A project report on fundamental & technical analysis of automobile sector


Published on

A project report on customer satisfaction on vijay karnatakanews paper

Published in: Business, Economy & Finance
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

A project report on fundamental & technical analysis of automobile sector

  1. 1. “Fundamental & Technical Analysis of Automobile Sector” INDEX1. Executive Summary…………………………………………………1 – 62. Company Profile …….………………………………………….......7 • Profile……………………………………………………. 8 -10 • Products and Services…………………………………...11 - 173. Overview of Stock Market…………………………………….......18 - 244. Introduction to Fundamental & Technical Analysis........................25 - 385. EIC Analysis………………...………………………………….....39 • Economic Analysis……………………………………...40 - 43 • Industry Analysis………………………………………..44 - 53 • Company analysis……………………………………….54 - 616. Technical Analysis……………….………………………………..62 • Relative Strength Index(RSI)…………………………...63 – 76 • Moving Average………………………………………...77 – 90 • Japanese Candlestick Chart……………………………...91 - 927. Findings…………………………………………………………….93 - 958. Conclusion………………………………………………………….969. Suggestions……………………………………………………......9710. Bibliography……………………………………………………....98 - 99 Babasabpatilfreepptmba.com 1
  2. 2. “Fundamental & Technical Analysis of Automobile Sector” EXECUTIVE SUMMARY CHAPTER 1 Babasabpatilfreepptmba.com 2
  3. 3. “Fundamental & Technical Analysis of Automobile Sector” EXECUTIVE SUMMARYI. TITLE OF THE PROJECT: “ Fundamental & Technical Analysis of Automobile Sector Undertaken atGeojit Financial Services Ltd.”II. ABOUT THE COMPANY:Name & Address of the Company: - “Geojit Financial Services Ltd.” Bhavani Arcade, 2nd floor, No. 127-A, ‘B’ Block, New Cotton Market Hubli – 580029III. SCOPE OF THE STUDY: This study is most important because both fundamental and technical analysishelps investors in better understanding the markets and gauges the direction in whichtheir investments might be headed and it’s utility helps in estimating the future trends ofthe stock prices and to make a decent profit out of it.IV. BACKGROUND OF THE PROJECT: In the recent past, the bank interest rates have been increased steadily. But the rateof Inflation has also been increased. There is no big difference between the interest rateand Inflation rate. Because of inflation, value of money has been decreased and cost ofliving has been increased. This has created panic among lower, middle and upper middleclass families who considered keeping their savings in banks as safe as well asremunerative. So, the invertors are searching for proper investment avenues. Here, anattempt is made to predict the future movement of scrips. This study helps the investorsto invest in shares. The stock exchange comes in the secondary market. Stock exchange performsactivities such as trading in share, securities, bonds, mutual fund & commodities. StockBroking industry is growing at an enormous rate, as more and more people are attractedtowards stock exchanges with the hope of making profits. To quote couple of examples, the Automobile industry in India has consistentlyregistered strong performance. The automobile industry had a growth of 15.4 % duringApril-January 2007, with the average annual growth of 10-15% over the last decade orso. With the incremental investment of $35-40 billion, the growth is expected to doublein the next 10 years. Consistent growth and dedication have made the Indian automobileindustry the second- largest tractor and two-wheeler manufacturer in the world. It is also Babasabpatilfreepptmba.com 3
  4. 4. “Fundamental & Technical Analysis of Automobile Sector”the fifth-largest commercial vehicle manufacturer in the world. The Indian automobilemarket is among the largest in Asia. The Indian automobile industry is going through a phase of rapid change and highgrowth. With new projects coming up on a regular basis, the industry is undergoingtechnological change. The major players are expanding their plants and focusing on masscustomization, mass production, etc. Nearly every automobile company is investing at ahigher rate than ever before to achieve a high growth trajectory. The overall investmentin the sector has been increasing quite rapidly. It is expected that by the end of 2010Indian automobile sector will be investing a huge amount as Rs. 30,000 crores. At presentthe industry is enjoying a growth rate of 14-17% per annum, with domestic sales growthat 12.8%. The growth rate is predicted to double by 2015.V. OBJECTIVES OF THE STUDY: 1) To analyze individual company scrips by considering the factors relating to the economy, industry and the respective company. 2) To predict investor positions (Buy, sell & hold). 3) To know the future trend of Stock Prices of Tata Motors and Maruti Udyog Ltd. in capital market. 4) To know which securities to be bought and which securities not to be bought. 5) To know which securities to be sold and which securities not to be sold.VI. METHODOLOGY: Primary data is collected through direct interactions with the Branch Manager,Employees and clients of Geojit Financial Services, Ltd. The Secondary data is collected from the annual reports of the company, relevanttext books on the subject matter and company’s official website.TOOLS: Babasabpatilfreepptmba.com 4
  5. 5. “Fundamental & Technical Analysis of Automobile Sector” 1. Moving Average Method. 2. Relative Strength Index (RSI). 3. Candlestick Charting.LIMITATIONS OF THE STUDY: 1. The study is limited only to automobile sector and 2 companies 2. I have used only 3 Technical tools to predict the movement of Scrip’s. 3. Fundamental Analysis is used to analyze only financial performance of the companies. 4. Only Technical Analysis is used to predict the stock prices of the companies.FINDINGS OF THE STUDY:• In case of RSI of Maruti Suzuki Scrip, the best time to sell the stock was between 12 th July 07 to 31st July 07 and 9th October 07 to 18th October 07 since the RSI was above 70 & it had reached its peak level. The best time to buy the stock was between 2 nd Jan 08 to 24th Jan 08 since the RSI was below 30 for these many days.• In case of RSI of Tata Motors, the best time to sell the stock was between 27 th Sep 07 to 4th October 07 and 10th December 07 to 12th December 07 since the RSI was above 70 & it had reached its peak level. The best time to buy the stock was between 8 th August 07 to 23rd August 07 and 23rd Jan 08 to 24th Jan 08 as well as between 7th March to 18th March 08 since the RSI was below 30 for these many days.• The 10 days moving average of Maruti Suzuki scrip, provides a message to the investor that it is a right time to buy the Stock and, the trend of the Moving Average line has been decreased, so it is also a right time to buy the stock.• In case of 10 days Moving Average of Tata Motors Ssrip, the actual Stock price is just below its moving average line. It indicates that investors are becoming increasingly bullish on the Stock Price of Tata Motors.• In Japanese Candle Stick Chart of Maruti Suzuki Ltd. we can see that the stock price has been decreased. Simply Share Prices of Maruti Suzuki Ltd is falling down. It indicates that the investors are becoming more bearish than bullish.• In case of Japanese Candle Stick Chart of Tata Motors, we can observe lot of volatility in stock price. Both the Bullish and Bearish trends are taking place. The Bullish trend is following by Bearish Trend• Fundamentally, financial performance of these companies in respect of sales and profit is good. Babasabpatilfreepptmba.com 5
  6. 6. “Fundamental & Technical Analysis of Automobile Sector”• If an investor opts for long term investment then he will earn huge amount of return. Long term Investment is known to be less risky.• This study may not provide any guidelines to Speculators. It is useful to Long Term Investors.• Technical analysts evaluate securities by analyzing statistics generated by market activity, past prices and volume.• One of the most basic and easy to use technical analysis indicators is the moving average, which shows the average value of a securitys price over a period of time. The most commonly used moving averages are 10 days, 20 days, 30 days, 50 days, 100 days and 200-days moving average..• One of the most important areas for any investor to look when researching a company is the financial statement. Financial reports are required by law and are published both quarterly and annually.• Indian Economy is consistently achieving a tremendous growth in these Sectors.• If we consider RSI then almost all the scrips of these companies are lying between 30 and 70. It means an investor should hold the scrips until it reaches 70 to sell and 30 to buy.• The stock prices always take a correction after a major climb.• Moving average is one of the best methods of predicting future movement of Stock Price. If we use 200 Day Moving Average for Analysis then volatility of stock will be less. It gives clear picture of movement of Stock.CONCLUSION OF THE STUDY: As we all know India is one of the fastest growing economies in the world. Indiais consistently achieving growth in automobile sector. The automotive industry iswitnessing tremendous and unprecedented changes these days. On a global scale, theassets of the top ten automotive corporations accounts for 28% of the assets of theworld’s top 50 companies, 29% of their employment and 30% of their total sales. The Indian automobile industry is going through a technological change whereeach firm is engaged in changing its processes and technologies to sustain thecompetitive advantage and provide customers with the optimized products and services. The automobile industry had a growth of 15.4 % during April-January 2007, withthe average annual growth of 10-15% over the last decade or so. With the incremental Babasabpatilfreepptmba.com 6
