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AN ALYSIS OF 1

INDIAN AUTOMOBILE INDUSTRY

PROJECT REPORT
ON
ANALYSIS OF INDIAN AUTOMOBILE
INDUSTRY

SUBMITTED TO : SUBMITTED BY:


MR. KUMAR BIJOY ISHEETA NIRMAL (195)
DEEPIKA GARG (188)
RASHMI SHARMA (215)
ROSHAN
AGARWAL(218) VIKAS
GUPTA (229)
NIKHIL MAHAJAN (240)

NEW DELHI INSTITUTE OF MANAGEMENT


60, 50(B&C), TUGHLAKABAD INSTITUTIONAL AREA
NEW DELHI-110062
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INDIAN AUTOMOBILE INDUSTRY

DECLARATION

We hereby declare that the work presented in this Project entitled “ Analysis of
Indian Automobile Industry” submitted to Prof. Bijoy kumar (visiting Faculty) at
New Delhi Institute Of Management, New Delhi is an authentic record of our
original work.

Signature of Mentor Signature of Candidates

Date:

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ACKNOWLEDGEMENT

The satisfaction and joy that accompanies the successful completion of a task is incomplete without
mentioning the name of the person who extended his help and support in making it a success.

We are greatly indebted to Mr. Bijoy (Guest Faculty at NDIM), my Project Guide and Mentor for
devoting his valuable time and efforts towards my project. We thank him for being a constant source of
knowledge, inspiration and help during this period of making project.

ISHEETA NIRMAL
DEEPIKA GARG
RASHMI SHARMA
ROSHAN
AGARWAL VIKAS
GUPTA NIKHIL
MAHAJAN

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PREFACE

Indian automobile industry has grown leaps and bounds since 1898, a time when a car had touched the
Indian streets for the first time. At present it holds a promising tenth position in the entire world with
being # 1 in Two Wheelers and # 4 in commercial vehicles. Withstanding a growth rate of 18% per
annum and an annual production of more than 2 million units, it may not be an exaggeration to say that
this industry in the coming years will soon touch a figure of 10 million units per year.

The automobile industry in India — the ninth largest in the world with an annual production of over 2.3
million units in 2008 — is expected to become one of the major global automotive industries in the
coming years.

In this project we have undergone a detailed analysis of India automobile industry by using Fundamental
and Technical tools. In order to better understand the performance of the industry we have made
comparative analysis of Two players Tata motors as (leading player) and Maruti Suzuki.

The project report is divided into 5 chapters. The first two chapters include Executive Summery &
objective of the research. The third chapter deals with analysis of automobile Industry which entails
fundamental and technical analysis of Indian Automobile Industry. The fourth chapter deals with
Conclusion & Recommendations and the last chapter includes Bibliography.

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TABLE OF CONTENT
S.NO. PARTICULARS PAGE NO.
Chapter 1. Executive Summary of the Project
Chapter 2. Objective of the Project
Chapter 3. Analysis of Indian Automobile
Industry

Fundamental Analysis
a. Economy
b. Industry
c. Company
- Financial & Non-Financial
Technical Analysis
a. Share Price Analysis
b. Moving Average
c. Moving Average Crossover
d. Bollinger Band
e. M.A.C.D
Chapter 4 Conclusion & Recommendations
Chapter 5 Bibliography
Annexure

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EXECUTIVE SUMMARY

The automobile industry, one of the core sectors, has undergone metamorphosis with the advent of new
business and manufacturing practices in the light of liberalization and globalization. The sector seems to
be optimistic of posting strong sales in the couple of years in the view of a reasonable surge in demand.
The Indian automobile market is gearing towards international standards to meet the needs of the global
automobile giants and become a global hub.

