WHAT’S THIS EQUITY ANALYSIS?

Professional investor will make more money & less loss than, who let their heart rule.
Their head eliminate all emotions for decision making. Be ruthless & calculating, you are
out to make money. Decision should be based on actual movement of share price measured
both in money & percentage term & nothing else. Greed must be avoided, patience may be
a virtue, but impatience can frequently be profitable.

In Equity Analysis anticipated growth, calculations are based on considered FACTS &
not on HOPE. Equity analysis is basically a combination of two independent analyses,
namely fundamental analysis & Technical analysis. The subject of Equity analysis, i.e.
the attempt to determine future share price movement & its reliability by references to
historical data is a vast one, covering many aspect from the calculating various
FINANCIAL RATIOS, plotting of CHARTS to extremely sophisticated indicators.

A general investor can apply the principles by using the simplest of tools: pocket
calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be
pointed out that, this equity analysis does not discuss how to buy & sell shares, but does
discuss a method which enables the investor to arrive at buying & selling decision. The
financial analysts always need yardsticks to evaluate the efficiency & performances of any
business unit at the time of investment. Fundamental analysis is useful in long term
investment decision. In Fundamental analysis, a company’s goodwill, its performances,
liquidity, leverage, turnover, profitability & financial health is checked & analysed with the
help of ratio analysis for the purpose of long term successful investment.

Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements. Technical analysis mainly seeks to
predict the short term price travels. The focus of technical analysis is mainly on the internal
market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the
oldest approach to equity investment dating back to the late 19th century.
Assumptions for the Equity Analysis.

1. Works only in normal share-market conditions with great reliability, it also works in
abnormal share-market conditions, but with low reliability.

2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY , so the

investment object has vital importance associated to return along with risk.

3. Cash management gets the magnitude role, because the scenario of equity analysis is
revolving around the term money.

4. Portfolio management, risk management was up to the investor’s knowledge.

5. Capital market trend is always a friend, whether it is short run or long run.

6. You are buying stock & not companies, so don’t be curious or panic to do post-mortem
of companies performances.

7. History repeats: investors & speculators react the same way to the same types of events
homogeneously.

8. Capital market has a typical market psychology along with other issues like; perceptions,
the crowd Vc the individual, tradition s & trust.

9. An individual perceptions about the investment return & associated risk may differ from
individual to individual.

10. Although the equity analysis is art as well as science so, it also has some exceptions.
ANALYSIS OF AUTOMOBILE INDUSTRY

Over a period of more than two decades, the Indian Automobile industry has been driving
its own growth through phases. With comparatively higher rate of economic growth rate
index against that of great global powers, India has become a hub of domestic and exports
business. The automobile sector has been contributing its share to the shining economic
performance of India in the recent years.

To understand this industry for the purpose of investment we need to analyze it by

following two approaches:

1). Fundamental Analysis (E.I.C Approach)

a. Economy
b. Industry
c. Company

2).Technical Analysis

EQUITY ANALYSIS.

ENVIRONMENT & ECONOMICAL ANALYSIS.

FUNDAMENTAL TECHNICAL
ANALYSIS ANALYSIS
Fundamental Analysis.
Fundamental analysis is the study of economic, industry and company conditions in an
effort to determine the value of a company’s stock. Fundamental analysis typically focuses
on key statistics in company’s financial statements to determine if the stock price is
correctly valued.

Most fundamental information focuses on economic, industry and company statistics.

The typical approach to analyzing a company involves four basic steps :
1 Determine the condition of the general economy.
2 Determine the condition of the industry.
3 Determine the condition of the company.
4 Determine the value of the company’s stock

a). ECONOMY

Economic analysis is the analysis of forces operating the overall economy a country.
Economic analysis is a process whereby strengths and weaknesses of an economy are
analyzed. Economic analysis is important in order to understand exact condition of an
economy.

GDP and Automobile Industry

In absolute terms, India is 16th in the world in terms

of nominal factory output. The service sector is
growing rapidly in the past few years. This is the pie- chart
showing contributions of different sectors in Indian economy.
The per capita Income is near about Rs38,000 reflecting
improvement in the living standards of an average Indian.

