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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

CHAPTER- 1 INTRODUCTION

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

1.1INTRODUCTION Investing, like marriage, isn't something that should be entered into lightly. You wouldn't get married on a first date, would you? Ok, maybe some of us would, but that's not really very Foolish. Before we marry... er, I mean invest in a company, there are more than a few things we need to know about it. Securities Analysis An analysis of securities and the organization and operation of their markets. The determination of the risk reward structure of equity and debt securities and their valuation. Special emphasis on common stocks. Other topics include options, mutual fluids and technical analysis. Technical analysis is a method of predicting price movements and future market trends by studying charts of past market action which take into account price of instruments, volume of trading and, where applicable, open interest in the instruments. Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument. Main differences between the two types of analysis: Fundamental analysis Technical analysis actually

Focuses on what ought to Focuses on what happen in a market happens in a market

Factors involved in price Charts are based on market analysis: action involving: 1. Supply and demand 1. Price 2. Seasonal cycles 2. Volume 3. Weather 3. Open interest (futures 4. Government policy only)

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1.2RATIONALEFORTHESTUDY In an industry plagued with skepticism and a stock market increasingly difficult to predict and contend with, if one looks hard enough there may still be a genuine aid for the Day Trader and Short Term Investor. The price of a security represents a consensus. It is the price at which one person agrees to buy and another agrees to sell. The price at which an investor is willing to buy or sell depends primarily on his expectations. If he expects the security's price to rise, he will buy it; if the investor expects the price to fall, he will sell it. These simple statements are the cause of a major challenge in forecasting security prices, because they refer to human expectations. As we all know firsthand, humans expectations are neither easily quantifiable nor predictable. If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove
Fundamental analysis and technical analysis can co-exist in peace and complement each other. Since all the investors in the stock market want to make the maximum profits possible, they just cannot afford to ignore either fundamental or technical analysis.

1.3OBJECTIVESOFTHESTUDY

PrimaryObjective: a) To do technical and fundamental analysis of chosen securities Sub-Objectives:


a) to study the various theories of technical analysis and fundamental analysis

b) understand the movement and performance of stocks


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c) understanding and analyzing the factors that affect the movement of stock prices in the Indian Stock Markets
1.4RESEARCHMETHODOLOGY&DESIGN TYPE OF STUDY The research has been based on secondary data analysis. The study has been exploratory as it aims at examining the secondary data for analyzing the previous researches that have been done in the area of technical and fundamental analysis of stocks. The knowledge thus gained from this preliminary study forms the basis for the further detailed Descriptive research. In the exploratory study, the various technical indicators that are important for analyzing stock were actually identified and important ones short listed. SAMPLE DESIGN The sample of the stocks for the purpose of collecting secondary data has been selected on the basis of Random Sampling. The stocks are chosen in an unbiased manner and each stock is chosen independent of the other stocks chosen. SAMPLE SIZE The sample size for the number of stocks is taken as 10 for technical analysis and 4 for fundamental analysis of stocks as fundamental analysis is very exhaustive and requires detailed study.

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CHAPTER- 2 FUNDAMENTAL ANALYSIS A CONCEPTUAL OVERVIEW

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Fundamental analysis refers to the study of the core underlying elements that influence the economy of a particular entity. It is a method of study that attempts to predict price action and market trends by analyzing economic indicators, government policy and societal factors (to name just a few elements) within a business cycle framework.

I. ECONOMIC ANALYSIS:
POLITICO-ECONOMIC ANALYSIS:
No industry or company can exist in isolation. It may have splendid managers and a tremendous product. However, its sales and its costs are affected by factors, some of which are beyond its control - the world economy, price inflation, taxes and a host of others. It is important, therefore, to have an appreciation of the politico-economic factors that affect an industry and a company. The political equation A stable political environment is necessary for steady, balanced growth. If a country is ruled by a stable government which takes decisions for the long-term development of the country, industry and companies will prosper. Foreign Exchange Reserves A country needs foreign exchange reserves to meet its commitments, pay for its imports and service foreign debts. Foreign Exchange Risk This is a real risk and one must be cognizant of the effect of a revaluation or devaluation of the currency either in the home country or in the country the company deals in. Restrictive Practices Restrictive practices or cartels imposed by countries can affect companies and industries. crystallizing the exposure. Foreign Debt and the Balance of Trade Foreign debt, especially if it is very large, can be a tremendous burden on an economy. India pays around $ 5 billion a year in principal repayments and interest payments. Inflation

