Abstract/summary

Risk factors, arising due to the dynamic business environment, are

expected to have a great influence on the stock market returns. Investors
need to collect timely information on these risk factors so that
investments can be revisited, and necessary revision should be done to
reduce their impact on investment returns. This research attempted to
study risk and return of segments of different automobile companies
listed on the National Stock Exchange of India. Returns were measured
in terms of historical stock returns and reward to risk ratio. Risk was
measured as standard deviation and beta. The automobile segments
selected for the study were cars, motorcycles, scooters, and tractors. The
returns and risk were measured for four-time tenures, namely 1-year
tenure, 3-year tenure, 5-year tenure, and 10-year tenure. The basic
objective for this was to ascertain the risk and return variation across
time and segments. The literature evidence showed that only a very few
studies attempted to study the change in risk and returns employing
different time tenures.
The S&P BSE AUTO Index was at 29,830.2 and its down 0.3%. The
index is up 2.6% over the last 30 days. And over the last 1 year, it has
gained 12.7%.
Within the BSE Auto Index, the top gainers were TATA MOTORS is
to up 2.8% and ASHOK LEYLAND where up 0.7%. On the other
hand, EICHER MOTOR is down from 5.0% and ESCORTS KUBOTA
is down 1.9% were among the top losers.
Meanwhile, the benchmark S&P BSE SENSEX was at 61,795.0 (up
2.0%).
Keywords
Historical Returns, Standard Deviation, Beta,Automobile Segments, Risk,

1
 INDEX

Table of Contents

Introduction
1 8
1.1 Strategies of Risk Management
Literature Review
2 14

Objective of the study

3 21

Significance
4 22
Risk Factors for Automotive Industry
4.1
Risk assessment of Indian automotive
4.2
enterprises.
4.3
Equity analysis of automobile industry in
stock market.

Research Methodology
5 54

Data Analysis,and Interpretation

6 64

Conclusions and Suggestions

7 79

8 81
Bibliography

2
 Chapter 1

INTRODUCTION
Indian Automobile represents one of the largest automobile sectors in
world’s manufacturing two-wheeler and four-wheeler domestic and
commercial vehicles. The first imported car ran on Indian road in 1897
and first embryonic industry emerged in 1940s. Today, India
manufactures all type of vehicle and in large units of production in every
segment.

NIFTY Auto index represents one of index by National Stock Exchange

(NSE) India. It reflects performance and behaviour of listed Automobile
sector and includes all mid and large cap companies. Index represents
computation of movement based on free float market capitalization
method (FFMC) considering base rate of 1000 from January 2004.
Indian automobile sector includes large two-wheeler and four-wheeler
manufacturers, commercial and domestic vehicles. Variety of studies
explored volatility and price return on NIFTY Auto sector. Singh (2017)
suggested that various manufacturing industries depend upon automobile
industry in India, such as steel, rubber, glass, machine tools, robots,
electronics, software and numerous other industrial sectors.

3
According to official statistics provided by IBEF (India Brand Equity
Foundation), auto industry in India became the 4th largest in the world
with sales increasing 9.5 per cent year-on-year to 4.02 million units
(excluding two wheelers) in 2017 and it was the 7th largest manufacturer
of commercial vehicles in 2018. Spulbar et. al (2019) investigated the
issue of sustainable investing on Bombay Stock Exchange
(BSE) of India and suggested that emerging markets are characterized
by rather unstable economic and financial structure.

In economic environment of today, conditions remain challenging for

many, and risk management retains its position high on every
organization’s agenda. Businesses in the west are grappling with the
changes brought about by a post-downturn economy. Post recession,
investors seek a thorough risk assessment of the enterprise and the sector
before investing in it. In post-downturn economy, Indian and Chinese
economies have emerged as the new global growth locomotives
(Siddiqui, 2009). Enterprise risk management has been hotly debated in
boardrooms of many companies.
Companies realize their better capital value through increased
predictability and lower volatility the key factors contributing to

4
shareholder value. In this context enterprise risk management has
emerged in a new business trend. Many risk identification/assessment
tools developed to enable a management team to identify and assess
risks that their organizations are facing. In the recent past, a numbers of
the world's most widely respected companies have collapsed. Analysis's
have cited equally well known reasons for these collapses like nonviable
business models,

greed, incompetent management and lax regulatory environment. One

reason that is not often mentioned is the breadth and depth of these
companies' approach to risk management (Borison and Hamm, 2010).
The framework that we propose in this paper would help investors as
well as managers to analyze the susceptibility of an enterprise in
automotive sector to risk factors. The factors chosen and the resulting
Bayesian network would be different for different sectors.
The Bayesian network for a sector would depend on the
interdependencies of these factors. The Auto sector was chosen because
productivity in automotive industry in India is substantially higher than
other sectors and it has a huge potential for further improvement, which
in turn will pull up the competitiveness of entire manufacturing sector
(Draft Automotive Mission Plan, 2006-16) The Indian Automotive
Industry started its new journey from 1991 with delicensing of the sector
and subsequent opening up for 100 percent FDI through automatic route.

Since then almost all the global majors have set up their facilities in
India taking the production of vehicle from 2 million in 1991 to 15
million in 2011 (SIAM, 2011). The country with its rapidly growing
middle class (450 million in 2007, NCAER report), market oriented
stable economy, availability of trained manpower at competitive cost,

5
fairly well

6
developed credit and financing facilities and local availability of almost
all the raw materials at a competitive cost has offered itself as one of the
favourite destination for investment to the auto makers (Draft
Automotive Mission Plan, 2006-16).
According to the Society of Indian Automobile Manufacturers, annual
vehicle sales are projected to increase to 5 million by 2015 and more
than 9 million by 2020 and by 2050, the country is expected to top the
world in car volumes with approximately 611 million vehicles on the
nation's roads. The second section provides the motivation and need for
the framework presented in the paper.
The third section takes up discussion on risk, enterprise risk
management and risk assessment. In the section 4, the research
methodology has been described which includes a discussion on
Bayesian networks and assessment model description. These sections are
followed by results, analysis of results and discussions of limitations and
future research.

7
1.1 Strategies of Risk Management:-

The process of risk management in share market trading can be

categorized into the following strategies:

Adhering to market trends while trading is one strategy of risk

management. That involves buying stocks when their price goes down
and selling them when their price goes up. However, this strategy is
challenging to follow due to the rapidly fluctuating nature of the stock
market.

Another strategy for risk management is the diversification of

investment portfolios. Instead of investing in one particular stock or a
single category of stocks, investors spread their investments across
stocks in various financial sectors that are different in terms of the
factors that affect them. This strategy helps in the mitigation of losses by
minimizing the effect of any single stock investment.

Using stop-loss orders can be a particularly effective strategy for risk

management. Stop-loss order is used by investors who authorize their
brokers to sell stocks automatically when their price goes down to a
specified level. That protects the investors from excessive loss.

Investing in non-cyclical industries which produce essential goods is

another risk management strategy. These industries are relatively stable,
and thus investments in them are more insulated against market
fluctuations.

Hedging uses derivatives to fix the price of underlying assets and thus
insulate them somewhat from price fluctuations. This strategy is often
used in equity trade.

8
Investing in blue-chip – stocks from large stable companies with a
market reputation for efficiency and reliability – is another risk
management strategy. That is effective since market fluctuations have
less impact on such large companies than on smaller companies. Pairs
trading involves buying stocks of a company and simultaneously short-
selling the stocks of another company from the same sector to mitigate
risk from an anticipated price fluctuation

9
 Chapter 2
Literature Review

P. Karthika and Dr. P. Karthikeyan (2011)3 conducted a study that

compares stocks of selected companies from different sectors like
Information Technology, Automobiles, Banking, Pharmaceuticals, and
Oil Sectors in the form of their risk, return and liquidity. This study also
creates awareness about Stocks among the investors to invest in the
particular sectors. The study also analyses the risk return relationship of
the selected companies from different sectors. It also discusses the trade-
off using beta and standard deviations, coefficient of correlation tools
and provides a method for quantifying risk.

Laxman Raj Kandel (2018)4 this paper analyses the risk and return on
common stock investment of Nepalese stock market and it is focused on
common stock of two commercial banks listed in Nepal stock exchange
Limited. Investors have varying perception towards risk and enterprising
activities. They invest in those opportunities which have certain degree
of risk associated with it. This research study found that there is a
positive relationship between risk and return.

Drzik and Wyman (2005) analysed that while the 2000 recession was
admittedly a less severe test for banks than was the 1991 recession, the
substantial improvement in bank performance was at least partly
attributable to better risk management practices. An improved ability to

10
measure risk, improved decision-making processes about which risks to
take, improved diversification of bank credit portfolios, improved
pricing, and an improved ability to pass risk through to the capital
markets all added up to real progress, fewer losses and better
riskadjusted returns.

Sur (2007) examined in his study the BR and FR associated with NTPC
Ltd. in the pre- and post- liberalisation periods. The study observed that
the company, being a public enterprise, faced no serious competition in
the post-liberisation era and hence the BR of the company originating
from economy and industry-specific factors did not increase; rather, the
BR arising out of the company-specific factors reduced notably during
the post-liberalisation era.

Mallik and Sur (2009) in their study analysed the BR and FR in the
Indian corporate sector during the period 1995-96 to 2006-07 using
relevant statistical tools and techniques. Although a ‘high-low’
combination of BR and FR is theoretically desirable, the study reflected
no strong evidence of positive or negative relationship between the two.
The empirical results of the study on the relationship between BR and
operating profitability and that between financial risk and owners’
profitability provided evidence of the significant negative association
between them implying that high risk was not at all compensated by high
risk premium.

Sur and Mitra (2011) made a modest attempt to analyse the BR

associated with the selected Indian IT companies using Ginni’s

11
coefficient of mean difference and to ascertain the relative risk-return
status of the companies during the period 1999-2000 to 2008-09. Lack of
uniformity in respect of

12
risk-return trade off among the selected IT companies was noticed in the
study. Although a high degree of positive relationship between BR or its
company - specific components and overall profitability is theoretically
desirable, the analysis of interrelation between them made in this study
failed to show strong evidence of positive or negative association
between them

Sur et.al. (2014) in their study analysed the BR associated with 20

selected companies in the Indian FMCG sector during the period 1995-
96 to 2011-
12. The study revealed that the highest BR was faced by Colgate while
Godfrey enjoyed the least BR and it was found that LR, CSR and CPR
established themselves as significant contributors of the BR during the
study period. The study also observed that strong evidence of positive
relationship between BR and return was absent in the Indian FMCG
sector.