Today, automobile sector in India is one of the key sectors of the economy in terms of the
employment. Directly and indirectly it employs more than 10 million people and if we add
the number of people employed in the auto-component and auto ancillary industry then the
number goes even higher.
As the world economy slips into recession hitting the demand hard and the banking sector
takes conservative approach towards lending to corporate sector, the GDP growth has
downgraded it to 7.1 per cent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-
10 Mr. Montek Singh (Planning Commission of India). Following is the graph showing a
trend of Indian GDP trend in past 3 years.

Source:India Central Statistical Organization

The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian
GDP is near about 5% and will be double by 2016. The automotive industry in India grew
at a computed annual growth rate (CAGR) of 11.5 percent over the past five years, but
growth rate in last FY 2008-09 was only 0.7% with passenger car sales shows 1.31%
growth while Commercial Vehicles segment slumped 21.7%.

Recession
All the major auto companies enjoyed the high growth ride till the mid 2008. But at the end
of the year, industry had to face the hard truth and witnessed the fall in sales compared to
last year. In December 2008, overall production fell by 22 % over the same month last
year. Global recession has hit the Indian auto industry, India is strong and growing industry
but the impact of recession is evident now on industry as sales & growth of automobile
companies have declined. Passenger Vehicles segment registered negative growth.

One of its supporting facts is that the sales in December 2008 for passenger vehicles fell by
13.86% over December 2007. Two Wheelers registered minor growth of 1.85 % during
April – December 2008. However, Two Wheelers sales recorded 15.43 percent fall in
December 2008 over the same month last year. Although the sector was hit by economic
slowdown, overall production (passenger vehicles, commercial vehicles, two wheelers and
three wheelers) increased from 10.85 million vehicles in 2007-08 to 11.17 million vehicles
in 2008-09. Passenger vehicles increased marginally from 1.77 million to 1.83 million
while two-wheelers increased from 8.02 million to 8.41 million. Total number of vehicles
sold including passenger vehicles, commercial vehicles, two-wheelers and three-wheelers
in 2008-09 was 9.72 million as compared to 9.65 million in 2007-08.

Inflation
Despite of negative inflation these days (-.21% on 22-Aug-09) we saw an increasing trend
of sales in auto sector. A moderate amount of inflation is important for the proper growth
of an economy like India because it attracts more private investment. The fall in wholesale
prices from a year earlier is mainly due to a statistical base effect and doesn’t suggest
contraction in demand, the Reserve Bank of India said few week back, while revising its
inflation forecast for the FY through March to around 5% from 4%.

In last FY despite of skyrocketing oil prices (crude oil price has already up to $130
compared to $20 per barrel five years back), Indian automobile Industry was not as much
affected and experts think that Indian automobile industry will continue to grow this year
despite all obstacles- oil price hike, higher interest rates. However, the effect of inflation
has affected every sector which is related to car manufacturing and production. The
increase in the price of fuel and the steel due to inflation has led to a slower growth rate of
the car industry in India. The effect of inflation has taken the rise in the price rate of the
cars by 3-4% which in turn suffices the need to meet the rise in price of the raw materials
to build a car. The car market and the car industry witnessed a fall of 8-9%.

FDI’s
In India FDI up to 100 percent, has been permitted under automatic route to this sector,
which has led to a turnover of US $12 billion in the Indian auto industry and US $3 billion
in the auto parts industry. India enjoys a cost advantage with respect to casting and
forgoing as manufacturing costs in India are 25 to 30 per cent lower than their western
counterparts. The Investment Commission has set a target of attracting foreign investment
worth US $5 billion for the next seven years to increase India's share in the global auto
components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in
Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-08,
while in April-May 2009 it was around Rs.497 Cr.
Export
Society of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger
vehicles, commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased
to 1.53 million units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles
increased from 218,401 in 2007-08 to 335,739 units in 2008-09.

There is a continuous increase in the export of automobiles since the financial year 2002-
03, except for the decline in the export of commercial vehichles in the financial year 2008-
09, which may be attributed to the global economic recession.

Despite recession, the Indian automobile market continues to perform better than most of
the other industries in the economy. In coming future, more and more MNC’s coming in
India to setup their ventures which clearly shows the scope of expansion.

b.) INDUSTRY ANALYSIS (AUTOMOBILE)

The current trends of the global automobile industry reveal that in the developed countries
the automobile industries are stagnating as a result of drooping markets, whereas the
automobile industry in the developing nations, have been consistently registering higher
growth rates every passing year for their domestic flourishing domestic automobile
markets.