  7. 7. “Fundamental & Technical Analysis of Automobile Sector”investment of $35-40 billion, the growth is expected to double in the next 10 years. Consistent growth and dedication have made the Indian automobile industry thesecond- largest tractor and two-wheeler manufacturer in the world. It is also the fifth-largest commercial vehicle manufacturer in the world. The Indian automobile market isamong the largest in Asia. The Ministry of Heavy Industries has released the Automotive Plan 2006-2016,with the motive of making India the most popular manufacturing hub for automobiles andits components in Asia. The plan focuses on the removal of all the bottlenecks that areinhibiting its growth in the domestic as well as international arena. With comparatively higher rate of economic growth rate index against that ofgreat global powers, India has become a hub of domestic and exports business. Theautomobile sector has been contributing its share to the shining economic performance ofIndia in the recent years. The Indian automobile industry is going through a phase of rapid change and highgrowth. With new projects coming up on a regular basis, the industry is undergoingtechnological change. The major players are expanding their plants and focusing on masscustomization, mass production, etc Apart from domestic production, the industry is consistently focusing on theautomobile exports. The auto component segment is contributing a lot in the exportarena. The liberalized policies of the government are now making the companies go formore and more exports. Because of these reasons, the shares of automobile industry are performing welland therefore the share market is attracting people to invest their hard earned money andfind fortune. But lack of knowledge about shares and stock market is making themcautious of investing in this market. They need to be educated as well as guided tominimize the risk and to assess the return on their investment.SUGGESTIONS: 1. Before going to invest, an investor should have clear and adequate knowledge of capital market. 2. It is better to go for Long term Investment rather than the Short term Investment. Because it is less risky and also provides sufficient return. 3. The investors should know the value of money. 4. Practically, stock market activities are very risky. So, investors should be careful while investing. 5. In case of half knowledge about stock market is very dangerous. So, whenever a person wants to invest in stock market he should take necessary tips from the experts or Technical Analysts. 6. Investors should also look into global pressure and market movement in order to look for avenues of investing in different stocks and to take position; some of the sources for understanding global pressure are CNBC TV18, News Paper, Economy watch etc. Babasabpatilfreepptmba.com 7
  8. 8. “Fundamental & Technical Analysis of Automobile Sector” COMPANY PROFILE Babasabpatilfreepptmba.com 8
  9. 9. “Fundamental & Technical Analysis of Automobile Sector” CHAPTER 2 PROFILE OF GEOJIT FINANCIAL SERVICES LTD. Geojit, a joint venture with Kerala State Industrial Development Corporation Ltd.is a pioneer in the retail financial services sector. Over two decades the company hasgrown to offering complete management solutions. Today the company has over Rs.20billion in assets under its custody. Geojit’s shares are listed on the Bombay Stock Exchange. The company is amember of the National Stock Exchange of India Ltd., the Bombay Stock Exchange andthe National Securities Depository Ltd., and a charter member of the Association ofFinancial Planners, India. More than 1000 professionals are operating through over 250offices across the country provide services to a growing retail investor base of 200,000.Prominent institutional clients include banks, mutual funds and other institutions such asUTI and insurance companies. Geojit has a large pool of certified professionals who plan, execute and managecustomized investment strategies for clientele. Financial literacy programmes areconducted on a regular basis through the branch network to raise investment awareness. Early application of innovative technology in the industry led to many nationalfirsts such as internet trading, electronic securities settlement on the web and an onlineintegrated trading screen for stocks and derivatives. Babasabpatilfreepptmba.com 9
  10. 10. “Fundamental & Technical Analysis of Automobile Sector” YEAR EVENTS1988 The company, Geojit Securities Limited (GSL), was a partnership firm, with two partners Mr. C.J. George and Mr. Ranjit, under the name and style of M/s Geojit & Company established on 4th November, to act as stock and share brokers with membership on the Cochin Stock Exchange.1994 - The company was incorporated as a Public Limited Company on 24 th November and obtained its Certificate of commencement of business on 25th January 1995. - The company is at present engaged in the activities of stock and share broking, underwriting, marketing of initial public offering of companies and mutual funds, corporate advisory services, investments in shares, participating in Bought Out Deals, syndication of inter-corporate deposits, debt, bought-outs etc. - The company has at present branches at Trichur, Kottayam, Muvattupuzha and Coimbatore apart from having representative offices at Mumbai.1995 The company has a subsidiary in the name of Geojit Stock and Shares Limited (GSSL) to carry on the activities as a Dealer of Over The Counter Exchange of India.1996 - The company had made a public issue of equity shares aggregating to Rs.95/- lakhs, during the period under report which received an overwhelming support and was oversubscribed over 14 times. - The Company held 100% of the paid up Capital of Rs.30,00,000/- M/s Geojit Stock & Shares Ltd., a wholly owned subsidiary of the Company as at 31st March.1998 The Company, a joint venture company with Kerala State Industrial Development Corporation (KSIDC), has announced improved working results for 1997-98.1999 - The equity shares of the company are presently listed at five Stock Exchanges viz., Madras, Ahemedabad, Coimbatore, Delhi and Cochin - The Company based in Kochi, to set up a full-fledged office in the UAE, which will not only enable it to deal in Indian shares and securities, but also help it become a licensed stock broking company in that country.2000 - Geojit Securities Ltd, a leading retail share broking firm launched Internet Babasabpatilfreepptmba.com 10
  11. 11. “Fundamental & Technical Analysis of Automobile Sector” securities trading for the first time in India. - Geojit Securities is a joint venture with Kerala State Industrial Development Corporation (KSIDC) with branches in 40 cities. - ABN Amro Bank is set to pick up an equity stake in Geojit Securities Ltd one of the largest stock brokers and depository participant in the country. - The company is planning to introduce multi-bank, multi-DP interfaces to facilitate and promote Internet trading in the country.Geojit Securities Ltd, the first company to start online trading services, has signed a MoU with UTI Bank to enable investors to buysell demat stocks through the companys website. - The Company has signed a deal with Centurion Bank to provide payment gateway for Internet trading. - The Company launched its online interface with HDFC Bank for Internet trading. - Geojit Securities Ltd, a leading stock broking company, has decided to issue bonus shares at 1:1 ratio, to capitalize part of general reserve. -2001 - The Kochi-based retail broking firm, Geojit Securities Ltd., is setting up an overseas venture jointly with a UAE partner to provide broking and depository services to NRIs in the Gulf countries. - Geojit Securities has inked a joint venture (JV) with UAE based brokerage house Barjeel Shares & Bonds to set up a 20:80 joint venture with an initial capital of $ 1 million, christened Barjeel Geojit Securities. - Bonus Shares were issued by the company in the ratio 1:1.2002 Sheikh Sultan Bin Saud Al Qasimi appointed as Director of Geojit Securities. Mr. T Koshy appointed as Director of Geojit Securities with effect from October 26, 20022003 The Company has unveiled a new logo and changed its name to Geojit Financial Services Ltd, offering a growing range of new and innovative financial products and services.2004 - Geojit Securities inks pact with Doha Bank - UTI Bank, Geojit in pact for trading platform in Qatar - Delists shares from Cochin Stock Exchange - Shares of Geojit Securities Ltd delisted from Coimbatore Stock Exchange from May 21 and Madras Stock Exchange effective May 31 - Geojit Financial Services Ltd in association with Doha Bank launches India Wealth Management Services for non-resident Indians living in Qatar2005 Geojit has tied up with global financial investments SAOG, Muscat, in the Sultanate of Oman2006 Geojit Financial Services Ltd has informed that the Board of Directors of the Company at its meeting held on October 22, 2006, has approved the proposal of the Company to issue and allot to BNP Paribas S.A. (the "Investor"), on a preferential allotment basis, equity shares, warrants convertible into equity Babasabpatilfreepptmba.com 11
  12. 12. “Fundamental & Technical Analysis of Automobile Sector” shares or any combination thereof, such that the total number of equity shares issued (whether as equity shares or upon the conversion of the warrants) shall not exceed 7,96,31,170 equity shares of Re 1, at price of Rs 26 per equity share, which has been determined in accordance with the applicable laws and guidelinesPRODUCTS AND SERVICES Babasabpatilfreepptmba.com 12
  13. 13. “Fundamental & Technical Analysis of Automobile Sector”PRODUCTS: • Equity • F & O (Futures and Options) • Margin Trading Funding Scheme • Loan Against Shares • Loan Against Commodity Trading • Depository • Commodity • Portfolio Management Services (PMS)1) Equity: Equity/ordinary share capital, as a long-term source of finance, representsownership capital/securities and its owners – equity-holders/ordinary shareholders –share the reward and risk associated with the ownership of corporate enterprises. Ashareholder can exercise, sell in the market and renounce/forfeit his pre-emptive rightspartially/completely. He does not gain/lose from rights issues. Ordinary share capital is ahigh-risk-high-reward source of finance for corporate. The shareholders share the risk,return and control associated with ownership of companies.2) F & O (Futures and Options): The National Stock Exchange and The Stock Exchange, Mumbai have commencedtrading in Derivatives Market with Index Futures being the first instrument. Now both theexchanges provide trading in Index Futures and Options and Stock Futures and Options. A derivative is a financial contract, between two or more parties, which is derivedfrom the future value of an underlying asset. At any point of time there will always beavailable near three months contract periods. For e.g. in the month of Jan 2006 one canenter into Jan, Feb or Mar contracts. The last Thursday of each month is the expiry dayfor that month’s contract. When one contract expires, a new contract is introduced. Forinstance, on expiry of Jan 2006 contract, April contract shall get activated. Babasabpatilfreepptmba.com 13