Based on the above discussion it can be inferred that some empirical

studies have so far been carried out in India on the issue relating to the
BR and FR associated with the players of the Indian corporate sector.
But, no significant study on the BR and FR in Indian Automobile
industry has been made in spite of the fact that this industry is one of the
key drivers of India’s economy, accounting for around 4 per cent of
India’s GDP and over 200,000 jobs (Source: Report of KPMG on The
Indian Automotive Industry, 2010). The industry has also witnessed
interesting dynamics in recent times with the effect of the global
downturn, followed by recovery in domestic as well as international
demand. Moreover, the past studies have provided divergent results on
the relationship between risk and return. Considering the stiff

13
competition that exists in the present day corporate world, the
understanding, analysing and measuring BR and FR

14
are immensely important to the corporate managers and executives so
that they can take necessary action to mitigate the loss wherever possible
or at least prepare themselves beforehand to face the challenges. Hence,
this is high time to make an attempt to bridge the gaps

Vikkraman P. et al. (2009) conducted an experimental ponder to identify

the chance and return included in venture of securities within the
showcase particularly with the Indian vehicle industry (2004- 2007). The
analyst examinations 5 major car companies in India that are Mahindra
& Mahindra Ltd, Maruti Suzuki India Ltd, Tata Engines Ltd, Hindustan
Engines Ltd. Beta (Precise hazard) and Alpha (return marker) were
utilized to fulfill the objective of investigate. These calculations can
offer assistance in certain examination that can be made for a clear
understanding approximately the speculation choice on these firms.

Srivastava Anubha (2014) evaluates performance of auto mobile sector

which found that execution of car division is straight forwardly related
to country’s financial status. With increase in demand and sales of car
will give new and wide opportunities to the financial specialist.

V. Pankunni (2015) conducted a study which shows importance of beta

and its linearity. Study reveals that beta has great impact on stock’s
return. Research is based on closing prices of 20 different companies
listed on Bombay stock exchange. It was also found that those
companies had high beta earning more returns than those having low
beta

15
Ratna Deepali (2017) inspected the appropriateness of CAPM in NSE.
Closing costs of beat ten companies on the premise of their advertise
capitalization from 2012 to 2016 had been considered. Analyst revealed
whether the securities are overestimate or underestimated by taking
advantage of CAPM so to assist the people interested in investing. It was
found that the difference between forecasted and real gain is very
significant at normal risk. This will help investor to forecast future
movement of stocks.

Suresh A.S & Sai Prakash L. (2018) studied the performance of twelve
nationalized banks listed NSE in terms of return, risk and beta for the
period 1st January 2016 to 31st December 2016. The study shows that
the shares of Yes bank and Federal bank have given positive returns
during the study period whereas the return of Axis bank, Bank of Baroda
and Bank of India were negative during same period. The beta of Bank
of India, Canara Bank, Punjab National Bank, State Bank of India, Axis
Bank, ICICI Bank and Yes Bank were more than one which tells that
these stocks carry a higher market risk

M.Muthugopalakrishnan(2017) analyzed Risk Return Analysis of

Pharmaceutical Industries in Indian Stock Market in this perspective has
statement been undertaken to analyze the risk return relationship of
selected companies in pharmaceutical industry of Indian stock market.
The investors must be aware of the risk and return involved in the
investment. This study helps the potential investors to make informed
and rational investment decision. The sample period of this study is five
years from 2012 to 2017. This study has attempted to find the risk return
characteristics of selected 10 pharmaceutical companies in Indian stock
market. The study concluded that from the selected pharmaceutical

16
companies Sun Pharmaceutical Industry Ltd provides high return but the
market risk of the shares are much high.

T.Mallikarjunappa and Shaini Naveen (2016) conducted a study on

comparative analysis of Risk and Return with reference to stocks of
CNX Bank Nifty. This study analyzes the risk and returns in the banking
sector. They compare the performance of the 12 listed banks in the Nifty
Bank Index. The study also analyses the performance of banking stocks
mainly to understand the required rate of return and risk of a particular
stock based on different risk elements prevailing in the market and
economic factors.

S. Krishnaprabha and Mr. M. Vijayakumar (2015) conducted a study on

Risk and Return analysis of selected stock in India. Risk and return
analysis play an important role in the decision making process of most of
the investors. Here, long term investors were able to take advantage of
the market as well as it is less volatile. As there is less fluctuation in the
shares when compared to the marketer as well as price, the long term
investors are able to predict when the share is increased. The majority of
IT, FMCG and Pharmaceutical Sectors give more return while compared
to Banking and Automobile sector.

Kulkarni Keerti et al. (2016) evaluates Beta investigation of chosen

stocks. The core behind the ponder is to assess the chance and return for
chosen company stocks. This think about would offer assistance the
speculators to know around the chance and return related with these
chosen stocks based on which financial specialists can take their venture
choice. This ponder was conducted for whole one month, i.e, from Walk

17
1 to Walk 31, 2016. The stock costs were taken from the NSE. They
have been utilized for calculating normal returns and Beta. The objective
behind calculating the normal returns and beta is to assist the speculators
arrives at a decision to contribute within the offers on the premise of
chance included in it conjointly to pick up information of the stock
showcase. INFRA, CEMENT and AUTOMOBILES companies were
taken in this investigate. It was found that all companies have less than
one beta esteem which suggests securities will be less unstable than the
advertise.

Laxman Raj Kandel (2018)4 this paper analyses the risk and return on
common stock investment of Nepalese stock market and it is focused on
common stock of two commercial banks listed in Nepal stock exchange
Limited. Investors have varying perception towards risk and enterprising
activities. They invest in those opportunities which have certain degree
of risk associated with it. This research study found that there is a
positive relationship between risk and return.

T. Mallikarjunappa and Shaini Naveen (2016)5 conducted a study on

Comparative Analysis of Risk and Return with Reference to Stocks of
CNX Bank Nifty. This study analyses the risk and returns in the banking
sector. They compare the performance of the 12 listed banks in the Nifty
Bank Index. The study also analyses the performance of banking stocks
mainly to understand the required rate of return and risk of a particular
stock based on different risk elements prevailing in the market and other
economic factors.

18
 Chapter 3

OBJECTIVES OF THE STUDY

 To analyze and compare risk and return of equity shares of selected

automobile companies in Indian stock market.
 To find out the extent of relationship between automobile companies
and market index.
 To analyze understand the price movements of selected firms
 To study calculate the return of the selected automobile companies
 To analyze the relationship between the returns of the selected
automobile companies.

19
 Chapter 4

Significance
The main objectives have been taken as the basis of research. First
objective is to analyze and compare risk and return of equity shares of
selected automobile companies which will help investors to know about
how much risk he will going to face and earn the return by investing in
these selected securities. They also compare the companies and to know
which companies will more risk and which will have more return. From
this he will make decision, which is profitable company to invest.
Second objective is to find the extent of relationship between automobile
companies and market index which will inform the investor how much
these shares of companies are related to the market index like S&P BSE.
Through which they will get to know about how much securities have
risk in relation to market index

4.1 Risk Factors for Automotive Industry: -

From literature on risk management in automotive sector, we were able

to list downfollowing 9 factors which could have an impact on net
income of an automotive enterprise:

a) High Competition

b) Demand Volatility

c) Exchange Rate Risk

20
d) Raw Material Price

e) Supply Chain Disruptions

f) Regulatory Risk

g) Economic Instability

h) Access to Credit

i) Liquidity Shock

After analysis of responses of 20 managers from industry, we

established that Access to Credit and Liquidity Shocks do not pose a
serious threat to Indian automotive enterprises. The remaining seven
factors have been grouped as below and later used to develop the
Bayesian network which is the risk assessment model for this paper.

21
RESEARCH ON THE AUTOMOTIVE INDUSTRY’S RISK INDEX

Most of the risk in the business is attributable to the current fluctuation

in exchange rates. An example of these would be the hedging rates
between the US dollars against the British pound of around 60%, and
hedging rates with the Japanese Yen which is even higher.

Another risk indicator in the industry trend would be the state of the
economy. If the economy recovers faster than expected, industry levels
that reached a high level in 2007 and 2008, is seen to be coming back
again. In the medium term, growth is seen to rise with expansion
opportunities in Asia and Eastern Europe as stated in Daimler's Report
on Automotive Opportunities and Risk.

Production of spare parts and car assembly are now going full blast in
China and Russia, with cooperation from local partners. Further change
is also seen in the development of automotive technology that affects
corporate sales and earnings. At this juncture, if can be perceived that
there is an apparent real risk and hazard of the trade.

RISK MANAGEMENT AND THE AUTOMOTIVE INDUSTRY: -

From automobile factories to dealers, the industry has experienced

unprecedented upheavals and pressures in all sectors in recent years. For
automakers, the stress points have practically remained the same:
competitive pricing, product quality, and new models to perk up the
competition. The manufacturers who have achieved these goals, showed
impressive growth rates in the last couple of years.

22
However, the market scenario for car dealers is not the same. Sales had
gone down by 18% – 20% in 2008 and 2009. As a result, car dealers
were forced to do other offerings to help fill up the void of dwindling
sales – used cars and after sales service to perk up their sales targets to
stay out of the red. Interesting to see would be how companies like
Klosters and their Newcastle based smash repairs business dealth with
tough economic crysis couple of years ago.

The severe economic downturn experienced from 2007 to 2009

practically reduced the industry to a halt: credit crisis, spiraling down of
new car sales, rising unemployment, and customer anxiety. This crisis
had a ripple effect that brought down two of the giants in the automotive
industry – General Motors and Chrysler.

Today's upheaval in the market arena represented a unique opportunity

for other Non-U. S. Automakers to enter the market – Honda, Hyundai,
and Kia among others. But companies gearing towards high volume
sales should pay heed to Toyota's experience in 2002 in its desire to
become the world's number one automaker. Their goals to garner 15%
market share meant a corporate growth rate of 50%. These resulted to
quality control issues that brought a wave of recalls in 2010.