Being one of the fastest growing sectors in the world its dynamic growth phases are
explained by the nature of competition, Product Life Cycle and consumer demand. The
industry is at the crossroads with global mergers and relocation of production centres to
emerging developing countries.

In 2009, estimated rate of growth of India Auto industry was 9% .The Indian automobile
sector is far from being saturated, leaving ample opportunity for volume growth.
Segmentation of Automobile Industry

The automobile industry comprises of Heavy

vehicles (trucks, buses, tempos, tractors);
passenger cars; Two-wheelers; Commercial
Vehicles; and Three-wheelers. Following is
the segmentation that how much
each sector comprises of whole
Indian Automobile Industry.

Industrial Analysis of any industry can be done based on the following headings:

1. Industrial Life Cycle

2. SWOT Analysis
3. Industry Specific Index

1.) Industrial Life Cycle

The industrial life cycle is a term used for classifying industry vitality over time. Industry
life cycle classification generally groups industries into one of four stages: pioneer, growth,
maturity and decline.

In the pioneer phase, the product has not been widely accepted or adopted. Business
strategies are developing, and there is high risk of failure. However, successful companies
can grow at extraordinary rates. The Indian automobile sector has passed this stage quite
successfully.

In the growth phase, the product market has been established and there is at least some
historical guide to ground demand estimates. The industry is growing rapidly, often at an
accelerating rate of sales and earnings growth. Indian Automotive Industry is booming with
a growth rate of around 15 % annually. The cumulative growth of the Passenger Vehicles
segment during April 2007 – March 2008 was 12.17 percent. Passenger Cars grew by
11.79 percent, Utility Vehicles by 10.57 percent and Multi Purpose Vehicles by 21.39
percent in this period. The Commercial Vehicles segment grew marginally at 4.07 percent.
While Medium & Heavy Commercial Vehicles declined by 1.66 percent, Light
Commercial Vehicles recorded a growth of 12.29 percent. Three Wheelers sales fell by
9.71 percent with sales of Goods Carriers declining drastically by 20.49 percent and
Passenger Carriers declined by 2.13 percent during April- March 2008 compared to the
last year. Two Wheelers registered a negative growth rate of
7.92 % during this period, with motorcycles and
electric two wheelers segments declining by 11.90
percent and 44.93% respect. However, Scooters and
Mopeds segment grew by 11.64% and 16.63% respect.
The growth rate of the automobile industry in India is
greater than the GDP growth rate of the economy, so
the automobile sector can be very well be said to be in
the growth phase.

As the product matures, growth slows as penetration reaches practical limits. Companies
began to focus on market share rather than growth. Industry demand tends to follow the
overall economy, but the scope of growth of the automobile sector is very much possible
in India due to the increasing income of the middle class and their income as well as
standard of living.

2.) SWOT Analysis

A scan of the internal and external environment is an important part of the strategic
planning process. Environmental factors internal to the firm usually can be classified as
strengths (S) or weaknesses (W), and those external to the firm can be classified as
opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to
as a SWOT analysis. SWOT analysis of the Indian automobile sector gives the following
points:

Strengths

• Large domestic market

• Sustainable labor cost advantage
• Competitive auto component vendor base
• Government incentives for manufacturing plants
• Strong engineering skills in design etc

Weaknesses
• Low labor productivity
• High interest costs and high overheads make the production uncompetitive
• Various forms of taxes push up the cost of production
• Low investment in Research and Development
• Infrastructure bottleneck

Opportunities
• Commercial vehicles: SC ban on overloading
• Heavy thrust on mining and construction activity
• Increase in the income level
• Cut in excise duties
• Rising rural demand

Threats
• Rising input costs
• Rising interest rates
• Cut throat competition

3.) Industry Specific Index

Industry specific index also called as sectoral index are those indices, which represent a
specific industry sector. All stocks in a sectoral index belong to that sector only. Hence an
index like the BSE auto index is made of auto stocks. Sectoral Indices are very useful in
tracking the movement and performance of particular sector
BSE AUTO Index 5 Year Chart

• Automobile Industry Index at BSE for 5 Year

Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period
of 5 years. Intially in 2003 when major giants got listed on stock exchange TATA Motors,
Maruti Suzuki, etc. indian auto industry start picking up growth slowly in the first end of
1st quarter index reaches to its highest in his history. Than we saw a steady fall in the index
and in the mid 2006 reaches to years lowest point it again start booming and than year on
year we saw a up and down movement in the index as lots of new players came in Indian
market with foreign colaboration but when 2008 came with global slowdown it brings the
demand of automobile so low that index reaches to its lowest in past 5year . Most of the
company even shut down their manufacturing units for more than a week, production came
down because of less demand in the economy