  14. 14. “Fundamental & Technical Analysis of Automobile Sector” Currently, settlements of all Derivatives trades are in cash. There is Daily as well asFinal Settlement. As long as the position is open, the same will be marked to Market atthe Daily Settlement Price, the difference will be credited or debited accordingly and theposition shall be brought forward to the next day at the daily settlement price. Anyposition which remains open at the end of the final settlement day (i.e., last Thursday)shall be closed out by the Exchange at the Final Settlement Price which will be theclosing spot value of the underlying. There are two types of margins collected on the open position, viz., Initial Marginwhich is collected upfront and Mark to Market Margin to be paid on T+1 day. As perSEBI Guidelines it is mandatory for clients to give margin, failing which the outstandingpositions may be closed out.There are three types of Members in the Futures and Options Segment:Trading Members are only eligible to trade, their trades are settled by the ClearingMembers.Trading cum clearing members are members who are eligible to trade and also settletrades on their own behalf and also settle on behalf of other trading members.Professional Clearing Members are members who are only specialized in the clearingand settlement activities. They do not trade on their own behalf or on behalf of othermembersSelf Clearing Members are those who trade and settle only their own trades. GeojitFinancial Services Ltd is trading cum clearing member at NSE.3) Margin Trading Funding Scheme: In Marginal Trading, an Investor buys securities by borrowing a portion of thetransaction value and using the securities in the portfolio as collateral. An investor whopurchases securities may pay for the securities fully in cash or may borrow a part of thetransaction value from the brokerage firm.4) Loan Against Shares: Geojit Credits Pvt. Ltd., a subsidiary of Geojit Financial Services Ltd, registeredas a Non-Banking Finance Company (NBFC) offers Loans against security of shares. Thefacility is available to all customers of Geojit Financial Services Ltd.Key Features of the Scheme: 1. All securities defined under Group I of NSE are eligible for Loan against Shares Babasabpatilfreepptmba.com 14
  15. 15. “Fundamental & Technical Analysis of Automobile Sector” 2. Loan is provided against a minimum of two securities and minimum loan amount is Rs.50000/- 3. Loan up to 50% of the current market value of approved shares. 4. Upper ceiling on quantum of loan shall be as determined by Geojit Credits P Ltd on a case to case basis 5. Speedy disbursal through RTGS / direct credit to the customer’s bank account / cheque 6. Hassle free processing and simple documentation 7. Securities are to be transferred to Geojit Credits Pvt. Ltd 8. Fixed charges of 1.00 % of loan amount is charged upfront and is non refundable. 9. Rate of interest is 14 % p.a. for Loans above Rs 3 lacs and 15% pa for Loans upto Rs 3 lacs. This is subject to change from time to time. Interest is charged on Daily Outstanding Balance in Loan account at monthly rests. Interest debited every month should be repaid by chque/DD payable at Kochi with in 7 days of debit. 10. The credit is provided as an overdraft facility for a period of One year at a time, renewable by mutual consent. 11. Loan can also be redeemed by instructing Geojit Credits Pvt. Ltd to sell the securities 12. Loans are re-valued daily 13. Margin calls are made if the value of the securities fall by 10% which can be met with either by redeeming the loan partially or placing additional securities 14. Securities may be liquidated if the margins are not furnished in case of a fall of 20% value of the securities5) Loan Against Commodity Trading: Geojit Credits Pvt. Ltd offers loans against Pledge of Warehouse Receipts fordelivery at Commodity Exchanges.Key Features of the Scheme 1. Loans against Pledge of Physical and Demat warehouse receipts 2. Loans up to 80% of sale value price contracted for Futures delivery 3. Loans are also considered against Pledge of warehouse receipts without Futures Sell contract on a case-to-case basis at higher margins ranging from 30% to 50% of the value 4. Loans available till sale proceeds are realised on settlement from the Commodity Exchange else upto a maximum of three months 5. Provision to switch between different future contracts (subject to validity of warehouse receipts) 6. Simple documentation 7. Speedy disbursal of loans through RTGS Babasabpatilfreepptmba.com 15
  16. 16. “Fundamental & Technical Analysis of Automobile Sector”6) Depository: A depository can be compared to a bank. It holds securities such as shares,debentures, bonds, government securities, units etc. of investors in electronic form. Thereare two depositories in India, The National Securities Depository Limited (NSDL) andCentral Depository Services Limited (CDSL). An individual who desires to avail thedepository services can approach a Depository Participant (DP). Banks, financialinstitutions, custodians, brokers or any other entity eligible as per SEBI (Depositories andParticipants) Regulations, 1996 can apply to the Depository to become a DepositoryParticipant. As on 31st March, 2006 there are 526 Depository Participants in India. Geojit, is a depository participant of NSDL & CDSL. Investors can open demataccounts with NSDL & CDSL through Geojit. One can approach the nearest branch ofGeojit for opening an account. Agreement charges (statutory charges) along with AnnualMaintenance Charge (AMC) are collected upfront while opening an account. It takes twoto three days to open a demat account. Upon activation of the demat account, a WelcomeLetter is sent to the customer along with the Delivery Instruction Slip book.DP facilities offered by Geojit • De-materialization: Consumers can convert their physical shares into electronic form by surrendering the shares for dematerialization at the Geojit branch. • Re-materialization: Re-materialization enables consumers to convert the dematerialized shares into physical form. • Repurchase: This facility helps consumers to submit the units of open-ended Mutual Funds in case of re-purchase. • Pledge: Consumers can pledge securities to avail a loan. • Transfer: Consumers can transfer securities from one demat account to another. • IPOs: In case consumers have applied for an IPO and receive an allotment then the securities are transferred directly to their demat account. The same applies for bonus and rights issues. • Commodity De-mat Account: If consumers are a commodity player, they may need to open a commodity de-mat account with Geojit. • Speed-e: If consumers register for Speed-e services, then transfer instructions can be placed online over the internet to pre-notified Clearing Members Pool a/c. This does away with the need to submit a physical delivery instruction slip. • Internet Services: If consumer have access to Internet then they can register with Geojit to view their demat account over the Internet. This is very beneficial as consumers can avail of a host of services at no extra cost. They will be able to view their holdings,reports,ledgers and will have free access to Geojit’s research reports at any time. • SMS Alert Facility: The alert messages for debits (transfers) and IPO credits would be sent to the account holders who have subscribed to this facility. Babasabpatilfreepptmba.com 16
  17. 17. “Fundamental & Technical Analysis of Automobile Sector” Depository provides this facility and no charge is levied on DPs for providing this service to investors.7) Commodity: Geojit Commodities, a subsidiary of Geojit Financial Services Limited, is mainlyengaged in the business of Commody Futures Trading. Geojit Commodities is a memberof: • National Multi – Commodity Exchange of India limited (NMCE) • National Commodity & Derivatives Exchange Limited (NCDEX) • Multi – Commodity Exchange (MCX) • India Pepper and Spice Trade Association (IPSTA) • Singapore Commodity Exchange (SICOM) • Dubai Gold Commodity Exchange (DGCX). Geojit provides information on commodity futures, along with technical andfundamental analysis online at its website and also through the companys large branchnetwork. The company conducts Seminars, distributes free in-house literature and holdsinteractive sessions that help raise awareness on the futures market. The number ofparticipants is continuously on the rise thus leading to increased volumes and marketefficiency. Geojit Commodity offers futures trading through multiple exchanges in variedcommodities such as: • Agri commodities: oilseeds, soya, groundnut, pulses, rice, wheat, sugar, spices, rubber, guar, pepper, cardamom, coffee, etc • Precious metals: gold and silver, • Base metals: steel, aluminium, nickel, zinc, copper, etc • Energy products: crude oil and furnace oil Geojits clientele in commodities range from investors, co-operative societies, stateand national institutions to dealers, traders, manufacturers, financiers, speculators,arbitragers,etc. Geojit does not have proprietary interest in any commodity and therefore is priceneutral. Transaction costs are highly affordable attracting a spectrum of investors.Membership in multiple exchanges gives clients the added advantage of arbitrage. Geojithas specialized staff that provide the required guidance, help and enable clients to enter atthe appropriate price.8) PMS (Portfolio Management Services): Babasabpatilfreepptmba.com 17
  18. 18. “Fundamental & Technical Analysis of Automobile Sector” Geojit, a SEBI registered Portfolio Manager (Reg. No.INP000000316) offersdiscretionary portfolio management services. Geojit has a team of experts who carefullytake investment decisions based on the clients objectives. The Portfolio Managementteam has a successful track record of more than 10 years in the capital market. The teamhas access to Geojits strong Equity Research, and Fundamental & Technical Analysis.Investment Objective: To generate medium to long-term capital growth (2-3 years) byidentifying undervalued stocks and those with growth opportunities from a select list ofwell researched stocks.Strategy: Identifying growth stocks from a select list through extensive research.Minimum Investment: Rs.10 lakhs for resident Indians and Rs.25 lakhs for Non-Resident Indians.Reports: Portfolio and NAV are communicated bi-weekly via e-mail.Risk factors: As the stocks are normally held for medium to long term, the net assetvalue will be affected by market volatility.PMS fee:Option 1: 3% p.a. (charged @0.75% at the end of every quarter on the average ofbeginning and ending NAV).Option 2: 1% p.a. (charged @0.25% at the end of every quarter on the average ofbeginning and ending NAV) and performance fee.Performance fee: 20% on gain in NAV over and above 12% p.a. based on the highwatermark concept charged at the end of the year or on withdrawal. Babasabpatilfreepptmba.com 18
  19. 19. “Fundamental & Technical Analysis of Automobile Sector” OVERVIEW OF EQUITY MARKET CHAPTER 3 OVERVIEW OF EQUITY MARKET IN INDIA BSE (Bombay Stock Exchange) Babasabpatilfreepptmba.com 19