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES Inflation has an enormous effect in the economy. Within the country it erodes purchasing power. As a consequence, demand falls. If the rate of inflation in the country from which a company imports is high then the cost of production in that country will automatically go up. The Threat of Nationalization The threat of nationalization is a real threat in many countries the fear that a company may become nationalized. Interest Rates A low interest rate stimulates investment and industry. Conversely, high interest rates result in higher cost of production and lower consumption. Taxation The level of taxation in a country has a direct effect on the economy. If tax rates are low, people have more disposable income. Government Policy Government policy has a direct impact on the economy. A government that is perceived to be proindustry will attract investment.

THE ECONOMIC CYCLE:


It affects investment decisions, employment, demand and the profitability of companies. The four stages of an economic cycle are: Depression Recovery Boom Recession Depression At the time of depression, demand is low and falling. Inflation is high and so are interest rates. Companies, crippled by high borrowing and falling sales, are forced to curtail production, close down plants built at times of higher demand, and let workers go. Recovery During this phase, the economy begins to recover. Investment begins anew and the demand grows. Companies begin to post profits. Conspicuous spending begins once again. Boom In the boom phase, demand reaches an all time high. Investment is also high. Interest rates are low. Gradually as time goes on, supply begins to exceed the demand. Prices that had been rising Rohit nayyar - IIPM Page 9

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES begin to stabilize and even fall. There is an increase in demand. Then as the boom period matures prices begin to rise again. Recession The economy slowly begins to downturn. Demand starts falling.. Interest rates and inflation are high. Companies start finding it difficult to sell their goods. The economy slowly begins to downturn.

II. INDUSTRY ANALYSIS


The importance of industry analysis is now dawning on the Indian investor as never before. Cycle The first step in industry is to determine the cycle it is in, or the stage of maturity of the industry. All industries evolve through the following stages: 1. Entrepreneurial, sunrise or nascent stage 2. Expansion or growth stage 3. Stabilization, stagnation or maturity stage, and 4. Decline or sunset stage to properly establish itself. In the early days, it may actually make losses.

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES The Entrepreneurial or Nascent Stage At the first stage, the industry is new and it can take some time for it to properly establish itself. The Expansion or Growth Stage Once the industry has established itself it enters a growth stage. As the industry grows, many new companies enter the industry. The Stabilization or Maturity Stage After the halcyon days of growth, an industry matures and stabilizes. Rewards are low and so too is the risk. Growth is moderate. Though sales may increase, they do so at a slower rate than before. Products are more standardized and less innovative and there are several competitors. The Decline or Sunset Stage Finally, the industry declines. This occurs when its products are no longer popular. This may be on account of several factors such as a change in social habits The film and video industries. 1. BARRIER TO ENTRY New entrants increase the capacity in an industry and the inflow of funds. The question that arises is how easy is it to enter an industry ? There are some barriers to entry: a) Economies of scale b) Product differentiation c) Capital requirement d) Switching costs e) Access to distribution channels f) Cost disadvantages independent of scale g) Government policy h) Expected retaliation j) International cartels 2. THE THREAT OF SUBSTITUTION New inventions are always taking place and new and better products replace existing ones. An industry that can be replaced by substitutes or is threatened by substitutes is normally an industry one must be careful of investing in. An industry where this occurs constantly is the packaging industry -bottles replaced by cans, cans replaced by plastic bottles, and the like. To ward off the threat of substitution, companies often have to spend large sums of money in advertising and promotion. 3. BARGAINING POWER OF THE BUYERS In an industry where buyers have control, i.e. in a buyer's market, buyers are constantly forcing prices down, demanding better services or higher quality and this often erodes profitability. The factors one should check are whether: Rohit nayyar - IIPM Page 11