But in the beginning of 2009 right from 1st quarter auto industry again start regaining and
we saw a tremondous growth in auto industry which never seen before not in india but all
over the world. The demand of 2 and 4 Wheelers start increasing rapidly which also force
auto industry to employ more workers to meet demand and with in the 2nd quarter of
FY2009-10 Auto index reaches to its highest ever crossed mark of 6000.
c.) COMPANY ANALYSIS (Maruti Suzuki & TATA Motors)

The company analysis shows the long term strenght of the company that what is the
financial Position of the company in the market where it stand among its competitors and
who are the key drivers of the company, what is the future plans of the company, what are
the policies of government towards the company and how the stake of the company
divested among different groups of people.

Profile of Maruti Suzuki

Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in
the car segment, both in terms of volume of vehicles sold and revenue earned. Until
recently, 18.28% of the company was owned by the Indian government, and 54.2% by
Suzuki of Japan. As of May 10, 2007, Govt. of India sold its complete share to Indian
financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.The
turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs.
12,187ml.Maruti Suzuki India Ltd. has sold a total of 84,808 vehicles in August 2009, an
increase of 41.6%, compared to 59,908 vehicles in the same period of 2008. The
company's domestic sales in August 2009 increased 29.3% to 69,961 vehicles, compared to
54,113 vehicles in August 2008.

Profile of Tata Motors

It is the leader in commercial vehicles in each segment, and among the top three in
passenger vehicles with winning products in the compact, midsize car and utility vehicle
segments. The company is the world’s fourth largest truck manufacturer, and the world’s
second largest bus manufacturer. Tata Motors Limited is India’s largest automobile
company, reported gross revenue (stand-alone) of Rs.28599.27 crores (2007-08:
Rs.33093.93 crores) in 2008-09, a year marked by severe demand contraction in the
automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crores
compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was
Rs.1013.76 crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%. The
Profit after Tax for the year was Rs.1001.26 crores compared to Rs.2028.92 crores, a
decline of 50.7%.

Fundamental Analysis consist of following

Study of Balance sheet
Study of Profit and Loss a/c
Study of Ratios

Balance Sheet :
A financial statement that summarizes a company's assets, liabilities and shareholders'
equity at a specific point in time. These three balance sheet segments give investors an idea
as to what the company owns and owes, as well as the amount invested by the
shareholders.

The balance sheet must follow the following formula:

Assets = Liabilities + Shareholders' Equity

It's called a balance sheet because the two sides balance out. This makes sense: a company
has to pay for all the things it has (assets) by either borrowing money (liabilities) or getting
it from shareholders (shareholders' equity).

The balance sheet is one of the most important pieces of financial information issued by a
company. It is a snapshot of what a company owns and owes at that point in time. The
income statement, on the other hand, shows how much revenue and profit a company has
generated over a certain period.
The balance sheet shows the financial condition of a business at a given point of
time. As per the Companies Act, the balance sheet of a company shall be in either the
account form or the report form.

Liabilities Assets
Share Capital Fixed Assets
Reserves and Surplus investments
Secured loans Current assets , loans & advances
UnSecured loans Miscellaneous expenditure
Current liabilities and provisions
Liabilities
Liabilities, defined very broadly, represent what the firm owes others. A liability arises
when a firm receives benefits or services and , in turn, promises to pay cash or provide
goods and services in future.
Assets
Assets are resources which are expected to provide a firm with future economic benefits,
by way of higher cash inflows or lower outflows. Assets are classified as follows under
the Companies Act:

Profit and Loss a/c :

A financial report that - by summarizing revenues and expenses, and showing the net profit
or loss in a specified accounting period - depicts a business entity’s financial performance
due to operations as well as other activities rendering gains or losses. Also known as the
"profit and loss statement" or "statement of revenue and expense".

The income statement is the most analyzed portion of the financial statements. It displays
how well the company can assure success for both itself and its shareholders through the
earnings from operations.
The companies act has prescribed a standard form for the balance sheet, but none for the
profit loss account.
Structure of Profit and Loss a/c
Income
Sales
Expenditure
Material and other expenditure
Interest
Depreciation
Profit before tax
Provision for tax
Profit after tax
While a single step profit and loss account aggregates all revenues and expenses, a multi
step profit and loss account provides disaggregated information. Further, instead of
showing only the final profit measure, the profit after tax figure, it presents profit measures
at intermediate stages as well.