  20. 20. “Fundamental & Technical Analysis of Automobile Sector”SENSEX - THE BAROMETER OF INDIAN CAPITAL MARKETSIntroduction: For the premier Stock Exchange that pioneered the stock broking activity in India,128 years of experience seems to be a proud milestone. A lot has changed since 1875when 318 persons became members of what today is called "The Stock Exchange,Mumbai" by paying a princely amount of Re1. Since then, the countrys capital markets have passed through both good and badperiods. The journey in the 20th century has not been an easy one. Till the decade ofeighties, there was no scale to measure the ups and downs in the Indian stock market. TheStock Exchange, Mumbai (BSE) in 1986 came out with a stock index that subsequentlybecame the barometer of the Indian stock market. SENSEX is not only scientifically designed but also based on globally acceptedconstruction and review methodology. First compiled in 1986, SENSEX is a basket of 30constituent stocks representing a sample of large, liquid and representative companies.The base year of SENSEX is 1978-79 and the base value is 100. The index is widelyreported in both domestic and international markets through print as well as electronicmedia. The Index was initially calculated based on the "Full Market Capitalization"methodology but was shifted to the free-float methodology with effect from September 1,2003. The "Free-float Market Capitalization" methodology of index construction isregarded as an industry best practice globally. All major index providers like MSCI,FTSE, STOXX, S&P and Dow Jones use the Free-float methodology. Due to its wide acceptance amongst the Indian investors, SENSEX is regarded tobe the pulse of the Indian stock market. As the oldest index in the country, it provides thetime series data over a fairly long period of time (From 1979 onwards). Small wonder,the SENSEX has over the years become one of the most prominent brands in the country. The growth of equity markets in India has been phenomenal in the decade goneby. Right from early nineties the stock market witnessed heightened activity in terms ofvarious bull and bear runs. The SENSEX captured all these events in the most judicialmanner. One can identify the booms and busts of the Indian stock market throughSENSEX.SENSEX MILESTONES: Robust portfolio investments and heavy fund buying lifted the Bombay StockExchanges benchmark 30-share Sensex past the magical 12,000 mark. The Sensexfinally closed at an all-time high of 12,040 points. Babasabpatilfreepptmba.com 20
  21. 21. “Fundamental & Technical Analysis of Automobile Sector” This is the fastest 1,000-point gain by the Sensex. It only took 15 trading sessionsfor the index to cross from 11,000 to 12,000. Interestingly, the Sensex has taken only 10months to gain 5,000 points! The unprecedented Bull Run started on May 6, 2003 when the Sensex was at3,001.21 level. In took just 67 trading sessions to cross the 4,000-mark and touch4,026.27 points on August 19, 2003. The rally continued and the index gained another 1,000 points in 54 tradingsessions to post 5,068.66 points on November 3, 2003. Thereafter, it pierced through the 6,000 mark on January 2, 2004 in another 43trading sessions. The market then seemed to pause for breath as it took a whopping 370trading sessions to cross the 7,000 mark, at 7001.55 on June 20, 2005. From 7,000-mark, the sentiment turned distinctly firm following good liquiditythat played a significant role to determine the market direction and Sensex crossed 8,000-mark in just 55 trading sessions at 8, 060.26 on September 8, 2005 and 54 trading days tocross 9,000-mark at 9, 005.63 on November 28, 2005. From 9K to 10K, it took just 48 trading sessions. The index crossed 10,000-markon February 6, 2006 at 10,002.83. From 10K to 11K, it only took 29 trading sessions. The Bombay Stock Exchange, the oldest stock exchange in Asia, was establishedin 1875 as the Native Share and Stock Brokers Association at Dalal Street in Mumbai. Alot has changed since then when 318 persons became members upon paying Re 1. In 1956, the BSE obtained permanent recognition from the Government of India-- the first stock exchange to do so -- under the Securities Contracts (Regulation) Act,1956. The Sensex, first compiled in 1986, is a Market Capitalization-Weighted Indexof 30 component stocks representing a sample of large and financially sound companies.The BSE- Sensex is the benchmark index of the Indian capital markets. The BSE Sensex comprises these 30 stocks: ACC, Bajaj Auto, Bharti Tele,BHEL, Cipla, Dr Reddys, Gujarat Ambuja, Grasim, HDFC, HDFC Bank, Hero Honda,Hindalco, HLL, ICICI Bank, Infosys, ITC, L&T, Maruti, NTPC, ONGC, Ranbaxy,Reliance, Reliance Energy, Satyam, SBI, Tata Motors, Tata Power, TCS, Tata Motorsand Wipro. Heres a timeline on the rise and rise of the Sensex through Indian stockmarket history. Babasabpatilfreepptmba.com 21
  22. 22. “Fundamental & Technical Analysis of Automobile Sector”• 1000, July 25, 1990- On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results.• 2000, January 15, 1992 -On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh.• 3000, February 29, 1992 -On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.• 4000, March 30, 1992 -On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling.• 5000, October 8, 1999 -On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election.• 6000, February 11, 2000 -On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.• 7000, June 20, 2005 -On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments and the scrips of RIL, Reliance Energy, Reliance Capital and IPCL made huge gains. This helped the Sensex crossed 7,000 points for the first time.• 8000, September 8, 2005 -On September 8, 2005, the Bombay Stock Exchanges benchmark 30-share index -- the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading.• 9000, November 28, 2005 -The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.• 10,000, February 7, 2006 - The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006.• 11,000, March 27, 2006 - The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during mid-session at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. Babasabpatilfreepptmba.com 22
  23. 23. “Fundamental & Technical Analysis of Automobile Sector”• 12,000, April 20, 2006 - The Sensex on April 20, 2006 crossed the magical figure of 12,000 and closed at a lifetime peak of 12,040 points for the first time.• 13,000, October 30, 2006- The Sensex had touched the 13,000 level on October 30.• 14,000, December 5, 2006- The Bombay Stock Exchanges 30-share benchmark stock index, the Sensex, crossed the 14,000 mark, Tuesday, December 5, opening with a bang at 14,028, up 154 points from its previous close, thanks to a freak trade at the Reliance counter which saw the stock open at Rs. 1,350, up Rs. 90 from the previous days close. With the index completing the last 1,000 point journey in just 26 sessions.• 15,000, July 6, 2007- The Sensex on July 6, 2007 crossed another milestone and reached a magic figure of 15,000. it took almost 7 month and 1 day to touch such a historic milestone.• 16,000, September 19, 2007- The Sensex on September 19, 2007 crossed the 16,000 mark and reached a historic peak of 16322 while closing. The bull hits because of the rate cut of 50 bps in the discount rate by the Fed chief Ben Bernanke in US.• 17,000, September 26, 2007- The Sensex on September 26, 2007 crossed the 17,000 mark for the first time, creating a record for the second fastest 1000 point gain in just 5 trading sessions. It failed however to sustain the momentum and closed below 17000. The Sensex closed above 17000 for the first time on the following day. Reliance group has been the main contributor in this bull run, contributing 256 points. This also helped Mukesh Ambanis net worth to grow to over $50 billion or Rs.2 trillion. It was also during this record bull run that the Sensex for the first time zoomed ahead of the Nikkei of Japan.• 18,000, October 9, 2007- The Sensex crossed the 18k mark for the first time on October 9, 2007. The journey from 17k to 18k took just 8 trading sessions which is the third fastest 1000 point rise in the history of the sensex. The sensex closed at 18,280 at the end of day. This 788 point gain on 9th October was the second biggest single day absolute gains.• 19,000, October 15, 2007- The Sensex crossed the 19k mark for the first time on October 15th 2007. It took just 4 days to reach from 18k to 19k. This is the fastest 1000 points rally ever and also the 640 point rally was the second highest single day rally in absolute terms. This made it a record 3000 point rally in 17 trading sessions overall.• 20,000, October 29, 2007- The Sensex crossed the 20k mark for the first time with a massive 734.5 point gain but closed below the 20k mark. It took 11 days to reach from 19k to 20k. The journey of the last 10,000 points was covered in just 869 sessions as against 7,297 sessions taken to touch the 10,000 mark from 1,000 levels. In 2007 alone, there were six 1,000-point rallies for the Sensex. Babasabpatilfreepptmba.com 23
  24. 24. “Fundamental & Technical Analysis of Automobile Sector”• 21,000, January 8, 2008 NSE (NATIONAL STOCK EXCHANGE)The Organization: The National Stock Exchange of India Limited has genesis in the report of theHigh Powered Study Group on Establishment of New Stock Exchanges, whichrecommended promotion of a National Stock Exchange by financial institutions (FIs) toprovide access to investors from all across the country on an equal footing. Based on therecommendations, NSE was promoted by leading Financial Institutions at the behest ofthe Government of India and was incorporated in November 1992 as a tax-payingcompany unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation)Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market(WDM) segment in June 1994. The Capital Market (Equities) segment commencedoperations in November 1994 and operations in Derivatives segment commenced in June2000.NIFTY: The Nifty is relatively a new comer in the Indian market. S&P CNX Nifty is a 50stock index accounting for 23 sectors of the economy. It is used for purposes such asbenchmarking fund portfolios; index based derivatives and index funds. The base period selected for Nifty is the close of prices on November 3, 1995,which marked the completion of one-year of operations of NSEs capital market segment.The base value of index was set at 1000. S&P CNX Nifty is owned and managed by India Index Services and ProductsLtd. (IISL), which is a joint venture between NSE and CRISIL. IISL is a specializedcompany focused upon the index as a core product. IISL have a consulting and licensingagreement with Standard & Poors (S&P), who are world leaders in index services. Babasabpatilfreepptmba.com 24
  25. 25. “Fundamental & Technical Analysis of Automobile Sector” Babasabpatilfreepptmba.com 25
  26. 26. “Fundamental & Technical Analysis of Automobile Sector”FUNDAMENTAL & TECHNICAL ANALYSIS CHAPTER 4 Babasabpatilfreepptmba.com 26