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES a) A particular buyer buys most of the products (large purchase volumes). If such buyers withdraw their patronage, they can destroy an industry. They can also force prices down. b) Buyers can play one company against another to bring prices down. 4. BARGAINING POWER FOR THE SUPPLIERS An industry unduly controlled by its suppliers is also under threat. This occurs when: a) The suppliers have a monopoly, or if there are few suppliers. b) Suppliers control an essential. c) Demand for the product exceeds. d) The supplier supplies to various industries. e) The switching costs are high. f) The supplier's product does not have a substitute. g) The supplier's product is an important input for the buyer's. h) The buyer is not important to the supplier. i) The supplier's product is unique. 5. RIVALRY AMONG COMPETITORS Rivalry among competitors can cause an industry great harm. This occurs mainly by price cuts, heavy advertising, additional high cost services or offers, and the like. This rivalry occurs mainly when: a) There are many competitors and supply exceeds demand. Companies resort to price cuts and advertise heavily in order to attract customers for their goods. b) The industry growth is slow and companies are competing with each other for a greater market share. c) The economy is in a recession and companies cut the price of their products and offer better service to stimulate demand. d) There is lack of differentiation between the product of one company and that of another. In such cases, the buyer makes his choice on the basis of price or service. e) In some industries economies of scale will necessitate large additions to existing capacities in a company. The increase in production could result in over capacity & price cutting. f) Competitors may have very different strategies in selling their goods and in competing they may be continuously trying to stay ahead

III. COMPANY ANALYSIS:


At the final stage of fundamental analysis, the investor analyzes the company. This analysis has two thrusts: How has the company performed vis--vis other similar companies and How has the company performed in comparison to earlier years It is imperative that one completes the politico economic analysis and the industry analysis before a company is analyzed because the company's performance at a period of time is to an

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES extent a reflection of the economy, the political situation and the industry. What does one look at when analyzing a company? The different issues regarding a company that should be examined are: The Management The Company The Annual Report Ratios Cash flow

THE MANAGEMENT:
The single most important factor one should consider when investing in a company and one often never considered is its management. In India management can be broadly divided in two types: Family Management Professional Management

THE COMPANY:
An aspect not necessarily examined during an analysis of fundamentals is the company. A company may have made losses consecutively for two years or more and one may not wish to touch its shares - yet it may be a good company and worth purchasing into. There are several factors one should look at. 1. How a company is perceived by its competitors? One of the key factors to ascertain is how a company is perceived by its competitors. It is held in high regard. Its management may be known for its maturity, vision, competence and aggressiveness. The investor must ascertain the reason and then determine whether the reason will continue into the foreseeable future. 2. Whether the company is the market leader in its products or in its segment Another aspect that should be ascertained is whether the company is the market leader in its products or in its segment. When you invest in market leaders, the risk is less. The shares of market leaders do not fall as quickly as those of other companies. There is a magic to their name that would make individuals prefer to buy their products as opposed to others. 3. Company Policies The policy a company follows is also important. What is its plans for growth? What is its vision? Every company has a life. If it is allowed to live a normal life it will grow upto a point and then begin to level out and eventually die. It is at the point of leveling out that it must be given new life. This can give it renewed vigour and a new lease of life. Rohit nayyar - IIPM Page 13

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4. Labour Relations Labour relations are extremely important. A company that has motivated, industrious work force has high productivity and practically no disruption of work. On the other hand, a company that has bad industrial relations will lose several hundred mandays as a consequence of strikes and go slows. 5. Where the company is located and where its factories are? One must also consider where the companies Plants and Factories are located.. THE ANNUAL REPORT: The primary and most important source of information about a company is its Annual Report. By law, this is prepared every year and distributed to the shareholders. Annual Reports are usually very well presented. A tremendous amount of data is given about the performance of a company over a period of time. The Annual Report is broken down into the following specific parts: A) The Director's Report, B) The Auditor's Report, C) The Financial Statements, and D) The Schedules and Notes to the Accounts. A. The Directors Report The Directors Report is a report submitted by the directors of a company to its shareholders, advising them of the performance of the company under their stewardship. 1. It enunciates the opinion of the directors on the state of the economy and the political situation vis--vis the company. 2. Explains the performance and the financial results of the company in the period under review. This is an extremely important part. The results and operations of the various separate divisions are usually detailed and investors can determine the reasons for their good or bad performance. 3. The Directors Report details the company's plans for modernization, expansion and diversification. Without these, a company will remain static and eventually decline. 4. Discusses the profit earned in the period under review and the dividend. Recommended by the directors. This paragraph should normally be read with some skepticism, as the directors will always argue that the performance was satisfactory. If adverse economic conditions are usually at fault. 5. Elaborates on the directors' views of the company's prospects in the future. 6. Discusses plans for new acquisition and investments. An investor must intelligently evaluate the issues raised in a Directors Report. Industry conditions and the management's knowledge of the business must be considered. B. The Auditor's Report Rohit nayyar - IIPM Page 14

