accepted
Efficiency Market Hypothesis (Fama, 1970). It is clear that technical analysis has had its ups
and downs over the past few decades, depending on the extent of the prevalence of this
theory in academic circles. On the other hand, certain studies have shown that the technical
trading strategies have not always provided an acceptable level of profitability, which
resulted in additional skepticism in terms of their application (Fama&Blume, 1966; Van
Horne & Parker, 1968; Jensen & Benington, 1970).A detailed analysis of the studies on the
performances of technical trading strategies is represented in the work done by Park and
Irwin (2007). This analysis included a total of 137 studies which were carried out on the
stock markets, foreign exchange markets and future markets during the period between 1960
and 2004. All of the studied material was divided into two groups: early studies (1960-1987)
and modern studies (1988-2004). Although early studies analyzed application of only several
simple trading rules and in most of the studies trading strategies were not tested in
appropriate way, this group of studies was of grate significance for further development of
technical analysis, because results disprove the efficacy of technical trading strategies.
Modern studies mostly solved questions related to the testing of trading strategies and in the
most cases (about 60%) confirmed the profitability of trade strategies based on technical
analysis. The rest of the modern studies reported mixed results (about 20%) and negated the
usefulness of technical analysis (about 20%).

Menkhoff (1997) investigated the behaviour of foreign exchange professionals, dealers and
fund managers in Germany in 1992. The results showed around 87% of the foreign exchange
dealers and 35% professionals use technical analysis in their decision making. Around 34%
of times it was used for intraday decision making and 40% for decisions ranging from 2 to 6
months. Other interesting findings is that there was no relationship between institutional size
and the preferred use of technical analysis and chartists and fundamentalists both indicated no
significant differences in their educational level. Jelena Stankovic, Ivana Markovic, Milos
Stoanovic (2015) this paper examines the efficiency of technical analysis and predictive
modeling in defining the optimal strategy for investing in stock markets. The paper covers
emerging market economies and uses technical indicators such as moving averages, MACD,
RSI etc. it is based on least squares support vector machines model. The paper concludes that
machine learning techniques capture nonlinear models adequately and this model
outperforms buy and hold strategy in maximization of profitability on investment.
 RESEARCH METHODOLOGY

Statement of Problem:

1. How to understand the equity market.

2. How often investors use technical analysis during investment.

3. What are the most common chart and trends preferred by investors?

4. How much aware people are of system trading.

Research Design

Data description

Trading rules and prediction models are applied on the stock indices of capital markets. In
this study we use the daily closing values of selected stock exchange indices that represent
the most liquid stocks on the market.

Methodology

The technical analysis uses numerous qualitative and quantitative methods to analyze the
asset price trends. The simplest qualitative methods are based on the charting of asset prices
and trading volume in order to identify patterns that can be used to achieve profits. Technical
indicators are quantitative methods and represent rather simple mathematical expression of
price and volume changes. Investors use a combination of both methods in order to provide a
more precise overview of market trends.

Technical trading strategies

A technical trading strategy is composed of a set of trading rules that are used to generate
trading signals. In general, commonly used trading systems rely on one or two technical
indicators that define the timing of trading signals. By changing the combinations of technical
indicators, numerous trading rules can be set. The most popular ones among investors are the
moving average based trading systems.
RESULTS AND FINDINGS

PERIODICAL SCOPE:

The financials of companies of 5 years are considered.

Different types of charts are considered for technical analysis

OPERATIONAL SCOPE:

Here, various factors that affect the growth of the economy are considered. The growth rate
and changes in the government policies and its effect on different sector is analyzed.

An investor before investing in any stock wants to know whether it’s the right time to invest
or not. So, after the economic analysis, industrial analysis is done. This helps in finding out
the sector which will give the highest returns.

Finally, the Financials of the companies are analyzed. Here, Balance Sheet and the Profit &
Loss Statement is analyzed. And accordingly, the ratios of the companies are calculated.
These ratios indicate the financial position and growth of the company. Comparative analysis
between the companies of the same sector is also done.

This analysis also helps in valuation of the stock, whether the stock is over – valued or under
– valued
45 1. ITC

89

57

45

33

77

21

65
53
1

Share prices are trading in the positive zone which means good
time to buy shares. On 27/03/2015 and 14/7/2016 the prices moved
bottom/trough at -12.23 and -28.71 respectively. There is a close
association between closing prices and 20 day moving average and 14 day
moving average lines. ITC shares prices are moving along with moving
averages line.

2. ZEE ENTERTAINMENT

MACD
157
235

352
391
430
508
547
664
742
781
859
937
976
79

4
3
1
0
8
4
1
SMA

From the above chart we can interpret that there is a close association
between closing prices and 20 day moving average and 14 day moving
average lines. We can conclude that ZEE shares prices are moving along
with moving averages line.
 3. STATE BANK OF INDIA

SBIN (State Bank of India)

State Bank of India provides banking products and services in India and at international. It
offers personal banking products and services, which include current accounts, savings
accounts, term deposits, and capital gains account schemes; housing, car, property,
educational, personal, festival, career, scholar, and gold loans, as well as loans for pensioners
and loans against shares and debentures; and mobile and Internet banking, demat, ATM,
foreign inward remittance, safe deposit locker, public provident fund, multi-city cheques,
money transfer, and mobile wallet services, as well as debit, business debit, prepaid, and
virtual cards. The company operates through 20,325 branches, including 5,509 branches of its
5 associate banks; and 32,752 ATMs. State Bank of India was founded in 1806 andis based in
Mumbai, India.