  27. 27. “Fundamental & Technical Analysis of Automobile Sector” FUNDAMENTAL AND TECHNICAL ANALYSISFUNDAMENTAL ANALYSIS: Fundamental analysis is the method of evaluating securities by attempting tomeasure the intrinsic value of a particular stock. It is the study of everything from theoverall economy and industry conditions, to the financial condition and management ofspecific companies (i.e., using real data to evaluate a stock’s value). The method utilizesitems such as revenues, earnings, return on equity and profit margins to determine acompany’s underlying value and potential for future growth. One of the major assumptions under fundamental analysis is that, even thoughthings get mis priced in the market from time to time, the price of an asset will eventuallygravitate toward its true value. This seems to be a reasonable bet considering the longupward march of quality stocks in general despite regular setbacks and periods ofirrational exuberance. The key strategy for the fundamentalist is to buy when prices are ator below this intrinsic value and sell when they got overpriced.Fundamental analysis for identifying industries with growth potential : After the objects of investment portfolio in terms of risk and return have beenspecified, one of the first decisions that an investment manager faces is to identify theindustries, which have a high growth potential. Two approaches are suggested in thisregard: a) Statistical analysis of past performance: A statistical analysis of the immediate past performance of the share price indices of the various industries and changes therein related to the general price index of shares of all industries should be made. The Reserve Bank of India index numbers of security prices published every month in its bulletin may be taken to represent the behavior of share prices of the various industries in the last few years. The relative changes in the price index of each industry as compared with the changes in the average price index of the shares of all industries would show those industries which are having a higher growth potential in the past few years. It may be noted that an industry may not remain a growth industry for all the time. The analysis of share price indices over a number of years will enable the investment manager to identify the industries, which are rated high by the investors at the time of analysis. By this, one can perceive industries having a higher growth in their share prices indices and examine whether the growth potential is still there or not. In other words, the investment manager shall now have to make an assessment of the various characteristics of the industries to finalize a list of industries in which he will try to spread the investments. b) Assessing the intrinsic value of an industry/company: After an investment manager has identified statistically the industries in the share of which the investors show interest, he would assess the various factors, which influence the Babasabpatilfreepptmba.com 27
  28. 28. “Fundamental & Technical Analysis of Automobile Sector” value of a particular share. These factors generally relate to the strengths and weaknesses of the company under consideration, characteristics of the industry within which the company falls and the national and international economic scene. It is the job of the investment manager to examine and weigh the various factors and judge the quality of the share or the security under consideration. This approach is known as the intrinsic value approach.TECHNICAL ANALYSIS: Technical analysis is the examination of past price movements to forecast futureprice movements. Technical analysts are sometimes referred to as chartists because theyrely almost exclusively on charts for their analysis.Moving Average: A Moving Average is an indicator that shows the average value of a securitysprice over a period of time. When calculating a moving average, a mathematical analysisof the securitys average value over a predetermined time period is made. As thesecurities price changes, its average price moves up or down. There are several popular ways to calculate a moving average. Meta Stock forJava calculates a "simple" moving average--meaning that equal weight is given to eachprice over the calculation period.Interpretation: The most popular method of interpreting a moving average is to compare therelationship between a moving average of the securitys price with the securitys priceitself. A buy signal is generated when the securitys price rises above its moving averageand a sell signal is generated when the securitys price falls below its moving average. This type of moving average trading system is not intended to get you in at theexact bottom nor out at the exact top. Rather, it is designed to keep you in line with thesecuritys price trend by buying shortly after the securitys price bottoms and sellingshortly after it tops. The critical element in a moving average is the number of time periods used incalculating the average. When using hindsight, you can always find a moving averagethat would have been profitable. The key is to find a moving average that will beconsistently profitable. The most popular moving average is the 39-week (or 200-day)moving average. This moving average has an excellent track record in timing the major(long-term) market cycles.Advantages: Babasabpatilfreepptmba.com 28
  29. 29. “Fundamental & Technical Analysis of Automobile Sector” The advantage of moving average system of this type (i.e., buying and sellingwhen prices break through their moving average) is that you will always be on the "right"side of the market: prices cannot rise very much without the price rising above its averageprice. The disadvantage is that you will always buy and sell some late. If the trend doesnot last for a significant period of time, typically twice the length of the moving average,you will lose your money.Support and Resistance: Support and resistance represent key junctures where the forces of supply anddemand meet. In the financial markets, prices are driven by excessive supply (down) anddemand (up). Supply is synonymous with bearish, bears and selling. Demand issynonymous with bullish, bulls and buying. These terms are used interchangeablythroughout this and other articles. As demand increases, prices advance and as supplyincreases, prices decline. When supply and demand are equal, prices move sideways asbulls and bears slug it out for control.What Is Support? Support is the price level at which demand is thought to be strong enough toprevent the price from declining further. The logic dictates that as the price declinestowards support and gets cheaper, buyers become more inclined to buy and sellersbecome less inclined to sell. By the time the price reaches the support level, it is believedthat demand will overcome supply and prevent the price from falling below support. Support does not always hold and a break below support signals that the bearshave won out over the bulls. A decline below support indicates a new willingness to selland/or a lack of incentive to buy. Support breaks and new lows signal that sellers havereduced their expectations and are willing sell at even lower prices. In addition, buyerscould not be coerced into buying until prices declined below support or below theprevious low. Once support is broken, another support level will have to be established ata lower level.Where Is Support Established? Support levels are usually below the current price, but it is not uncommon for asecurity to trade at or near support. Technical analysis is not an exact science and it issometimes difficult to set exact support levels. In addition, price movements can bevolatile and dip below support briefly. Sometimes it does not seem logical to consider asupport level broken if the price closes 1/8 below the established support level. For thisreason, some traders and investors establish support zones. Babasabpatilfreepptmba.com 29
  30. 30. “Fundamental & Technical Analysis of Automobile Sector”What Is Resistance? Resistance is the price level at which selling is thought to be strong enough toprevent the price from rising further. The logic dictates that as the price advances towardsresistance, sellers become more inclined to sell and buyers become less inclined to buy.By the time the price reaches the resistance level, it is believed that supply will overcomedemand and prevent the price from rising above resistance. Resistance does not always hold and a break above resistance signals that thebulls have won out over the bears. A break above resistance shows a new willingness tobuy and/or a lack of incentive to sell. Resistance breaks and new highs indicate buyershave increased their expectations and are willing to buy at even higher prices. In addition,sellers could not be coerced into selling until prices rose above resistance or above theprevious high. Once resistance is broken, another resistance level will have to beestablished at a higher level.Where Is Resistance Established? Resistance levels are usually above the current price, but it is not uncommon for asecurity to trade at or near resistance. In addition, price movements can be volatile andrise above resistance briefly. Sometimes it does not seem logical to consider a resistancelevel broken if the price closes 1/8 above the established resistance level. For this reason,some traders and investors establish resistance zones. So, Here, Identification of key support and resistance levels is an essentialingredient to successful technical analysis. Even though it is sometimes difficult toestablish exact support and resistance levels, being aware of their existence and locationcan greatly enhance analysis and forecasting abilities. If a security is approaching animportant support level, it can serve as an alert to be extra vigilant in looking for signs ofincreased buying pressure and a potential reversal. If a security is approaching aresistance level, it can act as an alert to look for signs of increased selling pressure andpotential reversal. If a support or resistance level is broken, it signals that the relationshipbetween supply and demand has changed. A resistance breakout signals that demand(bulls) has gained the upper hand and a support break signals that supply (bears) has wonthe battle.Price Oscillator: Babasabpatilfreepptmba.com 30