Following is the financial and Non-Financial analysis of Maruti Suzuki & TATA Motors.

• Financial Analysis

 Balance Sheets
Maruti Suzuki TATA
Motors
 Income Statements

Maruti Suzuki TATA Motors

RATIO ANALYSIS OF TATA MOTORS AND MARUTI
SUZUKI

Earning per share

EPS measures the profit available to the equity shareholders per share, that is, the amount
that they can get on every share held. Till 2008 both the companies had a rising EPS but in
2009 both of them fall and the effect more
on Tata motors as they bought two brands
Ford Motors and fall in sales results in low
EPS. But as trend shows TATA motors
have potential so an shareholder expect
better in future.

EPS = Net income- Dividends onPreferredStock

Average Outstanding shares

Net profit ratio

The trend shows that Tata’s net profit margin is quite stable until it falls to 3.77 in 2009.
While the net profit of India’s no.1 car
manufacturer Maruti Suzuki shows a
negative trend from 2007 onwards. But the
future prospect for both the company’s
profit is higher. Profit margins come down
as recession hits economy badly hence
sales get reduced and cost get increased
very much.

Net profit Ratio = (Net profit) × 100

(Net sales)
Debt equity ratio
A high debt to equity ratio suggests that a company has financed its growth mostly via
debt. We see that the debt –equity
ratio of TATA motors is very high
compared to that of Maruti. It means
that a lot of debt is used by TATA’s
to finance its increased operations.
Maruti is going very swiftly in this
field.
Debt-Equity Ratio= Total Debt
Total Equity

Current ratio

The current ratio is a convenient and reliable tool for measuring a company's level of
liquidity. The ratio acts as an indication
that the firm is able to generate funds to
make all needed payments in the future;
thus, the ratio indicates whether the
firm is likely to be a going concern.
Both the companies possess a good
ratio but the ratio which is close to 2 is
desirable, so we see in graph that
Maruti has more strong liquidity than TATA Motors as its current ratio is always greater
than 1. Maruti is more successful in paying off its liabilities. Expansion plans of TATA
brought down its cash & Bank Balance and increase of outside liabilities.
Dividend per share

Tata motors and Maruti Suzuki both the companies showed a positive trend in paying
dividends till 2008, but the scenario
changed in 2009 as both the
company’s dividend per share fell.
According to graph TATA’s dividend
was much higher than that of Maruti,
it always provided dividend of above
10 per share to its shareholders while
maruti stick to below 5 per share, even though the fall in dividend in 2009, still both the
companies are earning good profit.

Dividend Per Share = Total amount of Dividend

Share Outstanding
Government Policies Towards Indian Automobile Industry

Automobile industry in India also received an unintended boost from stringent

government auto emission regulations over the past few years. This ensured that vehicles
produced in India conformed to the standards of the developed world.

The policies adopted by Government will increase competition in domestic market,

motivate many foreign commercial vehicle manufactures to set up shops in India, whom
will make India as a production hub and export to nearest market.

• Bring in a minimum foreign equity of US $ 50 Million if a joint venture involved

majority foreign equity ownership
• Automatic approval for foreign equity investment upto 100% of manufacture of
automobiles and component is permitted
• FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest
up to 49 per cent of the paid-up equity capital of the investee company, subject to approval
of the board of directors and of the members by way of a special resolution. .
• Investments in making auto parts by a foreign vehicle maker will also be
considered a part of the minimum foreign investment made by it in an auto-making
subsidiary in India. The move is aimed at helping India emerge as a hub for global
manufacturing and sourcing for auto parts.
• Specific component of excise duty applicable to large cars and utility vehicles will
be reduced to 15,000 rupees per vehicle from 20,000 rupees earlier.
• The Proposal by the Govt. to set up an expert group to advise on a viable and
sustainable system of pricing petroleum products, as this will surely had an impact on the
Automobile Industry.
The announced reduction on the basic customs on bio-diesel is great news for all
companies working on environmental saving technologies.
Technical analysis
Technical analysis refers to the study of market generated data like prices & volume to
determine the future direction of prices movements. Technical analysis mainly seeks to
predict the short term price travels. It is important criteria for selecting the company to
invest. It also provides the base for decision-making in investment. The one of the most
frequently used yardstick to check & analyze underlying price progress.