These recalls, coupled with allegations of lax practices in quality control,

saw Toyota stumbling from a high of 17% market share in 2007 to
15.9% by 2010 (Casey Thormahlen and George Van Horn, Moving
Metal – Managing Risk In the New Automotive Marketplace).

Automotive Industry: What the future holds

The rapid evolution of technology has opened multiple doors for

innovation. Despite the economic plunge caused by the COVID-19
pandemic, industries all over the world are trying to recover. Even

23
better,

24
 they are coming back with greater visions. Industries have been
increasingly focusing on developing unique and innovative products
designed to address current needs while incorporating futuristic features.
The automotive industry is no exception.

For decades, car producers and Original Equipment Manufacturers

(OEMs) challenged themselves to offer customers a wide variety of cars,
equipped with the latest technologies. Opportunities in the automotive
industry seem nearly endless. However, two key trends are set to further
push the automotive industry forward in the long run: electrification and
connectivity. These trends are mainly driven by policy changes and
technology.

1.Initiatives & Regulations

Electrification in the automotive industry refers to the replacement of a

car’s Internal Combustion Engine (ICE) with an electric battery. Cars
equipped with such “Engine” are referred to as Battery Electric Vehicles
(BEVs), or simply EVs. One of their main benefits is their contribution
to greenhouse gas (GHG) emission reduction, which is highly
encouraged by policymakers and governments through various
initiatives and regulations. Among these is the European Union’s “Fit
for 55” program, which aims to reduce GHG emissions by 55% by 2030
(McKinsey, 2021). As for the US, President Biden announced a new
target of up to a 52% GHG reduction by 2030 (The White House, 2021).
In Asia, India aims for a 45% reduction target by the same year (BBC,
2021). However, China, the world’s number one in CO2 emissions, is
still behind in such initiatives, having announced that it would reduce
carbon emissions by 20% by 2035 and achieve neutrality by 2060 (IHS
Markit, 2021).

25
2.Incentives

Besides the regulations, governments have introduced several incentives

to encourage the use of EVs. In Europe, for instance, France and Poland
offer grants which can go up to EUR 6,000, if some conditions are met,
for the purchase of an electric or hybrid car. Italy provides incentives of
up to 40% of the purchase price as well as tax exemptions for the first 5
years. In the US, car buyers can benefit from a federal tax credit of up to
$7,500. In Asia, China proposed a tax exemption on purchases for 2
years, and India offers a subsidy of INR 10,000 ($136.4) per kWh.

3.Future projections

-scale EV production plant worldwideElectric vehicles are projected to

become more widely available globally. Some countries are even
planning to completely ban the sale of diesel cars, leaving electric
vehicles with essentially no competition.

In 2020, more than 10 million electric cars were on the road globally.
This number is set to grow to 300 million vehicles by 2030, according to
the Net Emissions by 2050 Scenario (IEA, 2021). OEMs are also
determined to increase their EV car production. According to the
research team of Credit Suisse Global Auto, the global EV production
share of total vehicle production is set to increase from 11% in 2020 to
62% in 2030, with the number of fully electric vehicles projected to
reach around 29 million. (Embedded Computing, 2021).

While these figures might seem too ambitious, many OEMs have
already started taking initiatives to reach that goal. For instance,
Volkswagen Group, converted its German plant in Zwickau to produce
EVs instead of ICE vehicles, making it the first large. Jaguar Land

26
Rover (JLR), on the

27
other hand, started on R&D of BEVs after a loan securement of EUR
749 million (Autovista, 2022). By 2030, several OEMs plan to reach
about 50% as an EV fleet.

Percentage of OEM EV Fleet Over Time

Source: Embedded Computing

Sales of EVs are forecasted to represent 60% of all new vehicle sales,
compared to 4.6% in 2020 (IEA, 2021).

28
 Projected EV Car Sales in Units

Source: International Energy Agency

4.Electric Vehicle Chargers Market

The electric vehicle charger market is also expected to grow at a CAGR

of 26.8% (2020-2027) to reach USD 25.5 billion by 2027.

A fast scenario projection done by the International Energy Agency sees

the number of chargers publicly available around the world reaching 2.5
million chargers by 2030, from only 385,678 chargers in 2020.

One example of government incentives encouraging charging

installation is France. The country offers a tax grant of up to EUR 300
per person for the installation of a charging station at home. This shows
the emphasis governments place on making sure that it is more
convenient to own an electric vehicle rather than a diesel engine car.

29
Connectivity

Apart from electrification, connectivity through technology is another

factor contributing to the race to build the cars of the future. From digital
screens to external platforms such as Android Auto or Apple CarPlay,
we have witnessed the introduction of several connectivity features in
the automotive industry in the last decade. Yet, the automotive industry
is still looking for new ways to innovate. With the continuous efforts to
integrate 5G, Internet of Things (IoT), and Artificial Intelligence (AI),
automotive connectivity can only be seen as imminent.

The three pillars of connectivity

Connectivity can be separated into three pillars: infotainment, telematics,

and infrastructure. Infotainment represents the link between the
passengers and the vehicle, including in-car entertainment, integrated
digital cockpit, heads-up display, and Wi-Fi. Telematics consists of the
monitoring of information through telecommunication devices,
including the cloud. It can allow the car to gather data on the driver’s
behavior, for example. The infrastructure connects the car to its
surroundings, allowing it to recognize and distinguish traffic lights,
pedestrians, and even other vehicles with the same feature(s).

Automation

Several features within automotive connectivity are growing, and one of

them is driving automation. Connectivity will soon enable OEMs to
provide the ultimate level of driving automation — level 5. Level 5 is
the full automation level where the vehicle performs all the driving
aspects without any supervision or human interaction requirements.
According to

30
a McKinsey report, this ultimate level is expected to be reached and
widely adopted by 2030.

Vehicle-to-Vehicle (V2V)

Another feature is the Vehicle-to-Vehicle (V2V) connectivity, which

enables vehicles to “talk” to each other through real-time data sharing.
For instance, Stellantis, the joint venture between Fiat-Chrysler-Alfa
Romeo (FCA) and the French PSA group, announced last year its
software strategy, which aims to provide 36 million connected cars by
2030, through a 4-year investment of more than EUR 30 billion
(Stellantis, 2021). Mercedes-Benz also announced plans to reach 20
million fully connected vehicles by 2025 (Automotive World, 2020).

Future projections

In 2020, the connected car market was worth around USD 55.6 billion,
with nearly 47.5 million connected cars circulating worldwide. This
same market is set to reach USD 191.83 billion, growing by 245% in 8
years (Carzato, 2021). By 2025, connected vehicles are expected to
attain a share of 53%. The latter is expected to grow even more, reaching
77% by 2030 (Ericsson, 2021).

Overall, the automotive industry is heading towards a brighter and

cleaner future. OEMs are extensively working on their R&D to create
cars tailored to the customers’ needs and suitable for the environment.
While electrification will play a big role in reducing GHG emissions,
connectivity will provide customers with interactivity and more comfort.
What does this mean for OEMs? There will certainly be a massive need
for expert skillsets to develop these cars of the future. Partnerships
between car manufacturers might be a solution to overcome the skillset

31
shortage. As for consumers, the main topic of debate will be data
privacy. Connectivity will require access and storage of data, meaning
that your personal car will have data on exactly where you have been
every single time. However, according to Deloitte, this would not be an
issue as consumers might consent to share their own data with their car’s
laptop, provided this would allow them to save time or money, and it
would provide them with a safe driving experience.

The automobile industry, along with the auto components industry, is

one of the core industries in India. A well developed transportation
system plays a key role in the development of an economy, and India is
no exception to it. Automobile is one of the largest industries in the
global market. Owing to its strong forward and backward linkages with
several key segments of the economy. Automobile Sector occupies a
prominent place in the fabric of Indian Economy. Against the backdrop
of this crisis, and quickly became a rallying cry for India‟s innumerable
stakeholders and partners. It was a powerful, galvanising call to action to
India‟s citizens and business leaders, and an invitation to potential
partners and investors around the world. But, Make in India is much
more than an inspiring slogan. It represents a comprehensive and
unprecedented overhaul of out -dated processes and policies.

Automobile sector is leader in product and process technologies in the

manufacturing sector. It has been recognized as one of the drivers of
economic growth and the domestic automobile industry is believed to be
the barometer of the economy. Such a belief is in line with international
trends since in most mature economies the automobile industry‟s
performance is viewed as a reflection of the econo my‟s health. This
sector has emerged as sunrise sector in the Indian economy. According
to data published by Department of Industrial Policy and Promotion

32
(DIPP),

33
ministry of Commerce, the amount of cumulative foreign direct
investment (FDI) inflow into the auto sector from April 2000 to
November 2012 was worth US$7,518 million. The auto sector accounts
for 4 per cent of the total FDI Inflows (in terms of US $) in India.
According to the recent data released by Society of Indian Automobiles
Manufacturers (SIAM) India‟s scooter and motorcycle manufacturers
have registered 4 per cent growth during April-November, 2012. The
Global and Indian manufacturers are focusing their efforts to develop
innovative products, technologies and supply chains. India is one of the
key markets for Global Manufacturers for hybrid and electronic vehicles,
which is the new development in automobile sector. With a turnover of
almost $59 Million US Dollars, Automobile industry Provides
employment to 13 million people in the India Work-class. The
automobiles sector is divided into four segments - two-wheelers,
passenger vehicles, commercial vehicles and three wheelers. Two
wheelers India is one of the world‟s fastest growing passenger car
markets it is second largest two wheeler manufacturer and fifth largest
commercial

Research Methodology

The study to be conducted is based on a descriptive approach since we

aim to establish outline existing models used for evaluating „Make in
India‟ campaign. Additionally, report is also going to document and
describe what companies consider costs and benefits with „Make in
India‟ campaign, and this is based on the findings of the empirical study.
This study will also include some explorative elements, mainly during its
early. Stages, when examined the secondary sources availab le in order
to develop understanding of the research area. During this phase we
were also able to more clearly define purpose as well as the limitations
34
adopted

35
for the descriptive part of the research. Some part of this thesis will be
prescriptive in nature, since this part focuses on constructing a method
for identifying and measuring the benefits and effectiveness „Make in
India‟ campaign investments. Objectives of study 1. Identify Make in
India initiatives for automobile sector and investment proposals in
automobile sector recently. 2. Analyze the impacts of Make in India
initiatives on Automobile Sector‟s growth. The study uses of both
primar y and secondary types of data decisio n making. Thus, the primar
y data was collected using structured interviews of the professionals
from user and vendor organisations; however, for the collection of
secondary data, we have used Internet based discussion forums,
Enterprise Resource Planning system product information fro m
suppliers and some company specific material such as annual reports,
accounting and auditing reports. The study also focused on recent
material that could be accessed. In order to get access to the latest
developments in this area a number of articles published in academic
journals and trade magazines have also been collected and properly
cited.
Discussions and Findings

Market size of the industry produced a total 14.25 million vehicles

including PVs, commercial vehicles (CVs), three wheelers (3W) and 2W
in April–October 2015, as against 13.83 in April–October 2014,
registering a marginal growth of 3.07 per cent, year -to-year.

