CHAPTER 1

EXECUTIVE SUMMARY
The project covers Fundamental and basic technical analysis of Automobile Sector.
Research of sector is done through fundamental & basic technical analysis. These are
the two tools used for analysing the sector. Large cap companies of the sector is
analysed & out of this few companies are selected by Value Pick & Growth Pick.
Technical analysis is used to study stock patterns of these companies. The observed
support and resistance patterns and other patterns are also tested for taking decision
about particular stock.
The report will help the investors to know about the current growth prospects of
Indian Economy in relation with Automobile Sector. This report will help them in
comparing the stocks and their estimated future share prices, so that they can invest in
better option and get maximum returns.

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CHAPTER 2
COMPANY PROFILE

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BIRLA SUN LIFE INSURANCE

Birla Sun Life Insurance is established in 2000, Birla Sun Life Insurance Company
Ltd. (BSIL) is the joint venture between the Aditya Birla Group and the Sun Life
Financial Inc. an international financial services organization from Canada. The local
knowledge of the Aditya Birla Group combined with the expertise of Sun Life
Financial Inc., offers a formidable protection for its customers future.
With an experience of over 10 years, BSLI has contributed significantly to the growth
and development of the life insurance industry in India and currently ranks amongst
the top 7 private life insurance companies in the country.
BSLI was the first Indian insurance company to introduce Free Look Period and the
same was made mandatory by IRDA for other insurance companies. BSLI pioneered
the launch of Unit Linked Life Insurance plans amongst the private players in India.
To establish credibility and the further transparency, BSLI also enjoys the prestige to
be the originator of practice to disclosure of portfolio on monthly basis. The insurance
products provided by BSLI are term plan, life stage products, health plans and the
retirement plan.
The vision of the company is To be a leader and role model in a broad based and
integrated financial services business

The values of the BSLI are

Integrity

Commitment

Passion

Seamlessness

Speeds

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CHAPTER 3
OBJECTIVES, ASSUMPTIONS, SCOPE AND
LIMITATIONS OF THE PROJECT

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Objective

To provide an overview of Automobile sector in India.

To study about some of the major players in Automobile sector which has good
investment prospects.

To identify the growth drivers of the sector.

To study technical and fundamental analysis of Automobile sector.

Assumption
This project is prepared on the assumption that most of the investment in stock market
is done by the brokers and not by the common man and on the other hand there are
many people who want to invest in stock market but fears as they think that it is luck
game which is not totally true and this might change their way of thinking.

Scope
The scope of project is limited to Understanding the basics of Fundamental analysis
and Technical analysis and apply it to take a decision of investing in Automobile
Stocks

Limitations
The research project is based on secondary data.
Time constrain.
Only large caps Automobile Company are considered for this research project.

Technical analysis of only 7 companies is done.

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CHAPTER 4
RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY
Method:
The project is on equity research analysis of the sector. Hence study has to be done on
the basis of information and news available about the sector i.e. secondary data by
various modes. This research had to be completed by doing Fundamental analysis and
basic Technical analysis of the companies.

Tools Used
Secondary data was collected from the internet, company websites, and various
articles. However the main source of information is Annual Report issued by the
companies and also quarterly reports of the current year showing their performances
in current market scenario. It will help us to see the financial results of company. For
the calculation of the ratio the required price, PE of the company etc. is available
through the financial websites.

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CHAPTER 5
INTRODUCTION TO EQUITY RESEARCH

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5.1 What Is Equity Research?

The idea behind Equity Research is simple: Information is the prized asset.
The desire for information availability and consumption spurned a whole new
industry, popularly known as Equity Research.
Well, to start with, equity research is the study of equities or stocks for the purpose of
investments. Equity research is what an equity research analyst does. In simpler
terms, equity research is the act of gathering information:
(1)

Information that helps investors to decide where to put in their money;

(2) Information that traders require to understand whether to enter or exit a

market position.
(3) Information that financiers (bankers and firms) need to evaluate
companies.
Equities or common stock comprises a big chunk in any companys capital and
shareholders need to know whether to stay invested in the company or sell the shares
and come out. Both the buy-side and the sell-side companies invest in maintaining an
equity research division. This research may also include bonds and commodities.
The function of the equity researcher is to present a detailed analysis of a company,
enabling investors to make an informed decision.
The research report is used by investment banks and private equity firms to evaluate
the company for IPO, LBO, mergers and others.
For an investment bank, the equity research segment produces revenue as buy-side
firms pay the equity research team to delve into its records and analyze information.
As an individual, it is time consuming to do equity research, that is, to study the
company, its financial statements, products, management and take a decision about
investment. Exactly for the same reason, there are people working in research
companies whose job is to do equity research and recommend companies for
investment.