  31. 31. “Fundamental & Technical Analysis of Automobile Sector” The Price Oscillator displays the difference between two moving averages of asecuritys price. The difference between the moving averages can be expressed in eitherpoints or percentages. The Price Oscillator is almost identical to the MACD, except that the PriceOscillator can use any two user-specified moving averages. (The MACD always uses 12and 26-day moving averages, and always expresses the difference in points.)Interpretation: Moving average analysis typically generates buy signals when a short-termmoving average (or the securitys price) rises above a longer-term moving average.Conversely, sell signals are generated when a shorter-term moving average (or thesecuritys price) falls below a longer-term moving average. The Price Oscillatorillustrates the cyclical and often profitable signals generated by these one or two movingaverage systems.Price Rate-Of-Change: The Price Rate-of-Change ("ROC") indicator displays the difference between thecurrent price and the price x-time periods ago. The difference can be displayed in eitherpoints or as a percentage. The Momentum indicator displays the same information, butexpresses it as a ratio.Interpretation: It is a well-recognized phenomenon that security prices surge ahead and retract ina cyclical wave-like motion. This cyclical action is the result of the changingexpectations as bulls and bears struggle to control prices. The ROC displays the wave-like motion in an oscillator format by measuring theamount that prices have changed over a given time period. As prices increase, the ROCrises; as prices fall, the ROC falls. The greater the change in prices, the greater thechange in the ROC. The time period used to calculate the ROC may range from 1-day (which resultsin a volatile chart showing the daily price change) to 200-days (or longer). The mostpopular time periods are the 12- and 25-day ROC for short to intermediate-term trading.These time periods were popularized by Gerald Appel and Fred Hitschler in their book,Stock Market Trading Systems. The 12-day ROC is an excellent short- to intermediate-term overbought/oversoldindicator. The higher the ROC, the more overbought the security; the lower the ROC, themore likely a rally. However, as with all overbought/oversold indicators, it is prudent to Babasabpatilfreepptmba.com 31
  32. 32. “Fundamental & Technical Analysis of Automobile Sector”wait for the market to begin to correct (i.e., turn up or down) before placing your trade.A market that appears overbought may remain overbought for some time. In fact,extremely overbought/oversold readings usually imply a continuation of the currenttrend. The 12-day ROC tends to be very cyclical, oscillating back and forth in a fairlyregular cycle. Often, price changes can be anticipated by studying the previous cycles ofthe ROC and relating the previous cycles to the current marketRelative Strength Index (RSI): The Relative Strength Index ("RSI") is a popular oscillator. It was firstintroduced by Welles Wilder in an article in Commodities (now known as Futures)Magazine in June, 1978. The name "Relative Strength Index" is slightly misleading as the RelativeStrength Index does not compare the relative strength of two securities, but rather theinternal strength of a single security. A more appropriate name might be "InternalStrength Index."Interpretation: When Wilder introduced the Relative Strength Index, he recommended using a14-day Relative Strength Index. Since then, the 9-day and 25-day Relative StrengthIndexs have also gained popularity. The fewer days used to calculate the RelativeStrength Index, the more volatile the indicator. The Relative Strength Index is a price-following oscillator that ranges between 0and 100. A popular method of analyzing the Relative Strength Index is to look for adivergence in which the security is making a new high, but the Relative Strength Index isfailing to surpass its previous high. This divergence is an indication of an impendingreversal. When the Relative Strength Index then turns down and falls below its mostrecent trough, it is said to have completed a "failure swing." The failure swing isconsidered a confirmation of the impending reversal.In Mr. Wilders book, he discusses five uses of the Relative Strength Index: 1. Tops and Bottoms. The Relative Strength Index usually tops above 70 and bottoms below 30. It usually forms these tops and bottoms before the underlying price chart. 2. Chart Formations. The Relative Strength Index often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart. Babasabpatilfreepptmba.com 32
  33. 33. “Fundamental & Technical Analysis of Automobile Sector” 3. Failure Swings (also known as support or resistance penetrations or breakouts). This is where the Relative Strength Index surpasses a previous high (peak) or falls below a recent low (trough). 4. Support and Resistance. The Relative Strength Index shows, sometimes more clearly than price themselves, levels of support and resistance. 5. Divergences. As discussed above, divergences occur when the price makes a new high (or low) that is not confirmed by a new high (or low) in the Relative Strength Index. Prices usually correct and move in the direction of the Relative Strength Index.Trendlines: In the preceding section, we saw how support and resistance levels can bepenetrated by a change in investor expectations (which results in shifts of thesupply/demand lines). This type of a change is often abrupt and "news based." In this section, well review "trends." A trend represents a consistent change inprices (i.e., a change in investor expectations). Trends differ from support/resistancelevels in that trends represent change, whereas support/resistance levels represent barriersto change. As shown in the following chart, a rising trend is defined by successively higherlow-prices. A rising trend can be thought of as a rising support level--the bulls are incontrol and are pushing prices higher. As shown in the next chart, a falling trend is defined by successively lower high-prices. A falling trend can be thought of as a falling resistance level--the bears are incontrol and are pushing prices lower. Babasabpatilfreepptmba.com 33
  34. 34. “Fundamental & Technical Analysis of Automobile Sector”The Bar Chart: The Bar chart is one of the most popular types of charts used in technical analysis.As illustrated on the left, the top of the vertical line indicates the highest price at which asecurity traded during the day, and the bottom represents the lowest price. The closingprice is displayed on the right side of the bar and the opening price is shown on the leftside of the bar. A single bar like the one to the left represents one day of trading.The chart below is an example of a bar chart for AT&T (T): The advantage of using a bar chart over a straight-line graph is that it shows thehigh, low, open and close for each particular day. Babasabpatilfreepptmba.com 34
  35. 35. “Fundamental & Technical Analysis of Automobile Sector”Candle stick Charting: Candlestick charts have been around for hundreds of years. They are oftenreferred to as "Japanese candles" because the Japanese would use them to analyze theprice of rice contracts. Similar to a bar chart, candlestick charts also display the open, close, daily highand daily low. The difference is the use of color to show if the stock went up or downover the day. The chart below is an example of a candlestick chart for AT&T (T). Green barsindicate the stock price rose, red indicates a decline: Investors seem to have a "love/hate" relationship with candlestick charts. Peopleeither love them and use them frequently or they are completely turned off by them.There are several patterns to look for with candlestick charts - here are a few of thepopular ones and what they mean. Babasabpatilfreepptmba.com 35
  36. 36. “Fundamental & Technical Analysis of Automobile Sector” This is a bullish pattern - the stock opened at (or near) its low and closed near its high. The opposite of the pattern above, this is a bearish pattern. It indicates that the stock opened at (or near) its high and dropped substantially to close near its low. Known as "the hammer", this is a bullish pattern only if it occurs after the stock price has dropped for several days. A small body along with a large range identifies a hammer. This pattern indicates that a reversal in the downtrend is in the works. Known as a "star”. For the most part, stars typically indicate a reversal and or indecision. There is a possibility that after seeing a star there will be a reversal or change in the current trend. Babasabpatilfreepptmba.com 36
  37. 37. “Fundamental & Technical Analysis of Automobile Sector”Point and Figure Chart: The point & figure (P&F) chart is somewhat rare. In fact, most charting servicesdo not even offer it. This chart plots day-to-day increases and declines in price: increasesare represented by a rising stack of "X"s, while decreases are represented by a decliningstack of "O"s. This type of chart was traditionally used for intraday charting (a stockchart for just one day), mainly because it can be long and tedious to create a P&F chartmanually over a longer period of time. The idea behind P&F charts is that they help you to filter out less significant pricemovements and to focus on the most important trends. Below is an example of a P&Fchart for AT&T (T):POPULAR CHARTING PATTERNS: Technical analysts often use proven successful price patterns from great stocks astools to find new great stocks. Lets look at a few examples • Cup and Handle - This is a pattern on a bar chart that can be as short as seven weeks and as long as 65 weeks. The cup is in the shape of a "U". The handle has a slight downward drift. The right-hand side of the pattern has low trading volume. Babasabpatilfreepptmba.com 37
  38. 38. “Fundamental & Technical Analysis of Automobile Sector” As the stock comes up to test the old highs, the stock will incur selling pressure by the people who bought at or near the old high. This selling pressure will make the stock price trade sideways with a tendency towards a downtrend for anywhere from four days to four weeks, then it will take off. This pattern looks like a pot with a handle. It is one of the easier patterns todetect; and investors have made a lot of money using it.• Head and Shoulders - This is a chart formation resembling an "M" in which a stocks price: - Rises to a peak and then declines, then - Rises above the former peak and again declines, and then - Rises again but not to the second peak and again declines.The first and third peaks are shoulders, and the second peak forms the head. Thispattern is considered a very bearish indicator.• Double Bottom - This pattern resembles a "W" and occurs when a stock price drops to a similar price level twice within a few weeks or months. You should buy when the price passes the highest point in the handle. In a perfect double bottom, Babasabpatilfreepptmba.com 38
  39. 39. “Fundamental & Technical Analysis of Automobile Sector” the second decline should normally go slightly lower than the first decline to create a shakeout of jittery investors. The middle point of the "W" should not go into new high ground. This is a very Bullish indicator. The belief is that, after two drops in the stock price, the jittery investors will beout and the long-term investors will still be holding on. Babasabpatilfreepptmba.com 39