A detailed analysis of Automobile industry has been covered in respect of past growth and performance.
Under this project to better understand the Industry we have used Fundamental and Technical tools to
make it more authentic n meaningful. An E.I.C approach has been followed under Fundamental Analysis
which covered effect of Recession, the impact of inflation, FDI’s, Export, GDP etc. on Automobile
Industry. The Industry Analysis has been done with the help of five forces model, BCG Matrix, SWOT
analysis, industry life cycle and the industry specific index. For Company Analysis as a part of
Fundamental tool we have undergone with the comparative analysis of TATA Motors as our leading
company with Maruti Suzuki India’s largest Car manufacturer. The fundamental aspect consists financial
and Non-Financial analysis of both the company. In the Technical aspect we have considered Share
price analysis, moving average, moving average crossover, Bollinger bands and M.A.C.D. of both the
company by keeping TATA Motors as our leading company.

At the end conclusion and recommendations have been specified so as to make the research work more
meaningful and purposeful.

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OBJECTIVE OF THE PROJECT

The objective of this project is deeply analyze our Indian Automobile Industry for investment
purpose by monitoring the growth rate and performance on the basis of historical data.

The main objectives of the Project study are:

Detail ed analysis of Aut omobile industry whi ch is gearing towa rds


inte rnational standa rds

Analyze the impact of qualitative factors on industry’s and compan y’s


prospects

Comparative analysis of two tough competitors TATA Motors and Maruti Suzuki

Application of various Technical Tools and Fundamental tools (like Financial and
Non- financial statements).

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ANALYSIS OF AUTOMOBILE INDUSTRY


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

To understand this industry for the purpose of investment we need to analyze it by following two
approaches:

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


a. Economy
b. Industry
c. Company
2).Technical Analysis

1) FUNDAMENTAL ANALYSIS

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

GDP and Automobile Industry

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


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

Today, automobile sector in India is one of the key sectors of the economy in terms of the employment.
Directly and indirectly it employs more than 10 million people and if we add the number of people
employed in the auto-component and auto ancillary industry then the number goes even higher.

As the world economy slips into recession hitting the demand hard and the banking sector takes
conservative approach towards lending to corporate sector, the GDP growth has downgraded it to 7.1 per

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cent for 2008-09 and predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning
Commission of India). Following is the graph showing a trend of Indian GDP trend in past 3 years.

Source:India Central Statistical Organization

The market value of Automobile Industry is more than US$8 bl. and Contribution in Indian GDP is near
about 5% and will be double by 2016. The automotive industry in India grew at a computed annual
growth rate (CAGR) of 11.5 percent over the past five years, but growth rate in last FY2008-09 was only
0.7% with passenger car sales shows 1.31% growth while Commercial Vehicles segment slumped
21.7%.

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

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

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

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

FDI’s
In India FDI up to 100 percent, has been permitted under automatic route to this sector, which has led to
a turnover of USD 12 billion in the Indian auto industry and USD 3 billion in the auto parts industry.
India enjoys a cost advantage with respect to casting and forging as manufacturing costs in India are 25
to 30 per cent lower than their western counterparts the Investment Commission has set a target of
attracting foreign investment worth US$ 5 billion for the next seven years to increase India's share in the
global auto components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in
Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-08, while in
April-May 2009 it was around Rs.497 Cr.
Source- FDI Statistics Govt. of
India

Foreign Exchange
India holds the third largest stock
of reserves among the emerging
market economies after China and
Russia. The overall approach to
the management of India's
foreign exchange reserves in
recent years reflects the changing
composition of the balance of
payments and the 'liquidity risks'
associated with different types of
flows and other requirements. Source: rbi.org.in

Taking these factors into account, India's foreign exchange reserves continued to be at a comfortable
level and consistent with the rate of growth, the share of external sector in the economy and the size of
risk-adjusted capital flows. Following is the table shows the trend of foreign reserves held by central
bank in last FY. Reserves came down cause of recession all over the world however India still able to
maintain its reserves hence a minor fall was seen compare to all other country which shows great
strength in long-term for Indian Economy. Increase in Exports specially from auto industry shows an
expectations of huge income from western countries and new $200 bl. target for exports by 2011 helps in
increasing.