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5.2 Application of Equity Research

The application of equity research varies. Primarily, equity research is used in the
mutual funds industry, investment evaluation, merger and acquisition deals, financial
publications and charitable endowments.

5.3 Purpose of Equity Research

As stated before, the purpose of equity research is to study companies, analyze
financials and look at quantitative and qualitative aspects, helping investors of varying
degrees to make an informed decision.
As the name suggests, research plays the most important role here.
Over the years, research methods have changed but the sole intention of research
remains the same.
The number of investors is booming and so is the need for exploring the nature of
investments.
Investors wish to take calculated and informed decisions, and this is where the role of
equity research begins.
The purpose of equity research and the researcher is manifold.
To begin with, one gathers and analyses industry data and financial models of a
specific company or an industry.
It also involves understanding current market trends, both from the perspectives of
macro economy and micro economy, and report findings. Since the equity research
targets a specific audience, it is necessary to tailor the findings to the audience
demand.

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CHAPTER 6
AUTOMOBILE INDUSTRY
AN OVERVIEW

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6.1 Introduction

The Indian auto industry is one of the largest in the world with an annual production
of 21.48 million vehicles in FY 2013-14.The automobile industry accounts for 22 per
cent of the country's manufacturing gross domestic product (GDP).

An expanding middle class, a young population, and an increasing interest of the

companies in exploring the rural markets have made the two wheelers segment (with
80 per cent market share) the leader of the Indian automobile market. The overall
passenger vehicle segment has 14 per cent market share.

India is also a substantial auto exporter, with solid export growth expectations for the
near future. Various initiatives by the Government of India and the major automobile
players in the Indian market is expected to make India a leader in the Two Wheeler
and Four Wheeler market in the world by 2020.

6.1.1 Key Points in Automobile Sector

Supply: The Indian automobile market has some amount of excess capacity.
Demand: Largely cyclical in nature and dependent upon economic growth and per
capita income. Seasonality is also a vital factor.

Barriers to Entry: High capital costs, technology, distribution network, and

availability of auto components.

Bargaining Power of Supplier: Low, due to stiff competition.

Bargaining Power of Customers: Very high, due to availability of options.

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Competition: High. Expected to increase even further.

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6.2 Market Size

Sales of commercial vehicles in India grew 5.3 per cent to 52,481 units in January
2015 from a year ago, according to Society of Indian Automobile Manufacturers
(SIAM).

Sales of cars also grew for a third month in a row to 169,300 units in January 2015, up
3.14 per cent from the year-ago period.

Car market leader Maruti Suzuki India witnessed 8.6 per cent higher sales at
approximately 118,551 units in February 2015, out of which 107,892 were sold in
domestic market and 10,659 units were exported.

In the two-wheeler segment, Hero MotoCorp witnessed sales of 484,769 units in

February 2015.

TVS Motor Co posted 15 per cent higher sales at 204,565 units against 177,662 units.
Bajaj Auto sold a total of 243,000 two and three-wheelers segment.

6.3 Investments
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. The industry has attracted
foreign direct investment (FDI) worth US$ 12,232.06 million during the period April
2000 to February 2015, according to the data released by Department of Industrial
Policy and Promotion (DIPP).
Some of the major investments and developments in the automobile sector in India
are as follows:

Mahindra Two Wheelers Limited (MTWL) has acquired 51 per cent shares in

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France-based Peugeot Motocycles (PMTC).

Suzuki Motor Corp is planning to sell the automobiles made in the Gujarat
plant, in Africa.

Tata Motors Ltd, Indias largest automobile maker, will sell trucks in
Malaysia, Vietnam and Australia to strengthen its presence in the Asia-Pacific
region.

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6.4 Government Initiatives

The Government of India encourages foreign investment in the automobile sector and
allows 100 per cent FDI under the automatic route. Excise duty on small cars,
scooters, motorcycles and commercial vehicles was reduced in February last year to 8
per cent from 12 per cent to boost the Make in India initiative of the Indian
government.
Some of the major initiatives taken by the Government of India are:

Under the Union budget of 2015-16, the Government has announced to

provide credit of Rs 850,000 to farmers, which is expected to boost the
tractors segment. The government is aligning to ensure that at least one family
member is economically strong to support the family. This is expected to
improve the sentiments of entry-level two-wheelers.

The Government plans to promote eco-friendly cars in the country i.e. CNG
based vehicle, hybrid vehicle, electric vehicle and also made mandatory of 5
per cent ethanol blending in petrol.

The government has formulated a Scheme for Faster Adoption and

Manufacturing of Electric and Hybrid Vehicles in India, under the National
Electric Mobility Mission 2020 to encourage the progressive induction of
reliable, affordable and efficient electric and hybrid vehicles in the country.

The Automobile Mission Plan for the period 20062016, designed by the
government is aimed at accelerating and sustaining growth in this sector. Also,
the well-established Regulatory Framework under the Ministry of Shipping,
Road Transport and Highways, plays a part in providing a boost to this sector.