How Did The Automobile Impact The Economy?

The growth of the automobile industry caused an economic revolution
across the United States. Dozens of spin-off industries blossomed. Of
36
course the demand for vulcanized rubber skyrocketed. Road construction
created thousands of new jobs, as state and local governments began
funding highway design.

Automobiles represent freedom and economic growth.

Automobiles are a liberating technology for people around the world.

The personal automobile allows people to live, work and play in ways
that were unimaginable a century ago. Automobiles provide access to
markets, to doctors, to jobs. Nearly every car trip ends with either an
economic transaction or some other benefit to our quality of life.
The auto industry is the single greatest engine of economic growth in
the world.

The global auto industry is a key sector of the economy for every major
country in the world. The industry continues to grow, registering a 30
percent increase over the past decade
Autos create jobs

Building 60 million vehicles requires the employment of about 9 million

people directly in making the vehicles and the parts that go into them.
This is over 5 percent of the world’s total manufacturing employment. It
is estimated that each direct auto job supports at least another 5 indirect
jobs in the community, resulting in more than 50 million jobs owed to
the auto industry. Many people are employed in related manufacturing
and services. Autos are built using the goods of many industries,
including steel, iron, aluminum, glass, plastics, glass, carpeting, textiles,
computer chips, rubber and more.

37
Significance

every Indian at some point has had a dream to own a car. But the
automobile sector in India is quite huge and includes many more
segments rather than just being confined to cars. This industry is one of
the major sectors of the economy and a huge employment generator. The
auto industry was facing a tough time even in the pre covid period for
the past couple of years and the onset of covid had a major negative
impact. However, the auto industry as a whole has recovered quite
significantly in the post covid period.

What is CAPM Model?

The capital asset pricing model (CAPM) attempts to define the

relationship between an investor’s expected return and the level of risk
she assumes when choosing a particular investment. The model tries to
explain the behavior of a security’s price and the impact it will have on
your portfolio’s risk and return. The main components in calculating
your expected return are the return of the market, the risk-free rate of
return and beta. The risk-free rate of return is usually measured using the
return of Treasury bonds for the current period. Your risk premium, or
how much you need to earn to compensate for the level of risk that you
undertake when choosing a particular security, is determined by
subtracting the risk- free rate of return from the overall return of the
market and multiplying it by the beta of the individual security. Adding
this number to the risk-free rate of return will give you your expected
return for the security. The only way to produce a negative expected
return with a positive beta is if the risk-free rate of return exceeds the
overall return of the market. This is

38
 unlikely to ever occur, as investors will not choose to purchase more
risky securities without the possibility of a greater return.

Table of Contents

1. Sector overview

2. Government initiatives

3. Investments

4. Future prospects

5. Top companies in the Auto Industry by market capitalization

39
 Given below are a few key details of the auto industry as a whole
and the top stocks in this industry.

Sector overview

 The auto industry in India is the fourth largest in the world and accounts
for approximately a 7% share of the GDP of the country.
 This industry is set to increase at a CAGR of 12.7% and reach about US$
300 billion by the end of 2026.
 India is considered to be the top manufacturer of two-wheelers and the
4th largest car manufacturer.

The auto industry is made up of 4 major segments namely,

 Two-wheelers (motorcycles, geared and ungeared scooters)

 Three-wheelers
 Passenger vehicles (cars and utility vehicles)
 Commercial vehicles (light, medium, and heavy)

Among these sectors, the two-wheelers and the passenger segment

dominate the auto industry with approximately 80% and 14% of the total
market share respectively. In the passenger car segment, the total sales
are dominated by small and mid-sized cars. In recent years, the EV
sector in the industry has seen a tremendous increase and has good
growth potential in the future as well. The EV sales have shown a year-
on-year increase of approximately 168% and the EV sector as a whole is
expected to increase at a CAGR of 36% until 2026. The EV battery
segment is also expected to increase at a CAGR of 30% in the same
period.

40
 The auto sector in the country also enjoys a stronghold in the global
heavy vehicles market as it is the largest tractor producer as well as
second- largest bus manufacturer, and the third-largest heavy truck
manufacturer in the world.

Government Initiatives

The government has taken many initiatives for the auto industry that will
help in increasing the manufacture and sales of the industry as a whole
as well as efforts towards increasing the exports. Some of the initiatives
taken by the government include the following,

1.The government had spent approximately US$117 million under the

FAME-II Scheme to support the EV segment and has sanctioned more
than 6000 electric buses for various state and city transportation.
2.The government has also launched a Vehicle Scrappage Policy that aims
to gradually phase out the old polluting vehicles. This policy aims to
achieve this objective in an environmentally safe manner.
3.In September 2021, the government issued a notification relating to the
PLI Scheme for the automobile industry and the auto components
industry. The PLI Scheme is expected to help the sector by bringing
investments of more than US$ 5.74 billion by 2026 and at the same time
generate approximately 7.5 lakh jobs in the country.
4.For the EV sector, the government has also introduced a battery swapping
policy to make EVs more feasible for potential customers.
5.Under the Prime Minister’s Gati Shakti Plan, the Indian National
Highways are set to be expanded by 25,000 km in 2022-23.

41
6.The latest initiative of the government in February 2022 includes the
plans to roll out Bharat NCAP. This initiative is set to introduce India’s
own vehicle safety assessment program.

Investments
The promising future of the auto industry in India has helped in
attracting investments from various sources like the government, private
sector as well as FDI. The permissible FDI In the auto industry is up to
100% from the automatic route. Among the total FDI investment in the
country during the period of April 2020 to September 2021,
approximately 5.81% was towards the auto industry. With the rising
demand for the EV sector in India, it is estimated that the country will
need an investment of approximately US$180 billion for vehicle
production and setting up charging infrastructure by 2030. The various
other investments in the auto industry are highlighted below.

1.MoU between Electric Two-Wheeler company Ather Energy and Karnata

electricity supply companies to set up 100 charging stations across the
State.
2.A strategic partnership between Tata Power and Apollo Tyres Limited to
establish 150 public charging stations across the country.
3.An announcement by Hyundai in December 2021 to invest Rs. 4,000
crores in R&D in the country to launch 6 EVs by 2028.
4.Viewing the growing demand in the EV segment, Indian Oil Corporation
(IOC) and other public sector oil firms have announced the installation
of 22,000 EV charging stations in the country over the next 3-5 years.
5.The flow of investments in the EV segment reached new heights by
increasing approximately 225% to reach US$444 million in 2021.

42
6.The government also inaugurated Asia’s longest high-speed track and the
fifth-largest in the world, NATRAX, in July 2021.

Future prospects

The auto industry had a brief setback in 2019 when the sector as a whole
saw a plunge of approximately 19% in sales and the steepest fall was in
the passenger cars segment which was up to 31%. However, the auto
sector is set to increase up to approximately Rs.16 trillion to 18 trillion
by 2026 and provide employment opportunities to skilled and unskilled
labour as well as boost the SME industry. The glaring reality of this
sector is also the fact that there is a lack of skilled manpower in the
country to meet the demands of this sector. Also, the sector is facing
many challenges on account of changes in regulations and emission
norms (from Bharat Stage IV to Bharat Stage VI) and the rising cost to
meet these changes which have led to many disruptions in the sector.

Top companies in the Auto Industry by market

capitalization

After having a brief overview of the key details of the auto sector, the
details of the top companies in this sector are given below.

1. Maruti Suzuki

The company was established as a joint venture between the

Government of India and Suzuki Motors Corporation (SMC) in the year
1981 and became a subsidiary of SMC in 2002. The company is
involved in the manufacture, purchase, and sale of motor vehicles and
their components and parts. The key details of the company are tabled
below.
41
2. Tata Motors

Tata Motors is a very well-known name in the auto industry and has a
huge global presence. The company is part of the Tata group and offers a
wide range of vehicles ranging from passenger cars, SUVs, trucks,
buses, and defense vehicles. The key details of the company are tabled

below.

3. M & M

Mahindra and Mahindra Limited is the third-largest company in terms of

market capitalization. The company has its presence in many segments
like 3-wheelers, 2-wheelers, passenger vehicles, commercial vehicles,

42
 tractors, and earthmovers. The key details of the company are tabled
below.

4. Bajaj Auto

Bajaj Auto is part of the Bajaj Group and exports to 79 countries. The
company has its presence in the manufacture of three-wheelers and two-
wheelers. Bajaj Auto is the third largest manufacturer of motorcycles in
the world and the second-largest in the country. The key details of the
company are tabled below.

43
5. Eicher Motors

This company was incorporated in 1982 and is part of the Eicher Group.
The company is engaged in truck and bus operations, auto components
as well as technical consulting services business. The key details of the
company are tabled below.