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES The auditor represents the shareholders and it is his duty to report to the shareholders and the general public on the stewardship of the company by its directors. Auditors are required to report whether the financial statements presented do, in fact, present a true and fair view of the state of the company. Investors must remember that the auditors are their representatives and that they are required by law to point out if the financial statements are not true and fair.. C.Financial Statements The published financial statements of a company in an Annual Report consist of its Balance Sheet as at the end of the accounting period detailing the financing condition of the company at that date, and the Profit and Loss Account or Income Statement summarizing the activities of the company for the accounting period. BALANCE SHEET The Balance Sheet details the financial position of a company on a particular date; of the company's assets (that which the company owns), and liabilities (that which the company owes), grouped logically under specific heads. It must however, be noted that the Balance Sheet details the financial position on a particular day and that the position can be materially different on the next day or the day after. SOURCES OF FUNDS SHAREHOLDERS FUNDS SHARE CAPITAL (i) Private Placement (ii) Public Issue iii) Rights issues RESERVES i) Capital Reserves ii) Revenue Reserves LOAN FUNDS i) Secured loans: ii) Unsecured loans FIXED ASSETS INVESTMENTS STOCK OR INVENTORIES i) Raw materials ii) Work in progress iii) Finished goods CASH AND BANK BALANCES LOANS AND ADVANCES PROFIT AND LOSS ACCOUNT The Profit and Loss account summarizes the activities of a company during an accounting period which may be a month, a quarter, six months, a year or longer, and the result achieved by Rohit nayyar - IIPM Page 15

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES the company. It details the income earned by the company, its cost and the resulting profit or loss. It is, in effect, the performance appraisal not only of the company but also of its management- its competence, foresight and ability to lead.

RATIOS:
Ratios express mathematically the relationship between performance figures and/or assets/liabilities in a form that can be easily understood and interpreted. No single ratio tells the complete story Ratios can be broken down into four broad categories: (A) Profit and Loss Ratios These show the relationship between two items or groups of items in a profit and loss account or income statement. The more common of these ratios are: 1. Sales to cost of goods sold. 2. Selling expenses to sales. 3. Net profit to sales and 4. Gross profit to sales. (B) Balance Sheet Ratios These deal with the relationship in the balance sheet such as : 1. Shareholders equity to borrowed funds. 2. Current assets to current liabilities. 3. Liabilities to net worth. 4. Debt to assets and 5. Liabilities to assets. (C) Balance Sheet and Profit and Loss Account Ratios. These relate an item on the balance sheet to another in the profit and loss account such as: 1. Earnings to shareholder's funds. 2. Net income to assets employed. 3. Sales to stock. 4. Sales to debtors and 5. Cost of goods sold to creditors. (D) Financial Statements and Market Ratios These are normally known as market ratios and are arrived at by relative financial figures to market prices: 1. Market value to earnings and 2. Book value to market value. (a) Market value (b) Earnings Rohit nayyar - IIPM Page 16

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES (c) Profitability (d) Liquidity (e) Leverage (f) Debt Service Capacity (g) Asset Management/Efficiency (h) Margins. The major ratios that are considered: (i) Market value (ii) Price- earnings ratio (iii) Market-to-book ratio (iv) Earnings (v) Earning per share (vi) Dividend per share (vii) Dividend payout ratio (viii) Leverage ratios (ix) Return on investments/total assets

CASH FLOW:
A statement of sources and uses begins with the profit for the year to which are added the increases in liability accounts (sources) and from which are reduced the increases in asset accounts (uses). The net result shows whether there has been an excess or deficit of funds and how this was financed. Investors must examine a company's cash flow as it reveals exactly where the money came from how it was utilized. Investors must be concerned if a company is financing either its inventories or paying dividends from borrowings without real growth as that shows deterioration.

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CHAPTER-3 ANALYSIS

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I FUNDAMENTAL ANALYSIS OF STOCKS Basicallyfundamentalanalysisiscoveredin3parts:


1. Market/ economy analysis 2. Industry Analysis 3. Company Analysis

1) TATA MOTORS I Market/ Economy Analysis


It covers the macro economy analysis and the various macro economic factors on the national level like GDP, Monetary policies of India, Fiscal Policies and Inflation and money supply etc.