This Technical analysis is helpful to general investor in many ways. It provides important
& vital information regarding the current price position of the company. Technical analysis
involves the use of various methods for charting, calculating & interpreting graph & chart
to assess the performances & status of the price. It is the tool of financial analysis, which
not only studies but also reflecting the numerical & graphical relationship between the
important financial factors.

Basic premises of technical analysis:

1. Market prices are determined by the interaction of supply & demand forces.
2. Supply & demand are influenced by variety of supply & demand affiliated factors both
rational & irrational.
3. These include fundamental factors as well as psychological factors.
4. Barring minor deviations stock prices tend to move in fairly persistent trends.
5. Shifts in demand & supply bring about change in trends.

Drawbacks / limitations of technical analysis:

• Technical analysis does not able to explain the rezones behind the employment or
selection of specific tool of Technical analysis.
• The technical analysis failed to signal an uptrend or downtrend in time.
• The technical analysis must be a self defeating proposition. As more & more
people use, employ it the value of such analysis trends to reduce.
Usually the following tools & instruments are used to do the technical analysis:

Price Styles
Price in a chart can be displayed in three styles: bar, line, and candlestick.

Bar: It gives the detailed information about every aspect.

Line: A line chart simply connects the closing prices from one period to the next. This
type of chart is ideal for securities with no high or low price data i.e., mutual funds or that
is even with the equity in case of base price.

Japanese Candlestick: A candlestick is black if the closing price is lower than the
opening price. A candlestick is white if the closing price is higher than the opening price.
Overview:

A basic principle of technical analysis is that security prices move in trends. We also know
that trends do not last forever. They eventually change direction and when they do, they
rarely do so on a dime. Instead, prices typically decelerate, pause, and then reverse. These
phases occur as investors form new expectations and by doing so, shift the security's
supply/demand. .
The changing of expectations often causes price patterns to emerge. Although no two
markets are identical, their price patterns are often very similar. Predictable price behaviour
often follows these price patterns. Chart patterns can last from a few days to many months
or even years. Generally speaking, the longer a pattern takes to form, the more dramatic the
ensuing prices move.
Implication of DOW THEORY

The Dow Theory is valid even in today’s volatile and technology driven market. The Dow
Theory addresses not only technological analysis and price action, but also price
philosophy.Dow Theory is broken down into six basic tenets.

Accumulati Public
on

Excess

Upstrea
m

The first tenet of Dow Theory is that the market has three trends; Up trends are defined as
a time when successive rallies in a security price close at levels higher than those achieved
in previous rallies; Downtrends, which are defined as when the market makes lower lows
and lower highs and Corrections, which are defined as a move after the market makes a
move sharply in one direction where the market recedes in the opposite direction before
continuing in its original direction.

In the graph shown above, it is shown that the share prices of Tata motors were increasing
in the year 2009, but it then suddenly decreased near the month of June’2009, but then
started increasing again.
The second tenet of Dow Theory is that trends have three phases; Accumulation, Public
participation and Excess. The accumulation phase is one in which the expert traders are
actively taking positions which are against the majority of people in the market. The public
participation phase, which is when the public at large catches on to what the experts know
and begin to trade in the same direction and in the Excess phase, where rampant
speculations occur and the “smart money” starts to exit their positions.

Upstrea
m

Primary
trend

Deviati

The third tenet of Dow Theory is that the market counts all news, meaning that once news
is released it is quickly reflected in the price of an asset.

In the case of Tata motors, as the market started recovering after December’2008, the share
prices started increasing but they again saw a decline, which may be attributed to the news
of breach of JLR contract with Ford Motors which may cause Rs.3bl panelty. The sales of
Tata motors decreased by 4% in June end’ 2009 which can be one more reason for the
decline in stock prices of Tata motors.

The above graph also illustrates the sixth tenet, which says that trends exist until definitive
signals prove that they have ended. The market may show moves which are against the
primary trend but this do not mean that the trend is over and the market will normally
resume its prior trend.

In the case of Tata motors, when the prices were decreasing during recession, the stock
price even increased once, but the market then again followed its prior trend of declining
prices.