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6.5 Road Ahead

Given that the Modi government has now come into power, there are expectations of
increased focus on reforms and ramp up in infrastructure. Thus, government spending
on infrastructure in roads and airports and higher GDP growth in the future will
benefit the auto sector in general. We expect a slew of launches both in passenger cars
and utility vehicles (UVs) given that the competition has intensified. Since diesel
prices have also been hiked, the differential between petrol and diesel will reduce
further and this will play an important bearing on a consumers purchasing decision.
In the 2-wheeler segment, motorcycles are expected to witness a flurry of new model
launches. Though the market size is expected to grow by 10% to 12%, competitive
pressure could keep prices and margins under control. TVS, Honda and Hero
Motocorp are poised to benefit from higher demand for ungeared scooters in the
urban and rural markets. The 3 wheeler industry, where Bajaj Auto is the market
leader, is also poised for growth on the back of new permits opening up and increase
in exports.
While good monsoon is a positive for the tractor sector, given the fact that non-farm
incomes have continued to climb up, volumes should still hold up well in the longer
run despite a year or two of poor monsoons. The longer-term picture is impressive in
light of poor mechanisation levels in the countrys farm sector and the thrust of the
government on improving rural infrastructure.
With an estimated 40% of CVs plying on the roads being 10 years old, demand for
HCVs is expected to grow by 7% to 8% over the long term. While the industry is
going through cyclical hiccups currently, we expect this factor to weaken in the future
on account of strong structural tailwinds. The privatisation of select state transport
undertakings bodes well for the bus segment.

The Japanese auto maker Maruti Suzuki expects the Indian passenger car market to
reach four million units by 2020, up from 1.8 million units in 2013-14.

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6.6 Market break-up by production volume

Two wheelers dominate production volumes; in FY15, the segment accounted for
about 79.40 per cent of the total automotive production in the country

India is the worlds second-largest two wheeler manufacturer and fourth-largest

producer of commercial vehicles

A unique feature of Indian auto sector is the presence of three wheelers which are a
form of public transportation equivalent to taxis

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6.7 Total production of Automobiles in India

The automobile industry in India is expected to be the world's third largest by 2016,
with the country currently being the world's second largest two-wheeler manufacturer.
Two-wheeler production is projected to rise from 18.5 million in FY15 to 34 million
by FY20. Furthermore, passenger vehicle production is expected to increase to 10
million in FY20 from 3.2 million in FY15.

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6.8 Export Data Indian Automobile Sector

Automobile exports grew at a CAGR of 14.65 per cent during 2010-15. Passenger
Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers grew by 6.89 per
cent, 13.77 per cent, 18.69 per cent and 16.60 per cent CAGR during 2010-15. Two
wheelers accounted for the largest share of exports at 69.4 per cent in FY15.
Passenger vehicles comprised a sizeable 16.7 per cent of overall exports. Exports of
three wheeler vehicles registered around 11.1 per cent share in exports in FY15.

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6.9 Growth Drivers

Passenger vehicles are to increase at a CAGR of 16% between 2013-20.

Two-wheelers and three-wheelers are projected to expand at a CAGR of 9%

between 2013-20.

A growing working population and an expanding middle class are expected to

remain key demand drivers. GDP per capita has grown from USD 1,432.25 in 2010 to
USD 1,500.76 in 2012, and is expected to reach USD 1,869.34 by 2018.

India has the worlds 12th largest number of high net worth individuals, with a
growth of 20.8%, the highest among the top 12 countries.

Increasing disposable incomes in the rural agri-sector.

The presence of a large pool of skilled and semi-skilled workers and a strong
educational system.

A large number of products are available to consumers across various segments.

With the entry of a number of foreign players and reduced overall product lifecycle,
quicker product launches have become the order of the day.

The availability of a variety of vehicle models meet diverse needs and

preferences.

Easy finance schemes, owing to which the auto finance industry has grown at the
rate of 13% between 2008-13. Car finance penetration has increased from 68% to
70% between 2008-10 and between 70% to 72% in 2011-13.

Favorable government policies like lower excise duties, automotive mission plans,
the constitution of NATRIP (National Automotive Testing and R&D Infrastructure
Project).

6.10 FDI Policy

100% FDI is allowed under the automatic route in the auto sector, subject to
all the applicable regulations and laws.

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6.11 Sector Policy

Automatic approval for foreign equity investment up to 100% with no

minimum investment criteria.

Manufacturing and imports in this sector are exempt from licensing and
approvals.

The encouragement of R&D by offering rebates on R&D expenditure.

6.12 Automotive Mission Plan, 2oo6-16

To emerge as the worlds destination of choice for design and manufacture of

automobiles and auto components with output reaching a level of USD 145 Billion,
accounting for more than 10% of the GDP and providing additional employment to 25
Million people by 2016.