GDP
In the Current Scenario, The countrys GDP growth rate for 2009-10 might be in the range of 4.8 to 5.5 per cent, the Indian Council for Research on International Economic Relations (ICRIER) has said, reflecting the likely intensification of domestic economic slowdown. Real GDP growth accelerated from 7.5 per cent during 2004-05 to 8.4 per cent during 2005-06 on the back of buoyant manufacturing and services activity supported by a recovery in the agricultural sector. Real GDP growth has, thus, averaged over eight per cent during the last three years and over seven per cent in the first four years (2002-03 to 2005-06) of the Tenth Five Year Plan. Strengths of India today are: A well diversified industrial base which profits from self-reliance in all core industries .A large & sophisticated financial architecture - The robust capital Markets today have over 9000 listed companies and boast of a massive Market capitalization. A healthy GDP composition with agriculture contributing 22%, Industry 22% and services, which have gone strength to strength, accounting. For 56% of the GDP an acknowledged Rohit nayyar - IIPM Page 19

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES strength in knowledge driven industries like Information technology, biotechnology, entertainment Software etc India has Over 3 million scientific & technical manpower, Over 0.6 million S&T post graduates, Over 0.7 million graduate engineers, Over 3500 doctorates in sciences every year. Assuming trend growth in agriculture under normal monsoon conditions and barring domestic or external shocks, the Reserve Bank in its Annual Policy Statement for 2007-08 (April 2007) placed real GDP growth, for policy purposes, in the range of 7.5-8.0 per cent during 2007-08. Growth prospects are, however, subject to a number of downside risks. The risks emanating from the global economy are: potential escalation and volatility in international crude oil prices, firming up of overall inflationary pressures and expectations, and a hardening of international interest rates along with the withdrawal of monetary accommodation. Indias demographic advantage In contrast to developed Countries, India will have a younger population for the next 50 years. Hence India would be the hub for R&D.

Inflation
Inflation was contained to .26 per cent by end-April 2009 within the indicative trajectory of 5.05.5 per cent during 2008-09. The actual inflation was considerably lower than the indicative trajectory and this could be mainly attributed to the deferred pass-through of even the cognisable permanent component of international crude oil prices.

Money Supply
Monetary and liquidity conditions remained largely comfortable during 2008-09 reflecting proactive liquidity management operations by the Reserve Bank under the liquidity adjustment facility, flexible management of issuances under the market stabilisation scheme, and some private placement of Government securities

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES In short, the Indian economy is exhibiting strong fundamentals and displaying considerable resilience. At the same time, there are continuing signs of demand pressures, especially high credit growth, that could exert upward pressure on prices when associated with supply shocks such as from oil. These pressures have the potential for impacting stability and inflation expectations. While domestic developments continue to dominate the economy, global factors tend to gain more attention now than before. The global outlook for growth is positive but downside risks in regard to inflation also RBI is applying new repo and reverse repo for the balance of inflation and monetary policies. The following are macroeconomic policies, generally found as part of government-directed industrial auto policies (a) Restrictions on domestic and foreign investment. (b) Domestic content requirements (c) High tariff walls (d) Auto export requirements (e) National production to sales ratios (f) Distribution controls (g) Quotas and licensing requirements that significantly restrict imports (h) Government approval for product related decisions, including vehicle make, body type, engine size, etc. (i) Special government categories for auto taxes

II INDUSTRY ANALYSIS
Since, 1991 opening of the economy has changed the face of auto industry. Today, it is amongst the main drivers of growth of Indian economy with an output multiplier of 2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the economy). In recent years we have seen increasing number of global players entering Indian market by way of Joint ventures, collaborations or wholly owned subsidiary Rohit nayyar - IIPM Page 21

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES The automobile industry is torn between trying to reduce costs on the one hand and, on the other, dealing with the high price of performance-enhancing technology and environmental compliance. Key drivers in the automotive industry are: Reducing air pollution Reduction of weight Recyclability Safety Better performance and engine efficiency Aesthetics Longer service Life

How would India auto industry fare in 2009?


In 2009 estimated rate of growth of India auto industry is going to be 9 percent. Auto industry in India has been hit hard by ongoing global financial recession. Sales figures of India automobile industry for December 2008 have shown devastating after effects of global financial slowdown.

However, there is still hope for automobile industry of India in 2009 as there are certain factors working in its favor. India is blessed with a middle class, which is getting economically stronger with every passing day. This class is being touted as potential consumers for India auto industry in years to come. Indian economy has been, more or less, able to withstand tremors of global financial meltdown. Even though its rate of growth has slowed down considerably, there are hopes of an economic revival. Work force of auto industry of India is relatively well trained. All these factors indicate that there could be a decent future for India auto industry in days to come.