  40. 40. “Fundamental & Technical Analysis of Automobile Sector” EIC ANALYSIS CHAPTER: 5 INDIAN ECONOMY: AN OVERVIEW Babasabpatilfreepptmba.com 40
  41. 41. “Fundamental & Technical Analysis of Automobile Sector” The economy has moved decisively to a higher growth phase. Till a few yearsago, there was still a debate among informed observers about whether the economy hadmoved above the 5 to 6 per cent average growth seen since the 1980s. There is now nodoubt that the economy has moved to a higher growth plane, with growth in GDP atmarket prices exceeding 8 per cent in every year since 2003-04. The projected economicgrowth of 8.7 per cent for 2007-08 is fully in line with this trend. There was acceleration in domestic investment and saving rates to drive growthand provide the resources for meeting the 9 per cent (average) growth target of theEleventh Five-Year Plan. Macroeconomic fundamentals continue to inspire confidenceand the investment limate is full of optimism. Buoyant growth of government revenuesmade it possible to maintain fiscal consolidation as mandated under the FiscalResponsibility and Budget Management Act (FRBMA). The decisive change in growthtrend also means that the economy was, perhaps, not fully prepared for the different set ofchallenges that accompany fast growth. Inflation flared up in the last half of 2006-07 andwas successfully contained during the current year, despite a global hardening ofcommodity prices and an upsurge in capital inflows. An appreciation of the rupee, aslowdown in the consumer goods segment of industry and infrastructure (both physicaland social) constraints, remained of concern. Raising growth to double digit will therefore require additional reforms. Percapita income and consumption 1.2 Growth is of interest not for its own sake but for theimprovement in public welfare that it brings about. Economic growth, and in particularthe growth in per capita income, is a broad quantitative indicator of the progress made inimproving public welfare. Per capita consumption is another quantitative indicator that isuseful for judging welfare improvement. It is therefore appropriate to start by looking atthe changes in real (i.e. at constant prices) per capita income and consumption 1.3. The pace of economic improvement has moved up considerably during the lastfive years (including 2007-08). The rate of growth of per capita income as measured byper capita GDP at market prices (constant 1999-2000 prices) grew by an annual averagerate of 3.1 per cent during the 12- year period, 1980-81 to 1991-92. It acceleratedmarginally to 3.7 per cent per annum during the next 11 years, 1992-93 to 2002-03. Sincethen there has been a sharp acceleration in the growth of per capita income, almostdoubling to an average of 7.2 per cent per annum (2003-04 to 2007-08). This means thataverage income would now double in a decade, well within one generation, instead ofafter a generation (two decades). The growth rate of per capita income in 2007-08 isprojected to be 7.2 per cent, the same as the average of the five years to the current year.1.4 Per capita private final consumption expenditure has increased in line with per capitaincome. The growth of per capita consumption accelerated from an average of 2.2 percent per year during the 12 years from 1980-81 to 1991-92 to 2.6 per cent per year duringthe next 11 years following the reforms of the 1990s. The growth rate has almost doubledto 5.1 per cent per year during the subsequent five years from 2003-04 to 2007-08, withthe current year’s growth expected to be 5.3 per cent, marginally higher than the five yearaverage. The average growth of consumption is slower than the average growth of Babasabpatilfreepptmba.com 41
  42. 42. “Fundamental & Technical Analysis of Automobile Sector”income, primarily because of rising saving rates, though rising tax collection rates canalso widen the gap1. The Gross Domestic Product increased by 7.5 per cent, 9.4 per cent and 9.6 percent in first three years, of the UPA Government resulting in an unprecedented average growth rate of 8.8 per cent. The drivers of growth continue to be services and manufacturing which are estimated to grow at 10.7 per cent and 9.4 per cent respectively.2. Growth rate in agriculture for 2007-08 is estimated at 2.6 per cent.3. Food grain production in 2007-08, estimated at 219.32 million tonnes-an all time record. Rice production at 94.08 million tonnes, maize at 16.78 million tonnes, soya bean at 9.45 million tonnes, cotton at 23.38 million bales each, an all time record.4. Rashtriya Krishi Vikas Yojana launched with an outlay of Rs. 25,000 crore, National Food Security Mission with an outlay of Rs. 4,882 crore under National Policy for Farmers in the Eleventh Five Year Plan.CAPITAL AND COMMODITY MARKETS: The capital and commodity markets remained buoyant during 2007. Relativelystable macroeconomic conditions as reflected in moderate rate of inflation, growth-conducive interest rate situation, improved fiscal conditions and larger investorparticipation augured well for capital and commodity markets as measured in terms ofvolume and value of transactions.Capital Markets: The Indian capital market attained further depth and width in business transactedduring 2007. The Bombay Stock Exchange (BSE) Sensex, which had been witnessing anupswing since the latter part of 2003, scaled a high of 20,000 mark at the close ofcalendar year 2007. The National Stock Exchange (NSE) Index rose in tandem to closeabove the 6,100 mark at the end of 2007. Both the indices more than tripled between2003 and 2007, giving handsome yearly returns. Alongside the growth of business in theIndian capital market, the regulatory and oversight norms have improved over the years,ensuring a sound and stable market.1. Measures to expand the market for corporate bonds: Exchange-traded currency and interest rate futures to be launched and transparent credit derivatives market to be developed with appropriate safeguards; Tradability of domestic convertible bonds to be enhanced through the mechanism of enabling investors to separate the embedded equity option from the convertible bond, and trade it separately; Development of a market-based system for classifying financial instruments based on their complexity and implicit risks to be encouraged. Babasabpatilfreepptmba.com 42
  43. 43. “Fundamental & Technical Analysis of Automobile Sector”2. Permanent Account Number (PAN): Requirement of PAN extended to all transactions in the financial market subject to suitable threshold exemption limits.3. National market for securities: Empowered Committee of State Finance Ministers to be requested to work with the Central Government to create pan Indian market for securities that will expand the market base and enhance the revenues of the State Governments.Primary Market: The primary capital market grew in 2006 and 2007 after the set back of 2005. Theamounts raised and the number of new issues which entered the market increased in2007. The total amount of capital raised through different market instruments during2007 was 31.5 per cent higher than during 2006, which itself had seen a rebound of 30.6percent over the lows of 2005.Secondary Market: In the secondary market segment, the market activity expanded further during2007-08 with BSE and NSE indices scaling new peaks of 21,000 and 6,300, respectively,in January 2008. Although the indices showed some intermittent fluctuations, reflectingchange in the market sentiments, the indices maintained their northbound trend during theyear. This could be attributed to the larger inflows from Foreign Institutional Investors(FIIs) and wider participation of domestic investors, particularly the institutionalinvestors. During 2007, on a point-to-point basis, Sensex and Nifty Indices rose by 47.1and 54.8 per cent, respectively. The buoyant conditions in the Indian bourses were aidedby, among other things, India posting a relatively higher GDP growth amongst theemerging economies, continued uptrend in the profitability of Indian corporates,persistence of difference in domestic and international levels of interest rates, impressivereturns on equities and a strong Indian rupee on the back of larger capital inflows.Budget Estimates:1. Plan Expenditure estimated at Rs.243,386 crore.2. Non-Plan Expenditure estimated at Rs.507,499 crore.3. Revenue deficit for 2007-08 to be 1.4 per cent (against a BE of 1.5 per cent) and the fiscal deficit to be 3.1 per cent (against a BE of 3.3 per cent); Revenue receipts of Central Government for 2008-09 projected at Rs.602, 935 crore and revenue expenditure at Rs.658,119 crore; Revenue deficit for 2008-09 estimated at Rs.55,184 crore, which amounts to 1.0 per cent of GDP; Fiscal deficit for 2008-09 estimated at Rs.133,287 crore which is 2.5 per cent of GDP; elimination of Revenue Deficit may need one more year; because of the conscious shift in expenditure in favour of health, education and the social sector.4. Thirteenth Finance Commission to be requested to revisit the roadmap for fiscal adjustment and suggest a suitably revised roadmap, after the obligations on account of the Sixth Central Pay Commission becomes clear. Babasabpatilfreepptmba.com 43