The setting up of a technology modernization fund focusing on small and

medium enterprises.

The establishment of automotive training institutes and auto design centres,

special auto parks and auto component virtual SEZs.

The Automotive Mission Plan II for the period 2016-26 is under preparation
and will be finalized by mid-2015.

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CHAPTER 7
FUNDAMENTAL ANALYSIS
&
SELECTION OF AUTOMOBILE
COMPANIES

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7.1 Fundamental Analysis

Fundamental analysis of a business involves analyzing its financial statements and
health, its management and competitive advantages, and its competitors and markets.
When applied to futures and forex, it focuses on the overall state of the economy,
interest rates, production, earnings, and management. When analyzing a stock,
futures contract, or currency using fundamental analysis there are two basic
approaches one can use; bottom up analysis and top down analysis. The term is used
to distinguish such analysis from other types of investment analysis, such as
quantitative analysis and technical analysis.
Fundamental analysis is performed on historical and present data, but with the goal
of making financial forecasts. There are several possible objectives:

To conduct a company stock valuation and predict its probable price evolution.

To make a projection on its business performance,

To evaluate its management and make internal business decisions,

To calculate its credit risk.

Fundamental analysis includes:

1. Economic analysis
2. Industry analysis
3. Company analysis
On the basis of this three analysis the intrinsic value of the shares are determined.
This is considered as the true value of the share. If the intrinsic value is higher than
the market price it is recommended to buy the share but if it is equal to market price
hold the share and if it is less than the market price sell the shares.

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7.1.1 Use by Different Portfolio Styles

Investors may use fundamental analysis within different portfolio management
styles.
Buy and hold investors believe that latching onto good businesses allows the
investor's asset to grow with the business. Fundamental analysis lets them find 'good'
companies, so they lower their risk and probability of wipe-out.
Managers may use fundamental analysis to correctly value 'good' and 'bad'
companies. Even 'bad' companies' stock goes up and down, creating opportunities for
profits.
Managers may also consider the economic cycle in determining whether conditions
are 'right' to buy fundamentally suitable companies.
Contrarian investors distinguish "in the short run, the market is a voting machine, not
a weighing machine". Fundamental analysis allows you to make your own decision
on value, and ignore the market.
Value investors restrict their attention to under-valued companies, believing that 'it's
hard to fall out of a ditch'. The value comes from fundamental analysis.
Managers may use fundamental analysis to determine future growth rates for buying
high priced growth stocks.
Managers may also include fundamental factors along with technical factors into
computer models (quantitative analysis).

7.1.2 Procedures
The analysis of a business' health starts with financial statement analysis that includes
ratios. It looks at dividends paid, operating cash flow, new equity issues and capital
financing. The earnings estimates and growth rate projections published widely by
Thomson Reuters and others can be considered either 'fundamental' (they are facts) or
'technical' (they are investor sentiment) based on your perception of their validity.
The determined growth rates (of income and cash) and risk levels (to determine the
discount rate) are used in various valuation models. The foremost is the discounted
cash flow model, which calculates the present value of the future
Dividends received by the investor, along with the eventual sale price.
Earnings of the company or Cash flows of the company.
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The amount of debt is also a major consideration in determining a company's health.

It can be quickly assessed using the debt to equity ratio and the current ratio (current
assets/current liabilities).
The simple model commonly used is the Price/Earnings ratio. Implicit in this model
of a perpetual annuity (Time value of money) is that the 'flip' of the P/E is the
discount rate appropriate to the risk of the business. The multiple accepted is adjusted
for expected growth (that is not built into the model).
Growth estimates are incorporated into the PEG ratio but the math does not hold up to
analysis. [neutrality is disputed] Its validity depends on the length of time you think
the growth will continue.

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7.2 Top Line and Bottom Line Factor For The Automobile Sector
Every sector has its own top line and bottom line factors which affects the stock of
that particular sector. The Buying, Selling and holding strategy of stock depends upon
the top line and bottom line factor.
T

A
T
M
B
E
S
C
O

O
I

E
T
R

U
O

In the above graphic the top line factor for automobile sector is the order book of the
company that is the sales volume of the company. And the bottom line for the sector is
price of steel as it is the main raw material required for the for manufacturing process
of automobile sector.