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India automobile market


India automobile market is likely to be in good shape in 2009. Much of this optimism results from renewed interest being shown in India auto industry by reputed overseas car makers. Nissan Motors, which is a well known Japanese car making company, regards India automobile market as a global car manufacturing hub for future. Hyundai, a major automobile establishment of South Korea, has put in large sums of money in India automobile market. As per its estimates, India auto industry could become a major center for small car manufacturing organizations in future. There are some other automobile companies of world who have shown interest in India auto market. Major names among these are General Motors, Skoda Auto and Mercedes-Benz. These companies have major plans lined up for India auto industry and are likely to invest a huge amount of money in India automobile market.

India domestic auto industry


India domestic auto industry has been passing through a tough phase in 2008 and such a trend is supposed to continue in 2009 as well. Leading members of India auto industry have forecast a difficult path in 2009. Shinzo Nakanishi, managing director of Maruti Suzuki, has said that 2009 would present them with a number of challenges. fitted greatly from China auto insurance policies. One example is Huatai Insurance Co, which generates 70 percent of its income from these policies. INDUSTRY LIFE CYCLE: The automobile market is at the maturity stage of the life cycle, locally and globally, due to an increased number of competitors from domestic and foreign markets. The automobile market is characterized by a low potential for market growth, but high sales and profit potential as the products have still not saturated the market as a whole. Rohit nayyar - IIPM Page 23

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

MAJOR COMPETITORS OF TATA MOTORS ARE Maruti Udyog Ltd. General Motors India Ford India Ltd. Eicher Motors Bajaj Auto Hero Motors Hindustan Motors Hyundai Motor India Ltd. Royal Enfield Motors Telco TVS Motors FINANCIALS

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1 Day Price Market Change Cap % LongPrice Div. Term ROE to Yield Debt % Book % to Equity Value Net Profit Priceto Margi Free Cash Flow n % (mrq) (mrq)

Description

P/E

Sector: Consumer Goods

0.11

2517.8 24.8 17.0 2.2 10.7 1.17 7.06 408.42 B 8 7 2 6 331.0B 30.0 1.7 7.50 1.81 1.55 1.60 -4.40 0 1 10.7 11.1 3.5 9 0 2 2.4 NA 9.51 0 3.4 NA 62.8 0 5 11.5 16.5 1.0 4 0 2 18.6 NA 1.5 4 0 13.9 15.0 1.2 5 0 4 2.17 1.16 4.69 -3.54 11.0 1.15 -0.60 -82.05 7 3.90 1.42 -6.21 0.14 0.83 1.73 5.52 207.48
NA

Industry: Auto Manufacturers - Major (More 0.61 Info)


Companies

Daimlerchrysler AG (DCX) Ford Motor Co. (F) General Motors Corporation (GM) Honda Motor Co. Ltd. (HMC) Tata Motors Ltd. (TTM) Toyota Motor Corp. (TM)

0.21 1.21

53.9B 15.7B

-0.24 16.5B 0.83 62.2B

-0.38 7.1B 0.73 175.6B

5.35 5.64

NA NA

1.03 1.97 6.59

Opportunities and Threats


a) Opportunities Road Development: The ongoing road development program would improve connectivity to ports, cities and villages through a network of highways and interconnecting roads by 2010-11. Improved road network would help in faster movement of goods between various cities and towns. The Company launched TATA Novus range of vehicles in the heavy segment and TATA ACE for last mile distribution. Car penetration in India: Car penetration in India is 7 cars per 1,000 persons. International: In FY 2006-07, the Company increased share of its overseas vehicle sales from 7.6% last year to record high of 11.1% (as % of its total sales) and has planned further increase in this year. Rohit nayyar - IIPM Page 25

TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

b) Threats Global Competition: India is increasingly attracting global players to set up manufacturing facility for producing cars, especially small cars. Global automobile manufacturers are also entering India in commercial vehicle segment to leverage Indias low cost production advantage to their favor. Fuel Prices: The continuing fuel price increase in the domestic market could significantly impact demand of commercial and passenger vehicles. Input costs: Commodity items particularly steel, non-ferrous metals, rubber and engineering plastics have witnessed huge price increases in the past. These prices are expected to increase further affecting the Companys profitability. Interest rate hardening and other inflationary trends: With interest rates hardening and liquidity crunch in the system, growth in sales may be adversely impacted. Government Regulations: Stringent emission and safety requirements could bring new complexities for automotive and component manufacturers impacting the Companys business.