  44. 44. “Fundamental & Technical Analysis of Automobile Sector”Stock markets: Stock markets are an important instrument of financial intermediation. They sawincreased activity in 2007-08. Primary market issue of debt and equity increased alongwith private placement. The secondary market too showed a rising trend, notwithstandingintermittent ups and downs in the stock prices responding mainly to global developments.The Bombay Stock Exchange (BSE) Sensex rose from 13,072 at end-March 2007 to18,048 as on February 18, 2008, while the National Stock Exchange (NSE) index Nifty50 rose from 3,822 to 5,277 during the same period. Both the indices gave a return ofaround 38 per cent during this period. The higher net mobilization of resources by mutualfunds showed that investors were realizing the importance of using intermediaries inrisky markets. All the other indicators of capital market such as market capitalization,turnover and price-earning ratio remained strong. The commodity market also showedsigns of expansion in terms of turnover and number of transactions during the year.Industry and infrastructure: The industrial sector witnessed a slowdown in the first nine months of the currentfinancial year. The growth of 9 per cent during April-December 2007, when viewedagainst the back drop of the robust growth witnessed in the preceding four years, suggeststhat there is a certain degree of moderation in the momentum of the industrial sector. Theconsumer durable goods sector in particular has shown a distinct slowdown. This islinked to the hardening of interest rates and therefore to the conditions prevailing in thedomestic credit sector. In contrast, the capital goods industry has sustained strong growthperformance during 2007-08 (April-December). At the product group level, the moderation in growth has been selective.Industries like chemicals, food products, leather, jute textiles, wood products andmiscellaneous manufacturing products witnessed acceleration in growth, while basicmetals, machinery and equipments, rubber, plastic and petroleum products and beveragesand tobacco recorded lower but strong growth during April-December 2007. Otherindustries including textiles (except jute textiles), automotives, paper, non-metallicmineral products and metal products slowed down visibly during the period. Theslowdown in the case of less import-intensive sectors like textiles is coincident with thedecline in the growth of exports arising from the sharp appreciation in the rupee vis-a-visthe dollar. Within automobiles, while passenger cars, scooters and mopeds witnessedbuoyant growth, the production of motor cycles and three wheelers slackened. In anutshell, the industrial sector has produced mixed results in the current fiscal. CHAPTER 6 OVERVIEW OF AUTOMOBILE INDUSTRY IN INDIA The global automotive industry is a highly diversified sector that comprises ofmanufacturers, suppliers, dealers, retailers, original equipment manufacturers, Babasabpatilfreepptmba.com 44
  45. 45. “Fundamental & Technical Analysis of Automobile Sector”aftermarket parts manufacturers, automotive engineers, motor mechanics, autoelectricians, spray painters or body repairers, fuel producers, environmental and transportsafety groups, and trade unions. United States, Japan, China, Germany and South Koreaare the top five automobile manufacturing nations throughout the world. The UnitedStates of America is the world’s largest producer and consumer of motor vehicles andautomobiles accounting for 6.6 million direct and spin-off jobs and represents nearly 10%of the S10 trillion US economy. The automobile is one of the important industries in theworld, which provides employment to 25 million people in the world. The Indian automobile industry is going through a technological change whereeach firm is engaged in changing its processes and technologies to sustain thecompetitive advantage and provide customers with the optimized products and services.Starting from the two wheelers, trucks, and tractors to the multi utility vehicles,commercial vehicles and the luxury vehicles, the Indian automobile industry has achievedtremendous amount of success in the recent years. As per Society of Indian Automobile Manufacturers (SIAM) the market share ofeach segment of the industry is as follows: Babasabpatilfreepptmba.com 45
  46. 46. “Fundamental & Technical Analysis of Automobile Sector”The market shares of the segments of the automobile industry The automobile industry had a growth of 15.4 % during April-January 2007, withthe average annual growth of 10-15% over the last decade or so. With the incrementalinvestment of $35-40 billion, the growth is expected to double in the next 10 years. Consistent growth and dedication have made the Indian automobile industry thesecond- largest tractor and two-wheeler manufacturer in the world. It is also the fifth-largest commercial vehicle manufacturer in the world. The Indian automobile market isamong the largest in Asia. The key players like Hindustan Motors, Maruti Udyog, Fiat India Private Ltd,Tata Motors, Bajaj Motors, Hero Motors, Ashok Leyland, Mahindra & Mahindra havebeen dominating the vehicle industry. A few of the foreign players like Toyota KirloskarMotor Ltd., Skoda India Private Ltd., Honda Siel Cars India Ltd. have also entered themarket and have catered to the customers’ needs to a large extent. Not only the Indian companies but also the international car manufacturingcompanies are focusing on compact cars to be delivered in the Indian market at a muchsmaller price. Moreover, the automobile companies are coming up with financialschemes such as easy EMI repayment systems to boost sales. There have been exhibitions like Auto-expo at Pragati Maidan, New Delhi toshare the technological advancements. Besides, there are many new projects coming upin the automobile industry leading to the growth of the sector. The Government of India has liberalized the foreign exchange and equityregulations and has also reduced the tariff on imports, contributing significantly to thegrowth of the sector. Having firmly established its presence in the domestic markets, theIndian automobile sector is now penetrating the international arena. Vehicle exports fromIndia are at their highest levels. The leaders of the Indian automobile sector, such as TataMotors, Maruti and Mahindra and Mahindra are leading the exports to Europe, MiddleEast and African and Asian markets. The Ministry of Heavy Industries has released the Automotive Plan 2006-2016, Babasabpatilfreepptmba.com 46
  47. 47. “Fundamental & Technical Analysis of Automobile Sector”with the motive of making India the most popular manufacturing hub for automobiles andits components in Asia. The plan focuses on the removal of all the bottlenecks that areinhibiting its growth in the domestic as well as international arena.Growth in the Sector: At present the industry is enjoying a growth rate of 14-17% per annum, withdomestic sales growth at 12.8%. The growth rate is predicted to double by 2015. As it is seen, the total sales of passenger vehicles - cars, utility vehicles and multi-utility vehicles - in the year 2005 reached the mark of 1.06 million. The current growthrate indicates that by 2012 India will overtake Germany and Japan in sales volumes. Financing schemes have become an important factor in the growth of automobilesales. More and more financial schemes are coming up with easy installment plans to lurethe customers. Apart from domestic production, the industry is consistently focusing on theautomobile exports. The auto component segment is contributing a lot in the exportarena. The liberalized policies of the government are now making the companies go formore and more exports. The automobile exports are increasing year by year. According to the Society ofIndian Automobile Manufactures (SIAM) automobile exports in the last five years are asfollows: SWOT ANALYSIS OF INDIAN AUTOMOBILE INDUSTRY: Babasabpatilfreepptmba.com 47
  48. 48. “Fundamental & Technical Analysis of Automobile Sector”STRENGTHS: • Globally cost competitive • Adheres to strict quality controls • Has access to latest technology • Provides support to critical infrastructure and metal industriesWEAKNESSES: • Industry has low level of research and development capability • Industry is exposed to cyclical downturns in the automotive industry • Most component companies are dependent on global majors for technologyOPPORTUNITIES: • May serve as sourcing hub for global automobile majors • Significant export opportunities may be realised through diversification of export basket • Implementation of Value-Added-Tax (VAT) in FY2004 will negate the cascading impact of pricesTHREATS: • The presence of a large counterfeit components market poses a significant threat • Pressure on prices from OEMs continues • Imports pose price based competition in the replacement market CHAPTER: 7 Babasabpatilfreepptmba.com 48
  49. 49. “Fundamental & Technical Analysis of Automobile Sector” BUDGET IMPACT ON THESE SECTORSBudget 2008-09: Automobile Industry: The Budget 2008 has finally brought welcome relief to the auto sector, which wasotherwise spinning under a slowdown caused by firm interest rates. Mr. P. Chidambaram, Finance Minister on Friday, has announced a surprise cut inexcise duty for small cars (4,000 mm in length and engines with 1.2 litres capacity, ifpetrol or 1.5 litres capacity, if diesel) from 16% to 12%. With this move, small cars will cost Rs. 7000 to 16000 less. Maruti Suzuki, amajor listed player in the passenger car market, will be the main beneficiary. The company has announced a reduction in prices of some of its modelsfollowing Finance Minister P. Chidambarams proposal. The models are Maruti 800,Omni, Zen, WagonR, Swift Diesel and Alto. Commercial vehicles, too, stand to beneficiated with the budget proposal. Theexcise duty on buses has been reduced to 12% while on trucks it was reduced to 14%. Itis anticipated that the reduction will bring down prices by Rs 20,000-Rs 40,000. Excise duties on hybrid cars have also been reduced by 14% to 24% and on twoand three-wheelers to 16% from 24%. The Players across all segments, be it the two-wheeler, car or commercial vehiclemakers, stand to benefit from the excise duty cuts announced. It is expected that dutyreduction will provide cheer to small carmakers, two wheeler makers and bus makers. However, the budget failed to excite the industry captains, as corporate tax,dividend distribution tax and surcharge were left unchanged, contrary to marketexpectations. In order to encourage clean fuel technology, Mr. Chidambaram also reducedexcise duty by 10% on hybrid cars, which are yet to be launched in the Indian market,from 24%.Budget 2008: Impact on Auto Sector Babasabpatilfreepptmba.com 49
  50. 50. “Fundamental & Technical Analysis of Automobile Sector”Proposal Impact• Excise duty on small cars reduced to Positive: Will be passed on to customers 12% from 16% and help demand growth.• Excise duty on two & three-wheelers Gainers: Maruti, Tata Motors, Hero reduced to 12% from 16% Honda, Bajaj Auto, Ashok Leyland• Excise duty on buses and other transport vehicles reduced to 12% from 16%• Excise duty on hybrid cars reduced to 14% from 24%• Excise duty on electric cars down to zero from 8%• Excise duty on specified electric car parts withdrawn from 16%Budget Measures:• Reduction in excise duties from 16% to 12% on manufacturing of 2&3 wheelers, buses and small cars.• Agricultural credit outlay increased to Rs 2,80,000 crore.• 10% increase in defence sector allocation to Rs 1,05,600 crore.• Dividend tax paid by parent company allowed to be set off against the same paid by its subsidiary.• Higher allocation towards road development programme such as the NHDPBudget Impact:• Excise duty reductions will help lower prices and stimulate demand for 2&3 wheelers and small cars.• Increased demand for new buses from STUs (State Transport Undertakings) as well as private players.• Higher defence allocation will spur investment in new vehicles.• Higher agricultural credit outlay will help boost demand for tractors.• Increased thrust on road infrastructure is a positive for all the automobile manufacturers especially passenger vehicles and CVs. Babasabpatilfreepptmba.com 50