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7.3 Buy, Sell And Hold Strategy

Assumption: This strategies can only be applicable if the company
does not increases the profit margin and distributes the profit among
shareholders.
TOP LINE
INCREASE
DECREASE
INCREASE
DECREASE

BOTTOM LINE
DECREASE
INCREASE
INCREASE
DECREASE

STRATEGY
BUY
SELL
HOLD
HOLD

The above table shows that how and which strategy investor should adopt while
investing in the automobile stock it even explains strategy to the existing investor.
Coming to the explanation the table explains that whenever there is an increase in the
Top line and decrease in Bottom Line the investor should buy that stock. Because if
the price of a raw material that is steel is decreasing the production will increase and
so the sales as well which will boost the share price of the sector in near future.
Next whenever there is decrease in the Top Line and Increase in the Bottom Line the
existing investor should sell the stock he holds as there are chances that due to
increase in the price of steel the production of automobile may decrease which will
ultimately affect the share price of the sector.
Third situation which shows that if there is a increase in the top line and bottom line
at the same time the existing investor who holds the stock should hold the stock for
some time because it can turn any way around.
Last situation where the Top Line and Bottom Line both are decreasing at the same
time the existing investor should again hold the stock till the any of the factor turns
other way around.

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7.4 Selection of the Automobile companies

This report basically consist of Automobile companies with the Market capitalisation
(M.Cap) of above 5,000 Crores. There are in total 20 automobile companies and out
of that there are 8 Automobile companies with Market capitalisation of above 5,000
crores. Out of this 8 companies 3 companies are selected form 2 and 3 wheeler
segment, 2 are selected from cars segment and lastly 3 companies are selected from
LCV and HCV segment. All the companies are selected are on the basis of large
market capitalisation and taking into consideration the industry P/E of each segment
separately.

The Indian auto industry is one of the largest in the world with an annual production
of 21.48 million vehicles in FY 2013-14.The automobile industry accounts for 22 per
cent of the country's manufacturing gross domestic product (GDP).

Automobile exports grew at a CAGR of 14.65 per cent during 2010-15. Passenger
Vehicles, Commercial Vehicles, Three Wheelers and Two Wheelers grew by 6.89 per
cent, 13.77 per cent, 18.69 per cent and 16.60 per cent CAGR during 2010-15.

7.4.1 The companies which are included in the list are as follows:
Companies
Two and Three Wheeler
Bajaj Auto
Hero Motocorp
TVS Motors

Market Capitalisation (in crs)

66,641.22
48,289.43
11,086.16

Cars And Jeeps

Maruti & Suzuki India Ltd
Mahindra And Mahindra Ltd

1,34,815.31
74,232.96

LCVS And HCVS

Tata Motors
Eicher Motors
Ashok Leyland

1,12,617.25
50,077.70
25,129.09

Now further, every stock was provided with details of its Last traded prices, P/E, EPS
and Long Term Price Target (LTPT). This data will enable to identify which
companies actually to be included in the portfolio so as to make a proper investment.

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 Price to Earning (P/E):

Price to Earnings explains that to earn Rs.1 how a person actually has to pay the price.
Here, P/E ratio is written by the formula: P/E = Price / Earnings per share. Here in
the report, P/E helps in segregating those companies which has P/E more than the
Industrial average.

Long Term Price Target (LTPT):

Long Term Price Target (LTPT) is the term where the companies which are selected as
the large cap companies will have their future values. Those future values can be more
and can also be less depending upon the Overvaluation or Undervaluation of the
stock. If company A is been over bought in the market then there is a probability that
the price in the long term may fall and say if Company B is less valued as compared
to its capabilities then there is a high probability that the stock price may rise may rise
in the future.

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7.4.2 Valuation Of Selected Comapnies

Companies
Two and Three
Wheeler

Price

P/E

EPS

LTPT

Status

Bajaj Auto
Hero Motocorp
TVS Motors

2303.45
2428.50
231.10

30.40
21.53
18.88

75.77
112.80
12.39

1710.88
2547.02
279.76

Overvalued
Undervalued
Undervalued

4462.50

32.51

137.27

4053.58

Overvalued

1197.50

22.53

53.15

1569.52

Undervalued

333.00
18285.81
88.25

9.96
74.82
46.24

33.43
244.40
1.90

2635.62
19268.50
149.80

Undervalued
Undervalued
Undervalued

Industry P/E- 22.58

Cars And Jeeps
Maruti& Suzuki India
Ltd
Mahindra And Mahindra
Ltd

Industry P/E- 29.53

LCVS And HCVS
Tata Motors
Eicher Motors
Ashok Leyland

Industry P/E- 78.84

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Now here as per the information available stocks P/E has been calculated by Dividing
Price with Earnings per share (EPS). Then here Industrial Average is calculated on the
basis of the data available for the P/E. After this step, next step is to calculate Long
Tem Price Target (LTPT). LTPT is calculated by multiplying EPS * Industrial
average.
Now, here the companies are been bifurcated by and been sorted in Red and Green
colours. If the company P/E is more than the Industrial P/E then the stock is
overvalued as the stock is already grown to certain extent and has limited scope to
increase in the future. Similarly, the stocks with Green colour will be considered as
undervalued and is termed as a Value pick for the portfolio.
After segregating the stocks into Undervalued and Overvalued stocks, one has to
calculate PEG Ratio. PEG Ratio = P/E / Annual EPS Growth. Here, annual EPS
growth is calculated by comparing last years EPS with the current EPS. So here, PEG
Ratio is calculated for only the overvalued companies so as to see whether there are
any further chances of increase in the stock price in the future. The calculated PEG
should be between 0 and 1.
If the PEG ratio of any overvalued companies is more than 1 then the company should
be rejected as the company is overvalued and it doesnt have much further scope of
progressing. If the PEG ratio of the company is in between 0 and 1 then the company
is said to be a Growth stock or Growth pick for the portfolio of the fund.