SENSEX AND TATA MOTORS

Tenet four of Dow Theory is that the averages must confirm each other, that means that the
performance of related industries should move in one direction for the health of a particular
industry. When the performances diverge, it is warning that change is in the air. However,
we can see that the movement of stock prices of Tata motors and SENSEX are more or less
in the same direction. One thing which very clear is TATA motors react very badly
whenever there is a negative sentiments comes in market results. SENSEX comes down,
and TATA motors also comes down. Different sets of colored line in above chart prove
this fact.

Tenet five is that Trends are confirmed by volume. In case of Tata motors, when the people
stopped investing during recession, prices went down and after recession, when people
came back to the market, prices also increased.
1. Resistance & Support Level

This Technical tool helps in telling that what would be the price band of share price in
which it move in near future on the basis of past high and low levels made by a particular
scrip. Resistance Level shows the price above which share price will not move in normal
case. On the other hand, Support level shows the minimum share price which can be
touched by share or crossing of this share will not be there in normal market condition.
Following is the Resistance & Support level of Maruti Suzuki & TATA Motors for the
period of 2 months:

Resistance
Level
Rs.1425

Support level
RS.1275 approx.

(1-Jul-09 to 7-Sept- Resistance

Level
Rs.490 approx.

Support Level
Rs.430 approx.

As it is seen in the past 4

months TATA share price
moved up and it keeps
making on new level so
perfect resistance level
for this share is not easy
to predict as performance
of this share is very good
compare to all scrips of
The above band of resistance and support level shows that the price of shares will move in
between this range only until unless any wrong reaction came out in economy or when any
correction takes place the prices will move in between this band only.

2. Simple Moving Average (50 periods)-Medium Term

A Moving Average is an indicator that shows the average value of a security's price over a
period of time. The method of interpreting a moving average is to compare the relationship
between a moving average of the security's price with the security's price itself. In above
figure we have compare the share price of Tata Motor and Maruti with moving average of
50 period of Tata Motors, Maruti respectively.
A buy signal is generated when the security's price rises above its moving average and a
sell signal is generated when the security's price falls below its moving average.

3. Long Term Simple Moving Average (200 periods)

In the above chart Moving Average is an indicator that shows the average value of a
security's price over a period of time. We have compare the share price of Tata Motor and
Maruti with moving average of 200 period of Tata Motors, Maruti respectively by taking
share prices of 5 year to take out the Moving average for 200 periods. This Tool of 200
Periods tells us about the position of share to buy or sell for a long period say for 9-12
months.
A buy signal is generated when the security's price rises above its moving average and a
sell signal is generated when the security's price falls below its moving average. Yellow
area in the graph indicates Buy signal and Green area indicates Sell signal. In the near

Future, both the companies show Buy signal as their security prices rises above its moving
average. This shows that an investor can kept a hold position or can buy for longer period
of time but as we can see in case of Maruti the moving average line is also rising which
shows that Buy n hold position for very long period could be unprofitable a minor
correction in the share price can bring down the share price line and then moving average
line will easily cross the share price line.

CONCLUSION

Indian Automobile Industry is in the growth phase and the expected growth rate is 9-10%
for FY2009-10 as compared to last year growth rate which was just 0.7% and the above
facts and figures in our study also support this truth.

The Indian auto market is still untapped. The majority of the people in country don’t own a
four wheeler and all the major auto companies are trying to increase their sales by several
moves. Like TATA has launch NANO the people’s car and now TATA motors is also
planning to come out with an electric car as well as hybrid car, moreover in two wheeler
segment many companies like Mahindra and Mahindra grow even more than expectations.
From the Technical Analysis of both companies i come to know that the share price of
Maruti will move in the band of Rs.1275 to Rs.1425 and that of TATA Motors will move
in the range of Rs. 430 to Rs. 490 if certain correction made in the market.

I have also come to know that share price movement of TATA Motors is just according to
the movement of SENSEX, whenever there is a negative sentiment in the market regarding
TATA Motors there is a steep fall in the stock price of TATA Motors but we have seen
quick recovery in its share prices to regain its primary trend E.g. as we seen in last 3-4
months TATA recovers approx.90% after downfall.

By analyzing the current trend of Indian Economy and Automobile Industry I can say that
being a developing economy there is lot of scope for growth and this industry still have to
cross many levels so there is huge opportunities to invest in and this is proving as more and
more foreign Companies setting up there ventures in India.

BIBLIOGRAPHY

www.bseindia.com
www.googlefinance.com
www.yahoofinance.com
www.google.co.in
www.moneycontrol.com
www.worldfact.com
www.rbi.org.in