Risks and Concerns:


Interest Rates: FY 2007-08 started with increasing interest rate regime and tightening liquidity position in the economy. Increasing interest rates could further affect vehicle demand which could have an adverse impact on the Companys revenues and profits. Exchange rates: The Company exports vehicles to many countries and exchange rate fluctuations in the order execution period could impact the Companys business. Freight rates: In FY 2006-07, freight rates in road transport sector moved up mainly due to surge in construction activity, ongoing road development projects and severe restriction on overloading. Demand for commercial vehicles could be impacted by further change in freight rates and change in fuel prices.

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES Domestic market: The Company plans to reduce the impact of this cyclicality on its business, by strengthening its less cyclical businesses like buses, light trucks, small commercial vehicles. Overseas market: In overseas markets, the Company competes with global players which have multiple vehicle platforms, large financial capability and global branding. Manufacturing: The Company manufactures vehicles at multiple locations and given the geographical dispersion of its suppliers it faces Logistics Problems. New Competition: Competitive activity is expected to increase in commercial vehicle and passenger vehicle domestic market in coming years. New projects: The Company currently is in midst of executing many new projects ranging from launch of new car platforms to development of new Truck models.

III CompanyAnalysis
Key Highlights
Symbol: TTL Sector: Consumer Goods Industry: Auto Manufacturers Major Market Cap: Rs.29232 crores Data Since: 1945 Last close: Rs. 742.90

Brief Summary of the company


Tata Motors is one of the largest companies in the Tata Group with a total income of US$ 2.35 billion*. More than 3 million Tata vehicles ply on Indian roads making Tata a dominant force in the Indian automobile industry.

Joint Venture with Fiat and Hitachi

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES Tata Motors has decided to enter into a 50-50 JV with Fiat, at Pune, for manufacturing passenger vehicles, engines and transmissions for both, domestic and international markets.. The Company has also entered into a JV with Hitachi, to set up a new plant in Kharagpur

Product Mix
Tata Motors is India's only fully integrated automobile manufacturer with a portfolio that covers trucks, buses, utility vehicles and passenger cars. It would be no exaggeration to say that Tata Motors provides the wheels for India's growth.

Segmental Overview
CommercialVehicleSegment The Company registered 69.6% volume growth in the domestic CV segment during 4QFY06, from 37,228 units in Q3FY05 to 63,082 units in Q3FY06. The market share in this segment was 65.8% in Q4FY06, as compared to 55.2% in Q1FY06. The M/HCV goods-carrier segment registered a 54.4% growth YoY, with sale of 33,515 units and a market share of 64.5%, up by around 410 bps, driven by infrastructure development and increase in international trade. Passenger Vehicle Segment The Company reported a growth of 21.2% YoY, to 49,907 vehicles, in the domestic passenger vehicle segment and a market share of 16.2% in the quarter. The passenger vehicle industry registered a volume growth of 20.4% during Q4FY06

Plants
Tata Motors owes its leading position in the Indian automobile industry to its strong focus on indigenisation. Their manufacturing plants are situated at Jamshedpur in the East, Pune in the West and Lucknow in the North.

Charts showing Key Statistics of tata motors.

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Share holding pattern as on 31-Mar


shareholding pattern

10% 1 7% 34% p m to M ro o rs F B n , F FIIs a ks is O thers Public 2 5% 14%

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Financial highlights

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

RATIO ANALYSIS
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KeyStatistics
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Data provided by Capital IQ, except where noted.

VALUATION MEASURES

Market Cap (intraday) : Enterprise Value (20-May-09) : Trailing P/E (ttm, intraday): Forward P/E (fye 31-Mar-10) : PEG Ratio (5 yr expected): Price/Sales (ttm): Price/Book (mrq): Enterprise Value/Revenue (ttm) : Enterprise Value/EBITDA (ttm) :
3 3 1 3

3.47B 5.10B 8.41 45.00 6.80 0.48 1.94 0.68 5.767

FINANCIAL HIGHLIGHTS

Fiscal Year Fiscal Year Ends: Most Recent Quarter (mrq): 31-Mar 31-Mar-08

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Profitability Profit Margin (ttm): Operating Margin (ttm): 6.06% 9.61%