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 PEG RATIO CALCULATION FOR OVERVALUED COMPANIES

COMPANY

STATUS

EPS
2015
122.85

PE RATIO

Overvalued

EPS
2014
92.13

Maruti Suzuki
India Ltd
Bajaj Auto

Overvalued

112.08

97.24

30.40

32.51

PEG
RATIO
0.73
De-growth
Of EPS

In the above table the PEG ration is calculated for the overvalued company. As the
calculation shows that the PEG ratio for Maruti Suzuki India Ltd is between 0 and 1,
the investor can look up to invest in this company considering the growth factor.
Whereas there is de-growth in the EPS of Bajaj Auto Ltd so the company has less
chances of growth which can affect the investor so the company is rejected from the
prospective of fundamental analysis done for investment in stock.

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7.4.3 Value Pick Companies

Value Picks

P/E

EPS

Hero Motocorp

21.53

112.80

TVS Motors

18.88

12.39

Mahindra And Mahindra Ltd

22.53

53.15

Tata Motors

9.96

33.43

Eicher Motors

74.82

244.40

Ashok Leyland

46.24

1.90

7.4.4 Growth Pick:

Growth Picks

P/E

EPS

PEG

Maruti Suzuki India Ltd

32.51

122.85

0.73

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7.4.5 Value Pick Graph

300
244.4

250
200
150

112.8

100
50

53.15
21.53

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18.88
12.39

22.53

74.82
33.43
9.96

P/E
46.24
1.9

EPS

7.5.6 Growth Pick Graph

137.27

150
100

P/E

50

32.51

0
Maruti Suzuki India Pvt ltd

CHAPTER 8
BASICS OF TECHNICAL ANALYSIS

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EPS

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8.1 What is Technical Analysis?

Technical Analysis can be defined as an art and science of forecasting future
prices based on an examination of the past price movements. Technical analysis is
not astrology for predicting prices. Technical analysis is based on analysing current
demand-supply of commodities, stocks, indices, futures or any tradable instrument.
Technical analysis involve putting stock information like prices, volumes and open
interest on a chart and applying various patterns and indicators to it in order to assess
the future price movements. The time frame in which technical analysis is applied
may range from intraday (1-minute, 5-minutes, 10-minutes, 15-minutes, 30-minutes
or hourly), daily, weekly or monthly price data to many years.
A technical analyst is concerned with the direction of movement. He would be
buying if he sees that the main trend (or the underlying direction of movement) is
rising and would be moving out of the scrip as and when he finds the scrip is
inversing direction. His approach is based on the analysis of demand-supply equation.
If the demand for a scrip is greater than its supply the prices would be expected to
rise, prompting the analyst to buy. On the same count, if the supply of a scrip exceeds
its demand, the prices would be expected to move downwards and he would exit from
the scrip or book profits.
Technical analysis uses technical information which ignores fundamentals and
focuses on actual price movements.

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8.2 Concept of Trend

Trend is nothing but the direction of movement. Logically, the share price can either
be rising or falling or moving narrowly (flat). Thus, there are three directions in which
the prices move. These three directions give rise to three types of trend. When prices
are moving upwards, the trend is said to be rising. When prices are moving
downwards, it is called falling trend. And when prices are moving in narrow range,
the trend can be said to be choppy or flat. Thus, trend itself has three directions.

T
R
R
I
E
S
N
I
D
N
G
Prices do not rise or fall in a straight line. The rise or the fall is generally interrupted
by a counter move. This counter move is known as a reaction. If the scrip is rising, the
counter move would be against the rise. If the scrip is falling, the counter move would
be against the fall. Because of these counter moves, the scrip can be said to be moving
in a zig-zag fashion, which gives rise to tops and bottoms. Thus, a top is nothing but a
price level from where a scrip reverses direction to move downward and a bottom is
the level from where the scrip reverses the downmove and starts to rise. It is the
position of the bottoms and tops that determines the trend at any given point of time.
Thus, in a rising trend one would find the zig-zag price movement carrying the scrip
upwards. In this rise, the scrip will exhibit the formation of higher bottoms and higher
tops.