4.2 Risk assessment of India automotive enterprises

In economic environment of today, conditions remain challenging for

many, and risk management retains its position high on every
organization’s agenda. Businesses in the west are grappling with the
changes brought about by a post-downturn economy. Postrecession,
investors seek a thorough risk assessment of the enterprise and the sector
before investing in it. In post-downturn economy, Indian and Chinese
economies have emerged as the new global growth locomotives
(Siddiqui, 2009). Enterprise risk management has been hotly debated in
boardrooms of many companies. Companies realize their better capital
value through increased predictability and lower volatility the key
factors contributing to shareholder value. In this context enterprise risk
management has emerged in a new business trend. Many risk
identification/assessment tools developed to enable a management team
to identify and assess risks that their organizations are facing. In the
recent past, a numbers of the world's most widely respected companies
have collapsed. Analysis's have cited equally well known reasons for
these collapses like nonviable business models, greed, incompetent
management and lax regulatory environment. One reason that is not
often mentioned is the breadth and depth of these companies' approach
to risk management (Borison and Hamm, 2010). The framework that we
44
propose in this paper would help

45
investors as well as managers to analyze the susceptibility of an
enterprise in automotive sector to risk factors. The factors chosen and
the resulting Bayesian network would be different for different sectors.
The Bayesian network for a sector would depend on the
interdependencies of these factors. The Auto sector was chosen because
productivity in automotive industry in India is substantially higher than
other sectors and it has a huge potential for further improvement, which
in turn will pull up the competitiveness of entire manufacturing sector
(Draft Automotive Mission Plan, 2006-16) The Indian Automotive
Industry started its new journey from 1991 with delicensing of the sector
and subsequent opening up for 100 percent FDI through automatic route.
Since then almost all the global majors have set up their facilities in
India taking the production of vehicle from 2 million in 1991 to 15
million in 2011 (SIAM, 2011). The country with its rapidly growing
middle class (450 million in 2007, NCAER report), market oriented
stable economy, availability of trained manpower at competitive cost,
fairly well developed credit and financing facilities and local availability
of almost all the raw materials at a competitive cost has offered itself as
one of the favorite destination for investment to the auto makers (Draft
Automotive Mission Plan, 2006-16). According to the Society of Indian
Automobile Manufacturers, annual vehicle sales are projected to
increase to 5 million by 2015 and more than 9 million by 2020 and by
2050, the country is expected to top the world in car volumes with
approximately 611 million vehicles on the nation's roads. The second
section provides the motivation and need for the framework presented in
the paper. The third section takes up discussion on risk, enterprise risk
management and risk assessment. In the section 4, the research
methodology has been described which includes a discussion on
Bayesian networks and assessment model description.

46
Risk Assessment:
Risk assessment is one of the steps in a risk management process. The
determination of quantitative or qualitative value of risk related to a
recognized threat (also called hazard). Quantitative risk assessment
requires calculations of two components of risk (R):, the magnitude of
the potential loss (L), and the probability (p) that the loss will occur.
(Ayyub, 2003). Fundamentally two different views have evolved over
the years on how risk should be assessed. The first view is known as
objectivist, or
47
frequentist. This approach requires probabilities are obtained from
repetitive historical data and it is based on probabilistic risk assessment
(PRA). PRA is the name given to systematic and comprehensive
methodology used to evaluate risks mostly for complex technological
entities. Consequences are expressed numerically and their likelihoods
of occurrence are expressed as probabilities or frequencies. The total risk
is the expected loss: the sum of the products of the consequences
multiplied by their probabilities (Ramana, 2011). It is generally used for
risk assessment of engineering entities such as power plants and
airplanes and finds large scale application in safety and reliability
engineering. The second view is termed as subjectivist, or Bayesian
view. Bayesian considers the expert judgment as a part of risk
assessment. A Bayesian takes not only data into account but also expert'
judgment about the situation. Risk assessment consists of an objective
evaluation of risk in which assumptions and uncertainties are clearly
considered and presented. For audits performed by an outside audit firm,
risk assessment is a very crucial stage before accepting an audit
engagement. In project management, risk assessment is an integral part
of the risk management plan, studying the probability, the impact, and
the effect of every known risk on the project, as well as the corrective
action to take should that risk occur (Rausand, 2011). Bayesian view is
well accepted in some circles, medical, safety and reliability
engineering, but it has not penetrated in enterprise risk management
arena.

48
Economic Risk:
I. Exchange Rate risk: Movement in the value of Rupee determines
the attractiveness of Indian products overseas and the price of
import for domestic consumption. The trend of export and import
has been increasing in the industry and thus importance of
exchange rate risk has been increasing. Foreign activities are a
source of exchange rate risk (Copeland, 2005).
II. II. Raw material Price: As a result of increase in raw material prices
– mainly metal and energy prices – the volatility in the sector has
been on a rise in past few years though the overall volatility is still
considered medium.

External Risk:

I. Supply Chain Disruptions: Tier 2 stoppage, disasters, supplier

financial stress, suppliers’ union issues are some of the external
factors that may lead to supply chain disruptions (Lockamy III
and McCormack, 2012). The occurrence of any of these events in
the major markets from which a firm purchases materials, parts,
components and supplies for the manufacture of its products or in

49
 which its products are produced, distributed or sold, may result in
disruptions and delays in the operations of firm’s business.
(Craighead et al., 2007).
II. Regulatory risk: The industry is subject to regulations and
legislations related to environmental concerns. Import, export
tariff, sales and excise duty also effect the prices of the vehicles
affecting the firm and industry as a whole. (Oetzel, Bettis, &
Zenner., 2000) Economic instability: The Auto sector has a strong
positive correlation with macroeconomic factors. Per capita
income, employment levels, size of middle
class, interest rates are the major economic parameters that affect this
industry. Normally, a stable country with low political risk may
encourage the foreign investment whereas countries with high political
risk and instability may discourage the foreign investment (Copeland,
2005).

Data collection:

The risk categories, the risk factors and the risk measure used is given
in table 1. The literature review led us to 9 factors that cause risk in Auto
industry. Twenty managers of 15 different automotive firms were mailed
and asked to review the list prepared and add their remarks. Based on
their responses seven factors mentioned above were selected and later
incorporated in the Bayesian network. Subsequent to this, the seven
factors were grouped and the Bayesian network was formed. The risk
measures shown in the table 1 were used to get a priori probabilities for
each of the seven factors for five companies operating in automotive
sector in India

50
Model description

The first step in model development was identification of factors which

primarily cause risk in this sector. The seven factors that were arrived at
after literature review and responses from managers have been grouped
and used to create a Bayesian network which is shown below:

The data for the risk measures mentioned in table 1 were obtained from
the sales reports and annual reports of the five firms who manufacture
passenger vehicles in the Indian market now. Priori probabilities were
then used to calculate the probability of negative impact on net income
by solving them through Bayesian network. The results have been
tabulated below.(For sample calculationsRefer Appendix-I) This has
been followed by sensitivity analysis of companies with respect to
external risk i.e. the probability of a negative impact on net income if
external risk has already occurred. The table 2 shows the probability of
negative impact on net income in case the firm has already been exposed
to external risk. The results show that the probability of decrease in
earnings ranges from 25% to 30 % for the firms in consideration and
shoots up to a range of 52% to 57 % when the same firms are exposed to
external risks.

We conclude that this study illustrates a framework for analyzing risk in

Indian automotive firms. Risk profiles of different firms in the sector and
their sensitivity to different risks can be estimated using this framework.
This can be used as a tool by investors to make investment decisions and
by managers to take risk mitigating actions. The managers of the
companies should note that the percentage increase in the probability of
negative impact on net income in presence of external risk is of the order
of 100%. To reduce the impact of external risk, managers should take
51
actions to reduce the possibility of supply chain disruptions and be ready
for new regulatory norms. They should invest in R&D to and make
products by correctly gauging consumer’s needs sustain competitiveness
in this highly competitive industry. The use of derivatives to mitigate
exchange rate risk is imperative as exchange rates have been fluctuating
very often in recent past. Derivatives can also be used to keep the risk of
raw material price fluctuations.

Limitations and Future scope of research:

The research takes into account only five companies that make
passenger vehicles in Indian auto sector. Thus, the results can be sub
sector specific. The inability to incorporate all relevant risks into the
model could limit its effectiveness in representing a true risk profile. A
potential data limitation is access risk event probabilities, which are
essential to the construction of the Bayesian networks. Future
researchers may choose to develop a similar model for other sectors of
economies which have high interdependencies and thus impact the
economy in a major way. The study of different sectors and their
comparison is another important research area which can be undertaken.

52
4.3 Equity Analysis of Automobile Industry in
Indian Stock Market
Most of the investors commonly make poor investment decision caused
by mental biases and emotions. All the investors make their investment
with an avowed objective of increasing their wealth. Among the various
investment opportunities equity market is said to be one of the most
rewarding investment options even though it involves more risk. Since
the risk is very high on such investment, the investors need to make
equity analysis that helps them to know about the nature of those equity
shares and those industries where they park their money. Therefore the
equity analysis will help the potential investors in taking a rational and
informed investment decision. In this background, a research has been
carried out to study the equity shares of sampled companies in
Automobile Industry in Indian stock market. The automobile industry in
India is one of the largest in the world and considered to be a fastest
growing sector.

The automotive industry has a strong multiplier effect on the economic

growth of a country. The industry accounts for a 7.1% of the country’s
GDP and it has strong export growth expectations for the near future.
Moreover, the emerging interest of the companies in exploring the rural
markets further aided the growth for this sector. And in order to maintain
the growing demand, many auto makers have started to invest in this
industry. The main companies that present in Indian automobile market
include Tata Motors Limited, Maruti Suzuki India Limited, Mahindra &
Mahindra Limited, Ashok Leyland Limited etc.

53
LIMITATIONS OF THE STUDY

Like other studies, this study also has its own limitations. They are:- 

The analysis was completely based on the secondary data collected from
the website of NSE, published literature, annual reports, etc., and so the
findings of the study entirely depend on the accuracy of such data.

Different experts have different opinions regarding the analysis of equity

shares, therefore, the view used in this study can’t be treated as the
absolute and perfect.

The Researcher uses some statistical tools for analyzing and interpreting
the collected data. Therefore the analysis is affected by the natural
limitations of the statistical tools.

The business risk of each selected companies in automobile industry has

been measured by Gini Coefficient of Concentration on the basis of their
respective ROCE. The table and diagram portray that in this changing
circumstance Bajaj Auto Ltd. is facing the highest business risk followed
by Maruti Suzuki India Ltd., Mahindra & Mahindra Ltd., Tata Motor
Ltd., Force Motor Ltd, Ashok Leyland Ltd., Eicher Motor Ltd.,
Sundaram Clayton Ltd., TVS Motor Company Ltd. and Hero MotoCorp
Ltd. respectively.

54
 Chapter 5

Research Methodology
This section presents the methods used to achieve the purpose of this
study. It begins by providing the reasons of why the subject was chosen,
followed by the perspective and preconceptions. Different approaches
that are available for making a scientific research are discussed and
relevant approaches are identified in the process. A discussion of the
credibility of the study including reliability and validity is included. The
chapter ends by describing how the data is collected.