Management Effectiveness Return on Assets (ttm): Return on Equity (ttm): 7.03% 25.95%

Income Statement Revenue (ttm): Revenue Per Share (ttm): Qtrly Revenue Growth (yoy): Gross Profit (ttm): EBITDA (ttm): Net Income Avl to Common (ttm): Diluted EPS (ttm): Qtrly Earnings Growth (yoy): 7.47B 19.39 8.90% 1.93B 883.62M 454.46M 1.07 -35.30%

Balance Sheet Total Cash (mrq): Total Cash Per Share (mrq): Total Debt (mrq): Total Debt/Equity (mrq): Current Ratio (mrq): Book Value Per Share (mrq): 803.62M 2.084 2.43B N/A 1.019 4.65

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

Cash Flow Statement Operating Cash Flow (ttm): Levered Free Cash Flow (ttm): 1.17B 210.11M

View Financials (provided by EDGAR Online):

TRADING INFORMATION

Stock Price History Beta: 52-Week Change : S&P500 52-Week Change : 52-Week High (20-May-08) : 52-Week Low (02-Mar-09) : 50-Day Moving Average : 200-Day Moving Average :
3 3 3 3 3 3

2.32 -43.11% -35.75% 16.02 3.05 7.1842 5.0051

Share Statistics Average Volume (3 month) : Average Volume (10 day) : Shares Outstanding : Float: % Held by Insiders :
1 5 3 3

1,445,540 2,400,470 385.66M 272.86M 33.66%

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1

% Held by Institutions : Shares Short (as of 27-Apr-09) : Short Ratio (as of 27-Apr-09) : Short % of Float (as of 27-Apr-09) : Shares Short (prior month) :
3 3 3 3

7.40% 8.38M 4.5 N/A 7.92M

Dividends & Splits Forward Annual Dividend Rate : Forward Annual Dividend Yield : Trailing Annual Dividend Rate : Trailing Annual Dividend Yield : 5 Year Average Dividend Yield : Payout Ratio : Dividend Date : Ex-Dividend Date : Last Split Factor (new per old) : Last Split Date :
3 2 4 3 4 4 3 3 4 4

0.35 3.90% 0.352 3.90% N/A 76% 31-Jul-08 16-Jun-08 N/A

Therefore, the Weighted P/E ratio =(18.12+24.24)/2 = 21.181 Projected EPS = EPS OF 2006 + CAGR of EPS*EPS OF 2006 = Rs.48.271 Value of Share at the end of financial year 06-07 = Projected EPS * Weighted P/E Ratio = Rs.1022

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TECHNICAL AND FUNDAMENTAL ANALYSIS OF SECURITIES

II TECHNICAL ANALYSIS OF STOCKS


TATA MOTORS LIMITED
TATAMOTORS Date Close Trend Support Resistance Stop loss 12th February 2007 875.05 Down 810 895 795

How to trade according to the data mentioned above If an entry is made in front of support and the close is above the support, it means that one can buy the stock intraday during market hours at support and put an appropriate stop loss mentioned below. Once you have bought the stock intraday, put the Stop Loss accordingly mentioned and sell it before the market closes. If an entry is made in front of resistance and the close is less then resistance, it means that one can short the stock intraday during market hours at resistance and put an appropriate stop loss mentioned below. At close one should cover if one is an intraday trader. If we do not find the stock giving clear signal for intraday trading, than we will leave the support or resistance field empty.

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CHAPTER-4 CONCLUSION

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CONCLUSION
RECOMMENDATIONS: TATA MOTORS- At current market price , we should buy the share because of the following reasons: Since, 1991 opening of the economy has changed the face of auto industry. Today, it is amongst the main drivers of growth of Indian economy with an output multiplier of 2.24(for every Re.1 invested, auto sector gives back Rs.2.24 to the economy). Tremendous Growth -Tata Motors has decided to enter into a 50-50 JV with Fiat, at Pune, for manufacturing passenger vehicles, engines and transmissions for both, domestic and international markets.. The Company has also entered into a JV with Hitachi, to set up a new plant in Kharagpur.

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CHAPTER-5 BIBLIOGRAPHY

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BIBLIOGRAPHY
Benjamin Graham and David Dodd, Security Analysis (November, 1999)

WEBSITES: www.tradingday.com www.marketscreen.com www.icicidirect.com www.nseindia.com www.investopedia.com www.indiainfoline.com www.economictimes.com

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