In a falling trend, the zig-zag movement would carry the price downwards and hence
the scrip would exhibit the formation of lower tops and lower bottoms.
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In a sideways or flat trend, the broad zig-zag movement would carry the price
sideways and the scrip would neither exhibit the formation of clear cut higher bottoms
and higher tops nor the formation of clear cut lower tops and lower bottoms.

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8.3 Support and Resistance

Support and resistance represent key junctures where the forces of supply and demand
meet. In the financial markets, prices are driven by excessive supply (down) and
demand (up). Supply is synonymous with bearish, bears and selling. Demand is
synonymous with bullish, bulls and buying. These terms are used interchangeably
throughout this and other articles. As demand increases, prices advance and as supply
increases, prices decline. When supply and demand are equal, prices move sideways
as bulls and bears slug it out for control.
Support is the price level at which demand is thought to be strong enough to
prevent the price from declining further. The logic dictates that as the price
declines towards support and gets cheaper, buyers become more inclined to buy and
sellers become less inclined to sell. By the time the price reaches the support level, it
is believed that demand will overcome supply and prevent the price from falling
below support.

Resistance is the price level at which selling is thought to be strong enough to

prevent the price from rising further. The logic dictates that as the price advances
towards resistance, 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 overcome demand and prevent the price from rising above resistance.

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8.4 Various Patterns Of Technical Analysis

8.4.1 Cup with Handle
A cup-and-handle pattern resembles the shape of a tea cup on a chart. This is a
bullish continuation pattern where the upward trend has paused, and traded down, but
will continue in an upward direction upon the completion of the pattern. This pattern
can range from several months to a year, but its general form remains the same.
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 four days to four
weeks... then it takes off.

The cup part of the pattern should be fairly shallow, with a rounded or flat "bottom"
(not a V-shaped one), and ideally reach to the same price at the upper end of both
sides. The drop of the handle part should retrace about 30% to 50% of the rise at the
end of the cup. For stock prices, the pattern may span from a few weeks to a few
years; but commonly the cup lasts from 1 to 6 months, while the handle should only
last for 1 to 4 weeks. The "cup and handle" formation was defined by William O'Neil.

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8.4.2 Double Top (Reversal):

The Double Top Reversal is a bearish reversal pattern typically found on bar charts,
line charts and candlestick charts. As its name implies, the pattern is made up of two
consecutive peaks that are roughly equal, with a moderate trough in-between. .
Namely, Double Top Breakouts on P&F charts are bullish patterns that mark an
upside resistance breakout.

8.4.3 Double Bottom (Reversal):

The Double Bottom Reversal is a bullish reversal pattern typically found on bar
charts, line charts and candlestick charts. As its name implies, the pattern is made up
of two consecutive troughs that are roughly equal, with a moderate peak in-between.
Namely, Double Bottom Breakdowns on P&F charts are bearish patterns that mark a
downside support break.

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8.4.4 Head and Shoulders Top (Reversal):

A Head and Shoulders reversal pattern forms after an uptrend, and its completion
marks a trend reversal. The pattern contains three successive peaks with the middle
peak (head) being the highest and the two outside peaks (shoulders) being low and
roughly equal. The reaction lows of each peak can be connected to form support, or a
neckline.

8.4.5 Head and Shoulders Bottom (Reversal):

The Head and Shoulders Bottom, sometimes referred to as an Inverse Head and
Shoulders, is a pattern that shares many common characteristics with its comparable
partner, but relies more heavily on volume patterns for confirmation.

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8.4.6 Rounding Bottom (Reversal):

The Rounding Bottom is a long-term reversal pattern that is best suited for weekly
charts. It is also referred to as a saucer bottom, and represents a long consolidation
period that turns from a bearish bias to a bullish bias.

8.4.7 Triple Top (Reversal):

The Triple Top Reversal is a bearish reversal pattern typically found on bar charts,
line charts and candlestick charts. There are three equal highs followed by a break
below support. As major reversal patterns, these patterns usually form over a 3 to 6
month period. Namely, Triple Top Breakouts on P&F charts are bullish patterns that
mark an upside resistance breakout.

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8.4.8 Triple Bottom (Reversal):

The Triple Bottom Reversal is a bullish reversal pattern typically found on bar charts,
line charts and candlestick charts. There are three equal lows followed by a break
above resistance. As major reversal patterns, these patterns usually form over a 3 to 6
month period. Note that a Triple Bottom Reversal on a bar or line chart is completely
different from Triple Bottom Breakdown on a P&F chart. Namely, Triple Bottom
Breakouts on P&F charts are bearish patterns that mark a downside

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8.5 Candlestick Technique

The Japanese candlestick technique was developed by rice future trader, Sokyu
Honma. This is often referred to as a leading indicator. Candlestick technique can
predict the market moves before the turning point is reached whereas other indicator
predict the market moves after the turning point has been reached. In this technique,
the open, high, low and closing prices are charted as shown below:

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8.6 Types of candlesticks:

There are three basic types of candlesticks: the white, black and doji. Apart from these
three candles, there are a number of other types of candles which are nothing but
variations of these three basic candles.
High

Open &
Close

Low
Doji Candle

White / Green
Black / Red Candle
Candle
Candlestick technique is one more powerful indicator that can be used along with
other technical tools like Oscillators, trend lines, moving averages etc. to ascertain the
probability of change in the direction of the trend. Apart from that this technique can
be used as a standalone indicator to effectively trade the market.