Methodology

1) Choice of Subject
The choice of the subject was mainly based on the previous knowledge
acquired in the previous courses including cash and risk management
course, investment course. The idea of writing on exchange rate risk
came
55
up when reading the article: “Corporate Financing Focus; Increased
Volatility in Exchange Rates Spurs Adoption of Best Practices in
Currency-risk Management” (Corporate Financing News, May 2007). It
was then developed during the discussion with our supervisor. We found
the topic very interesting, relevant and challenging since these is a
dramatic rise of firms operating worldwide, thus increasing international
transactions and thereby facing exchange rate risk. Furthermore, the
foreign exchange market has by far become the largest financial market
in the world where, as mentioned before, rating rates have proved
extremely volatile with aggressive fluctuations. This study focuses on
the automotive industry. Being the most outspread industry in the world,
with deliverers, manufactures and customers being situated in different
countries it is especially affected by the ever changing exchange rates of
national currencies. For instance, production and demand for the finished
product is depending on both the global and the domestic market and
therefore difficult to balance. Previous studies have mentioned how
important exchange rate fluctuations have become for firms operating
internationally (Steven B. Kamin, John Schindler and Shawna Samuel
2007). However, most of these studies (Abe de Jong, Jeroen Ligterink
and Victor Macrae 2006) were dealing with firms of Asia and the US.
We therefore decided that a study on European automotive industry
firms could help to complete the picture on how exchange rate
fluctuations are linked to stock returns. We believe that our findings
could be used by managers to determine whether it is necessary to
implement hedging strategies against 19 exchange rate exposures or not,
based on the impact of exchange rate fluctuations on the value of each
particular firm.

2) Perspectives
56
Perspective can be referred to different views that people have on a

57
particular subject (Sunders et al 2003). We have adopted a financial
management perspective (the company perspective). Managing the
impact of the exchange rate volatility on companies’ stock returns is
important for MNCs, especially in the automobile industry where
activities are strongly dependent from the international market.
Management of exchange rate risk affects a company in various manners
such as import and export, turnover, profitability, cost of the products,
competitive advantage and cash flows. A good management of exchange
rate risk can therefore be beneficial for MNCs.
3.)Preconceptions
Since the research on automotive industry is done from real figures,
data and reports; we are sure that individual preconceptions will not be
biased on the outcome of the research.

4 )Research Approach
There are two methods of reasoning for the scientific approach, the
deductive and the inductive approach. Inductive approach is a "bottom
up" approach. It begins with specific observations and measures,
formulate some hypotheses that are to be explored, and finally ends up
developing some general conclusions or theories. It emphasizes on
developing insights and generalizations about the data collected.
Inductive approach is often associated with qualitative method (Bryman
& Bell 2007). The deductive approach is a "top-down" approach, a
hypothesis testing theory. It begins with one or more theories about a
topic, and then narrows that down into more specific hypotheses which
can be tested. A deductive approach is often associated with quantitative
research. The researcher goes further into data collection to address the
hypotheses that can be tested. The hypotheses can then be either

58
confirmed or rejected, leading to a confirmation or a revision of the
theories (Bryman & Bell 2007). 20 We chose to use the deductive
approach since it is better suitable for our purpose and the hypotheses
are generated from the chosen theories which can be tested. We use
quantitative data applying the APT to test the hypotheses.

5) Research Method
There are two main research methods in business research: quantitative
and qualitative. The qualitative method entails an emphasis on non-
numerical values. It is more concerned with issues of the richness,
quality, and ‘feeling’ of raw data. The quantitative method focuses on
the measurement and analysis of causal and effect relationships between
variables. It is more concerned with issues of design, measurement, and
sampling (Bryman & Bell 2007). The research method to be adopted in
this research is the quantitative method since the paper is more
concerned with relationships between variables and analysis of causal
using numerical data and statistics. The present study is constructed
through a model of regression analysis, applying the APT model, and
using the software application SPSS and Microsoft Office Excel. There
are mainly three steps that are necessary for any kind of quantitative
research (Studenmund 2000):
1. specifying the models or relationships to be studied
2. collecting the data needed to quantify the models
3. quantifying the models with the data

The two first steps are similar in all quantitative work. However, the
techniques used in the last step can extensively differ from one
discipline to another. In this paper, the chosen technique is a regression
analysis based on the APT model and including different variables to
59
measure the

60
impact of exchange rate on stock returns. The variables involved are
exchange rate, GDP, stock market index and oil price. 21 To be able to
answer the research question, historical data from the DataStream are
used. The time frame for all historical data is quarterly data between
2000- 01-01 and 2007-12- 31.

6 )Limitations
Our study is limited to six multinational automobile companies from
three European countries. We chose to investigate companies from the
automobile industry since it is the most internationalized industry and
therefore largely exposed to exchange rate fluctuations. The countries
were limited to France, Germany and Sweden since, apart from Italia,
they are considered to inhabit the biggest car industry in Europe.
Although being aware of the exchange rate risk management employed
by the companies in the sample, because of time constrains, we focus on
evidence illustrating if companies face exchange rate risks or not.
Further, we limited our analysis of exchange rate risk to three exchange
rates, – SEK/Euro, SEK/USD and Euro/USD. This is due to the specific
home currency used in the selected countries as well as the fact that all
companies chosen have big interests in the North American market. The
variables used in the empirical part of are study were selected after
studying the theoretical framework and previous empirical evidence on
this kind of topic. Finally, in this research, currency risk and exchange
rate exposure were used in the same content as exchange rate risk.

7 )Research Design
A research design is a framework for conducting and analyzing data. It
details the procedures necessary for obtaining the information needed to

61
structure or solve the research problems. There are many research design
methods available, such as longitudinal design, case study design,
comparative design, experimental design and cross-section design.
Longitudinal is a research design to configure changes by time in
business research. A cross-section design entails the collection of data on
more than one case and at a single point in time in order to collect a
body of quantitative or quantifiable data in connection with two or more
variables. They are then examined to detect patterns of association. An
experimental design is used as a yardstick against which
nonexperimental research is assessed. A comparative research design
embodies the logic of comparison. The case study design is to detail and
intense a single case or multi-cases. It 22 is concerned with the
complexity and particular nature of the case in question. A case study
can be in terms of persons, events, locations or organizations (Bryman &
Bell 2007). We decided that the case study design and the comparative
design are to be used in this study. We want to know if exchange rate
fluctuations have an impact on the sampled companies. Furthermore, we
want to study if there is a significant difference between the companies
selected from countries with different home currencies.

8) Choice of theories
The theory selected for our study was based mainly on two major
objectives. The first is to create an understanding of how exchange rate
movements can impact the stock returns of multinational companies.
The second is to explain that if MNCs are exposed to exchange rate risk,
they can use hedging strategies to mitigate currency risk. The intention
with the theories on risk is to give a basic understanding and knowledge
about what kind of risk a company might face. In this part, we focused
on the currency risk since the objective of this research is investigating
62
its impact

63
on companies’ stock return. The theories on risk managements were
selected based on the appropriate financial instruments that are used to
mitigate currency risk. We finally developed some theoretical
explanations on what model to be used in the empirical part and why the
model is appropriate for our research. For the choice of theories we also
orientated ourselves on the previous studies done on this topic. Finally,
we chose theories to meet the standpoint of this study, the financial
management perspective (the company perspective).

9) Selection of sources and criticisms

The majority of the articles used in this paper were scientific articles
found in the database Business Source Premier at the library of Umeå
University. Few scientific articles were primarily found through Google
Scholar and thereafter tracked down to find their original sources in the
database. We also used some scientific articles from the previous
courses such as cash and risk management, investment and corporate
governance. All these articles were published in well respected scientific
journals, which are edited by known scientists in this research area. By
limiting ourselves to only using 23 articles that were published in highly
stated journals we ensure a high reliability and credibility for our own
study. However, a high number of articles were published on currency
risk and hedging strategies over these last decades and it is impossible to
cover all studies published on this topic. Therefore, we had to limit our
selection to articles that we found particularly interesting, reliable and
relevant to our subject. We are certain that we were able to meet our
own high standards also with the books that we choose to cite in the
present research. They all were issued by well respected publishers and
the authors are known in the academic world. The information on the
selected companies, their markets share and their hedging strategies,
64
were based mainly on sources

65
such as annual reports and the official internet homepage of the
companies. Although, we believe that most information attained from
official company homepages is accurate, we tried to confirm them by
other sources whenever possible.

10) Data collection method and criticisms

There are two kinds of data: primary and secondary data. Primary data
is collected by the researcher himself/herself. Secondary data refers to
the data that has already been collected by someone else for a different
purpose (Sanders, Lewis & Thornhill 2000). The data used in this paper
is secondary data. We began our data collection by searching the
Thomson DataStream at the library of Umeå University. Apart from
collecting data on the stock price of each selected company, we also
attained information on the oil price as well as GDP, the T-Bills, and the
stock market index for each country during the time period investigated.
We also collected exchange rates for the currencies of the involved
countries. All the data were selected quarterly and from the same time
period, from 01/01/2000 to 31/12/2007. Although we are aware of the
limitations of using secondary data, we believe that in our case they are
outweighed by the advantages, most importantly, the saving in time and
money resources (Sanders, Lewis & Thornhill 2000). By using the
DataStream collection, we are sure of the high quality and reliability of
the data used, since DataStream is a financial statistical database well
respected worldwide. Another advantage of this kind of 24 data is that
the data is permanent and available for the public (Sanders, Lewis &
Thornhill 2000).

66
11) Validity
According to Bryman A & Bell E (2007), “…validity is concerned with
the integrity of the conclusions that are generated from a piece of
research”. To achieve high quality of a study, a research should measure
what it claims to measure and there should not be any logical errors in
drawing conclusions from the data. Validity is a measurement of
whether the researcher is observing, identifying, or measuring the data
coinciding with what he/she is supposed to do (Bryman & Bell 2007).
There are different types of validity: measurement, internal, external and
ecological. Measurement validity refers to the issue of whether or not an
indicator that is devised to estimate a concept really measures that
concept. Internal validity deals with findings being believable. The
external validity is on the other hand concerned with the findings being
applicable to other contexts (Bryman & Bell 2007). External validity is
therefore related to generalizing (Campbell & Stanely 1966). Finally, the
ecological validity measures whether the findings are applicable to
natural social environments (Bryman & Bell 2007). This paper is not
concerned with external or ecological validity but rather measurement
and internal validity. The findings of our study are not to be generalized
since we are conducting a case study research with a specific number of
companies. With this research paper, we want to know, show and
explain what is going on in these particular companies based on our
research question. We are sure of the validity of the data. All the data
used in this thesis are from the DataStream. They are deemed to have a
high degree of reliability. The sources are highly reliable sources of
information thus measuring what is supposed to measure and being as
well believable. 25

67
12) Reliability
Reliability is concerned with the consistency of a measure of a concept.
It is important that a study generate trustworthy and reliable results
(Bryman & Bell 2007). There are some questions that one can use to
assess reliability: • Will the measures yield the same results on other
occasions?
• Will similar observations be reached by other observers? • Is there
transparency in how sense was made from the data? When analysing
how the data were collected and used, we believe that we have reached a
high reliability. We have applied reliable and transparent tools,
measurements and models. The observations can easily be reached by
other observers since they have been collected from a public source with
a high validity and credibility. We are therefore quite sure that if other
researchers use the same set of data for the same sampled companies
they will come up with the same kind of results. Furthermore, our
findings are consistent with previous studies done in this field as already
mentioned in the theoretical framework. The data collection and analysis
(using SPSS) have been done with a careful attitude. We are therefore
sure of the consistency, transparency and trustworthiness of this study

68
 Chapter 6

Data Analysis, and Interpretation

Data Collection
Data collection is a process of organizing the data. This study is
entirely based on secondary data collected from the NSE website
(https://www.nseindia.com). In addition, data has been collected from
published sources as well as websites, newspapers
(Business standard, Economic times) & management, scholar,
researcher etc.
Data collection is done for analyzing and
interpreting. There are two types of data collection are as follows:

Primary Data
The primary data is a fresh and used for first time. I have collected
primary data during the observations while my research.
Secondary Data
The secondary data is an old or used & existing or not for the first time.
The secondary data can be collected through
following ways:
1. Internet
2. Books
3. Journals

69
 Data Analysis
Growth rate I. To study the growth of share price of selected automobile
companies in the stock market

Growth rate - Share price of Hero Motor Corp Ltd, Mahindra and
Mahindra Ltd, Bajaj Auto Ltd from 2017-2018 to 2021-2022

Hero Moto Crop Ltd Bajaj Auto Ltd Mahindra and Mahindra ltd
years
Share Price Growth Rate Share Price Growth Rate Share Price Growth Rate
2017-
2018 3542.8 9.06% 2083.6 3.12% 738.9 12.92%
2018-
2019 2937.45 -19.71% 2720.95 -16.07% 726.9 3.25%
2019-
2020 2363.45 -35.40% 3118.1 -3.83% 562.5 20.10%
2020-
2021 3203 12.45% 4089.5 26.14% 808.05 14.78%
2021-
2022 2499.1 31.69% 3451 6.45% 900.8 27.95%

There is a fluctuating movement in the share price of Hero Motor Corp

from 3542.8 to 2499.1 during the year 2017-2018 to 2021-2022 the
highest growth rate of 31.69% was the current year and the lowest
growth rate of -35.40% was during the year 2019-2022.

There is a fluctuating movement in the share price of Bajaj Auto Ltd

from 2083.6 to 3451 during the year 2017-2018 to 2021-2022 the
highest growth rate of 26.14% and the lowest growth rate of -16.07%
was during the year 2018-2019.

There is a fluctuating movement in the share price of Mahindra and

Mahindra ltd

70
From 738.9 to 900.8 during the year 2017-2018 to 2021-2022 the highest
growth rate of 27.95% and the lowest growth rate of 3.25% during the
year of 2018-2019.

The automobile industry is growing at a very rapid pace and its evident
by a couple of indicators like the arrival of international brands in India
and its financial gains. Many automobile companies, be it manufacturers
or ancillaries are listed on either BSE or NSE and are gaining return
during the study period. This study shows that Hero Moto Corp, Bajaj
Auto Ltd, Mahindra and Mahindra Ltd has a significant positive
relationship with NSE index. Therefore a successful investment in
automobile sector requires a careful assessment of the automobile
company’s potential risk and return as well as deep examination of
Indian stock market. A firm’s risk and expected returns directly affect its
share price. If an investor wishes to earn highest returns than the investor
must appreciate that this can be achieved by accepting a commensurate
increase in risk.

 There is a significant positive relationship between Share Price of Hero

Moto Corp and NSE index.
 There is a significant positive relationship between Share Price of
Bajaj Auto and NSE index.
 There is a significant positive relationship between Share Price of
Mahindra and Mahindra and NSE index.

71
SUMMARY OF THE COMPANY'S STATISTICAL VALUES

This section helps to find out results from the researcher’s collected data.

Table showing Mean Return of Automobile Companies

72
The following table show that selected companies have nagative deaily
mean return expect ASHOK LEYLAND, BAJAJ AUTO, EICHER
MOTOR, M&M, MARUTI SUZUKI. And have veriouse possitive mean
return accoreding to calculation ESCORTS KUBOTA (0.00%), FORCE
MOTORS (0.58%), HERO MOTORS (0.15%) etc.,

Risks & Challenges When you Invest in Automobile Stocks

Over the last few years evolving customer needs, disruptive impact of
technology and major regulatory reforms have gained center stage in the
automotive ecosystem. Companies are facing increasing pressures to
develop, upgrade and successfully launch new & innovative products to
meet changing customer demand. In the recent past, Automobile
industry has been struggling with insurance covers being made
compulsory & BS-
73
VI transition which has made the ownership cost of a vehicle rise very
steeply. The threat of electric vehicles and of course the covid-19
pandemic are other challenges faced by the industry. Rising concern for
climate change and sustainability has led to the need for alternative
energy such as electric vehicles. This will disrupt Auto component
companies as it has only 20 moving parts, while a regular petrol or diesel
vehicle has more than 2,000.
These newly emerging trends are truly testing the automobile company’s
ability to grow. Companies will have to be fundamentally strong and
capable to remain relevant. We believe that the companies in our model
portfolio match these requirements and have witnessed several business
cycles and emerged stronger each time. These companies have adapted
and overcome several technological disruptions and can be counted on to
continue doing so in the future as well.

Best Auto Stocks to Buy Now In India – 2022

Best Auto Stocks to Buy in India

The automobile sector contributes about 50 % of the manufacturing
GDP in India, 26 % of the industry GDP and 7.1 % of overall GDP. A
lot of other sectors such as steel, iron, rubber, oil, glass, etc rely on the
automobile and the auto component sector. The automotive sector
accounts for about 15 percent of the country’s total tax collections and
employs 3.2 crore people, directly and indirectly. This shows why the
automobile sector is important for the health of the economy. India is the
world’s fourth largest automobile market for vehicle sales by volume in
the world only after China, USA and Japan. Car penetration in India is
currently 28 per 1000 inhabitants, which is already 180 in China and
over 800 in the US which lays out a huge runway for the sector over the

74
long

75
term. The two-wheeler segment dominates the Indian automobile market
in terms of volume due to its young and growing middle class
population. It accounted for 77.21% of the total vehicle sales volumes in
FY21. The passenger cars segment which accounted for 15.62% of
volumes is dominated by small and mid-sized cars. The Indian
automobile industry is supported by various factors such as availability
of skilled labour at low cost, robust R&D centers, and low-cost steel
production. The industry also provides great opportunities for
investment and direct and indirect employment to skilled and unskilled
labour. Auto ancillaries and tyre industries are directly dependent on the
original equipment manufacturers (OEMs). Demand for these industries
mostly arise from the OEMs or the replacement market.
Besides Budget 2021 provides hope for the Auto industry with the
introduction of the voluntary vehicle scrappage policy. The policy makes
it compulsory to undergo a fitness test for private vehicles over 20 years
of age and commercial vehicles over 15 years of age. Also a charge of
green tax at the time of fitness renewal will dis-incentivize the use of
older vehicles. Overall the Automobile Industry has a bright future over
the long term period.

76
Summary Table of Best Auto Stocks

77
A Detailed profile, Pro’s & Con’s of Auto Stocks in the Model
Portfolio

Bajaj Auto:-
Bajaj Auto is another two-wheeler company that has proven itself over
the years. What differentiates Bajaj Auto from other two-wheeler makers
in India is its relentless focus on markets outside of India. Its growth and
presence in the international markets have been on the back of its own
brands as well as its alliance with KTM. This has enabled it to de-risk by
not being over reliant on any one geography or product. It is by far
India’s largest motorcycle and three-wheeler exporter.
The company’s revenue share from exports has increased from 28.2% in
FY10 to 52% in FY22. In fact, International business recorded its
highest ever sales of over 2.5 million vehicles for FY22. It also
continues to dominate the three wheeler segment and remains the market
leader. On the other hand, Bajaj has a poor presence in the scooter
market.
Bajaj Auto was the leader in the scooter market till the motorcycle
momentum picked up in the 1990s. The scooter business is booming
once again and the company is back with its iconic scooter brand Chetak
in the electric version to cater the increased demand.

TVS Motor:-
TVS Motor Company is the third-largest 2-wheeler company in India
with a revenue of over Rs 18,217 crore (over US$2.9 billion). It has an
annual sale of more than 3 million units and an annual capacity of over
4.95 million vehicles. The company is also the 2nd largest exporter in
India with exports to over 60 Countries. TVS Motor’s strength lies in its
extensive research and development, resulting in products that are

78
industry-leading in terms of innovation.

79
Due to the strong product line-up, unwavering focus on consumers,
quality, cost, and strong new launches the company is confident about
outperforming the industry ahead, in spite of the global challenges and a
tough business environment. Further, the export of two-wheelers is
likely to see growth ahead fuelled by strong demand for TVS products
and due to its operations in diverse geographies that mitigate overall
risk. The EV industry is the future of commuting and with the iQube,
TVS Motor has marked a strong presence in this segment. In fact, the
iQube network is expanded to 30+ cities across the country. On the other
hand, the company has been a consistent wealth creator for investors as
it has delivered an ROE of 20.8% over the last 5 years. The automaker
also outperformed the broader Industry in FY22 which declined by 11%.
However, the company is exposed to timely raw material availability,
shortages of semi- conductor, and some EV-specific components that
could lead to a burden.