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CHAPTER 9
TECHNICAL ANALYSIS OF SELECTED
COMPANIES

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9.1 Two And Three Wheeler

9.1.1 Hero Motocorp

Interpretation:
In above chart we can see that the support line is set up at around 1700 level and after
that we can see the sudden decline for enough period of time i.e 2 to 3 months, at this
level investor can not get better price to buy this stock.
And the Resistance line is set up at the approximately 2000 and in year 2014 we can
see the upward trend of the stock.
We can also see the rounding bottom pattern in the chart which explains that the
stock is moving to bullish bias.

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9.1.2 TVS Motors

Interpretation:
In the above chart we can see the support level set up approximately at 100 in the year
2014 and after there is uptrend followed by the stock which shows continuous return
on the stock.
It also has a resistance level set up at slightly above 230 that is around 250.

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9.2 Cars And Jeeps

9.2.1 Maruti Suzuki India Pvt Ltd

Interpretation:
Maruti Suzuki India has the largest market share in automobile sector.
The chart above shows the support level at 2000 and the resistance level at above
3040.
As the chart shows the stock has performed good in 2014 as it has an upward trend
which is a good sign for the investor who has invested in the stock earlier. Plus the
stock is more like a stable one which is again a positive sign for investor to invest.
Rectangle Continuation represents a trading range that pits the bulls against the bears.
As the price nears support, buyers step in and push the price higher. As the price nears
resistance, bears take over and force the price lower.

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9.2.2 Mahindra And Mahindra

Interpretation:
In the above 5 year chart the support level is set up approximately at 800 and
resistance level is set up approximately at 1200.
We also can see the rounding bottom pattern in between year 2013-2014. To trade this
pattern look for the neckline that is marked on the chart below. Once the price breaks
through and a candle closes below the neckline, you can enter the market with a sell
order.
The chart below shows the neckline being broken by the price this is where short
traders can enter the market.

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9.3 LCVs And HCVs

9.3.1 Tata Motors

Interpretation:
In the given 5 years chart we can see that the support level is set up at 210 and the
resistance level is set up at around 500.
There is also a double round top pattern at level above 510 and below level 610 in this
case the investor should wait for support to be broken in a convincing manner, and
usually with an expansion of volume. A price or time filter can be applied to
differentiate between valid and false support breaks.

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9.3.2 Eicher Motors

Interpretation:
In the above 5 year chart of Eicher motor the support level is set up at slightly above
5020 and the resistance level at around 12000.
The stock also has a Head and Shoulder pattern in the chart which explains after
breaking neckline support, the projected price decline is found by measuring the
distance from the neckline to the top of the head. This distance is then subtracted from
the neckline to reach a price target

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9.3.3 Ashok Leyland

Interpretation:
The above 5 year chart shows the support level at 20 and the resistance level above 50
that is around 70.
The chart also shows that the company has declared the bonus in the year 2011 and it
also has declared the dividend in the same year.
Company again have declared the dividend in the year 2013 after which the stock
prices of the company has declined to its lowest.
After year 2014 we can see the upward trend in the chart which shows that company
has bounced back and performed quite well.

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CHAPTER 10
CONCLUSION

CONCLUSION
This project has given us broad aspect to gain knowledge of the financial activities.
This project was a good exposure for us to get acquainted with the sector analysis as
well as other financial aspects i.e. equity markets, debt markets, mutual funds,
derivatives, etc. and how the work in the real life.
By doing Sip in fundamental and in Automobile sector we can now easily understand
the use of fundamental analysis that is followed by the experts in the industry, how to
calculate the P/E ratio and PEG ratio.
By calculating both the ratio we got to know which stocks are overvalued and which
are undervalued, if the stock are undervalued, then the stock is value pick and if it is
overvalued then it is growth pick.
This report will help the investors to know about the current growth prospects of
Indian Economy in relation with the Automobile sector. They will get to understand
various factors affecting these sectors and their impact on the growth of the sectors.
This report will help them in comparing the stocks and their estimated future share
prices, so that they can invest in better options and get maximum returns.

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CHAPTER 11
BIBLIOGRAPHY

www.ibef.org

www.equitymaster.com

www.investopedia.com

Money control, NSE-India

www.topstockresearch.com

website of respective companies

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