Mahindra & Mahindra Ltd.:-

Mahindra & Mahindra Ltd. (M&M) is the flagship company of the
Mahindra Group. Its core business is mobility products and farm
solutions. Today, it offers a wide range of products and solutions ranging
from SUVs, pickups, commercial vehicles, and tractors, to electric
vehicles, two-wheelers, and construction equipment. The group has a
business presence in 100+ countries with 68 manufacturing facilities
around the world. The company maintains a leadership position in the
domestic tractor sector, with a market share of ~40% over the last
decade. The future would be defined by the firm’s focus on customer
experience as it significantly enhances its design capabilities, builds
differentiated brand strategy, leads digital transformation, and drives EV
(electric vehicle) technology in the automotive space. M&M has an

80
order backlog of 170k+ units in the booming utility vehicle segment,
which is expected

81
to be a key growth driver for the company. In an endeavour to create a
very strong automotive product portfolio, the company plans to leverage
its platforms to launch 23 new products by CY 2026: 9 SUVs & 14
LCVs. On the other hand, the auto giant plans to build a strong product
pipeline of farm machinery, in partnerships with global CoEs. The
company is also exploring exports and inorganic acquisitions to rapidly
scale up the segment. The management’s aggressive business growth
plans will lead to value creation for shareholders. On the other hand,
rural stress, commodity price inflation, and chip supply difficulties may
continue to weigh on margins in the near term.
Eicher Motors
Eicher Motors owner of iconic Royal Enfield leads the premium
motorcycle segment in India. Royal Enfield has captured nearly 95% of
the 250cc plus premium segment category. It enjoys a virtual monopoly
in this segment without any intentions of entering the other segments.
One of the main reasons for the strong brand name – Royal Enfield is
due to its high-quality standards. Royal Enfield emphasizes on providing
best quality to its customers.
The company also has a joint venture with the Volvo group, VE
Commercial Vehicles Limited which designs, manufactures and markets
reliable, fuel-efficient trucks and buses. The company has delivered
impressive return ratio metrics over the last 5 years as its ROE and
ROCE stand at 19.5% and 27.2% respectively. Since Eicher Motors
caters to the premium category, it is prone to stiff competition led by an
increasing presence of global as well as Indian players. Further, Royal
Enfield is highly dependent on Indian markets and remains exposed to
geographical concentration risk.

82
Maruti Suzuki:-
Maruti Suzuki set up as a joint venture between Maruti and Suzuki is
India’s largest car maker selling more than half of the cars on road. It
has created unmatched brand equity over the years. The company has a
strong product portfolio with models in every segment. It focuses on
continuous process improvement, effective cost control measures and
flexible manufacturing processes. The company possesses a healthy
balance sheet with 0 debt due to its strong cash generating ability and
RoIC placed at a healthy 28% Apart from hybrids, the carmaker is
focusing on EV, CNG as well as ethanol and bio-CNG compliant
engines. Further, it plans to launch its first EV in 2025. With more
players and models vying for a share of the growing pie, competition in
the domestic car market may intensify, resulting in price competition
and lower realizations. Given Maruti’s limited presence in SUVs, its
market share in passenger vehicles has dipped below 50% in recent
times. However, the company is gearing itself to gain popularity in the
segment through the launch pipeline of four SUVs.

83
Model Portfolio of Automobile Stocks

In order to get an exposure to best Indian auto stocks, you would need a
total of Rs. 1,03,190 for the below curated portfolio as of July 01, 2022.

84
A detailed table with various parameters of Best Auto Stocks

85
PROBLEMS IN THE AUTOMOTIVE INDUSTRY TODAY

In the past, the prices of metals and other raw materials were less
volatile than they are now. In some cases, when they increased
significantly, those extra costs could be passed on to buyers, but this is
not often the case today. Demand is low, competition is high and many
car markets are struggling, especially in the cheap market segment. An
increase of €200 can mean a sale is lost. Consumers will go for the
cheapest option, or not buy at all. Both suppliers of metal components
and buyers (car or spare parts manufacturers) are facing losses and there
is little flexibility. In the past, the large producers would often smooth
out price fluctuations for their smaller buyers, but this is no longer the
case. Long term contracts give fixed prices for a year or so, but are
hardly ever available now. It is ironic that one of the reasons why the car
industry is suffering so much is because manufacturers have improved
their processes (JIT – Just In Time, TQM – Total Quality Management
etc.) Such processes cut the amount of metal in stock. So, on the one
hand car makers have reduced their stock financing cost, but on the other
they are always having to buy on the ‘spot’ market and are at risk from
much higher price volatility as a result.

86
 Chapter 7

Conclusions and Suggestions

The Paper “Integration and volatility spillover of automobile companies
stock price on BSE SENSEX and BSE AUTO index” exposed that the
combination and volatility spilloverof BSE Indices such as BSE
SENSEX and BSE AUTO on selected companies of auto mobile such as
APOLLO TYRES, ASHOK LAY, BAJAJ AUTO, MARUTISUZU,
MOTHER
SUMI and MRF have been examined through the tools such as
Augmented Dickey Fuller test, GRACH MODEL and Johansen Co
integration Rank Test for the period 2009-2019.
It shows that the that there was significant and reliable relationship exist
among the automobile companies such as APOLLO TYRES, ASHOK
LAY, BAJAJ AUTO, MARUTISUZU, MOTHER SUMI and MRF on
BSE SENSEX and BSE AUTO Index since the critical value of 1%, 5%
and 10% level are lesser than the ADF t – statistics values of
variables.The study revealed that that there was a high volatility and also
significantly volatility in the selected variables, so the investors can
invest in the stock of Apollo, Ashok Leyland, Bajaj auto, Maruti Suzuki,
Mother Sumi and MRF since they are influenced by the market
capitalization and also the share prices and its fluctuations of the BSE
indices such as BSE SENSEX and BSE AUTO.
Through the Johnson Co integration Rank Test that there will be a long
run relationship between APOLLO TYRES, ASHOK LAY, BAJAJ
AUTO, MARUTISUZU, MOTHER SUMI and MRF on BSE SENSEX
and BSE AUTO Index and also the price movement of the BSE
SENSEX and BSE AUTO Index causes the Indian Stock Market
87
Returns on the

88
selected companies stock price of Automobile industry. This work helps
the institutional investor to aware about the ups and down of the stock
price of automobile companies and also portrays them to loss their
hesitation to make investment in the automobile companies. This
research article influenced the investment decision making of both
institutional and individual investor effectively and efficiently on the
stock of automobile companies list on the Bombay stock exchange.
Stock means ownership as an owner you have claim the Assets an
earring of company
Risk management in trading involves the calculation of market risk and
fluctuations.
This can be done through many analytical tools which factor That is
effective since market fluctuations
have less impact on such large companies than on smaller companies.
Pairs trading involves buying stocks of a company and simultaneously
short-selling the stocks of another
company from the same sector to mitigate risk from an anticipated price
fluctuation.

89
 Chapter 8

Bibliography

Selection Of Sample Companies:-

The following are such companies for conducting the study that forms a
sample size of 5 companies. The name of those 5
companies are as follows:
1) Maruti Suzuki
2) Ford
3) Mahindra & Mahindra Ltd
4) Tata Motors Ltd
5) Toyota Kirloskar

Reference: -

 [1] A.K. Nasr, S. Alaei, F. Bakhshi, F. Rasoulyan, H. Tayaran, M.

Farahi. How enterprise risk management (erm)
 can affect on short-term and long-term firm performance:
evidence from the Iranian banking system. Entrepreneurship
 and Sustainability Issues. 7 (2019) 1387-403.

 B. Badri-Koohi, R. Tavakkoli-Moghaddam, M. Asghari.

Optimizing Number and Locations of Alternative-Fuel
 Stations Using a Multi-Criteria Approach. Engineering,
Technology & Applied Science Research. 9 (2019) 3715-20.

90
 A. Nikoobakht, J. Aghaei, H. Fallahzadeh-Abarghouei, R.
Hemmati. Flexible Co-Scheduling of integrated
 electrical and gas energy networks under continuous and discrete
uncertainties. Energy. 182 (2019) 201-10.

 P Karthika and Dr P Karthikeyan, “A Study on Comparative

Analysis of Risk and Return with reference to selected stocks of
BSE Sensex India” The International Journal’s – Research Journal
of Social Science & Management, 2011.

 Laxman Raj Kandel, “Risk and Return Analysis of Commercial

Banks of Nepal with reference to NABIL and NIBIL” Pravaha
Journal - A Journal of Management, 2018.

 T. Mallikarjunappa and Shaini Naveen, “A study on Comparative

Analysis of Risk and Return with reference to stocks of CNX
Bank Nifty” International journal of Scientific Research and
Modern Education, 2016.

 Alexander, C., &Dimitriu, A. (2005). Indexing and statistical

arbitrage. The Journal of Portfolio Management, 31(2), 50-63.
Behr, P., Guettler, A., &Miebs, F. (2013). On portfolio
optimization: Imposing the right constraints. Journal of Banking
& Finance, 37(4), 1232-1242

 ACEA. (2017). ACEA Tax Guide.Brussels: ACEA. Retrieved

March 1, 2018, from
http://www.acea.be/uploads/news_documents/ACEA_Tax_Guid_
2017.pdf

 ACEA. (2017). CO2 Based Motor Vehicle Taxes in the EU.

Brussels: ACEA. Retrieved March 2, 2018, from
http://www.acea.be/uploads/publications/CO2_tax_overview_201
7.pdf

91
  ACEA. (2017). Overview on Tax Incentives for Electric Vehicles
in the EU. Brussels: ACEA. Retrieved from
http://www.acea.be/uploads/publications/EV_incentives_overvie
w_2017.pdf

 ACEA. (2018). Laboratory Test. Retrieved April 15, 2018, from

ACEA: http://www.acea.be/industry-
topics/tag/category/laboratory-test

 ACEA. (2018). Share of Diesel in New Passenger Cars. Retrieved

March 18, 2018, from ACEA:
http://www.acea.be/statistics/tag/category/share-of-diesel-in-new-
passenger-cars

Magazine: -

1) Pratiyogita Darpan
2) Yojana
3) The Economic Times
4) The Economic Times

Websites:-
www.marketrisk.com
www.bsebti.com
www.nseindia.com
www.economictimes.com
www.investopedia.com
www.moneycontrol.com
www.samco.in
www.bseindia.com

92