Note:

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1.FCA (Foreign Currency Assets): FCAs are maintained as a multicurrency portfolio comprising ajor currencies, such
as, US dollar, Euro, Pound sterling, Japanese yen, etc. and is valued in terms of US dollars.
2. SDR (Special Drawing Rights): Values in SDR have been indicated in
parentheses.
3. Gold: Physical stock has remained unchanged at approximately 357
tonnes.
4. RTP refers to the Reserve Tranche Position in the
IMF.

Export

Society of Indian Automobile Manufacturers (SIAM), automobile sales (including passenger vehicles,
commercial vehicles, two-wheelers and three-wheelers) in the overseas markets increased to 1.53 million
units in 2008-09 from 1.23 million units in 2007-08. Export of passenger vehicles increased from
218,401 in 2007-08 to 335,739 units in 2008-09.

There is a continuous increase in the export of automobiles since the financial year 2002-03, except for
the decline in the export of commercial vehichles in the financial year 2008-09, which may be attributed
to the global economic recession.
Despite recession, the Indian automobile market continues to perform better than most of the other
industries in the economy in coming future, more and more MNC’s coming in India to setup their
ventures which clearly shows the scope of expansion.
Current Scenario of Automobile Industry in Economy
With the latest available data Indian Automobile Industry is expected to grow at 9%-10% in near future,
Two wheeler segment sales grew up by 12.8% with the modest 2.6% growth rate, under this segment the
market leader Hero Honda registered growth of 12% in its domestic sales where as Bajaj Auto
disappointed as sales plunging by 23%, on the other hand car sales has been grew up by a healthy 22.7%
in last February and Commercial Vehicles reported slower sales. It is assumed that in coming festive
season to meet demand, carmakers going to produce 70000units/month more over the average
1.3lac/month with help of 5000 new hands. Source: Economic Times
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Indian Automobile Industry at Global


level:

India ranks 1st in the global two-wheeler


market
India is the 4th biggest commercial vehicle market in the
world
India ranks 11th in the international passenger car
market
India ranks 5th pertaining to the number of bus and truck sold in the
world
India is the second largest tractor manufacturer in the world.

Volkswagen, Toyota, Nissan & Ford plan new cars to cash in on fastest-growing compact car section
of car market in India. Source: Economic Times
Sales of different Auto Companies speed up even before festive season Maruti by 29%, TATA by
11%,Skoda Auto 33%, Hero Honda 33%, Mahindra 42%, Yamaha 63%
etc.
Source: Economic Times (3/09/09)
It is expected that the Automobile Industry in India would be the 7th largest automobile market within
the year 2016.

Projected Growth rate in Automobile


Industry

Passenger vehicle sales in the country will grow at a CAGR of 12 per cent to touch 3.75 million
units by 2014.
The domestic two-wheeler sales will grow at a CAGR of 8.8% by 2014 at 11.3 million units.
To emerge as the destination of choice in the world for design and manufacture of automobiles and auto
components with output reaching a level of US$ 145 billion accounting for more than 10% of the GDP
and providing additional employment to 25 million people by 2016.

b.) INDUSTRY ANALYSIS


(AUTOMOBILE)
The current trends of the global automobile industry reveal that in the developed countries the
automobile industries are stagnating as a result of drooping markets, whereas the automobile industry in
the developing nations, have been consistently registering higher growth rates every passing year for
their domestic flourishing domestic automobile markets.
Being one of the fastest growing sectors in the world its dynamic growth phases are explained by the
nature of competition, Product Life Cycle and consumer demand. The industry is at the crossroads with
global mergers and relocation of production centers to emerging developing countries.
In 2009, estimated rate of growth of India Auto industry is going to be 9% .The
GROIndian
UP-15,automobile
FINANCE-IIsector
is far from being saturated, leaving ample opportunity for volume growth.
Segmentation of Automobile Industry

The automobile industry comprises of Heavy

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vehicles (trucks, buses, tempos, tractors);


passenger cars; Two-wheelers; Commercial
Vehicles; and Three-wheelers. Following is
the segmentation that how much
each sector comprises of whole
Indian Automobile Industry.

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

1. Five Forces Model


2. BCG Matrix
3. Industrial Life Cycle
4. SWOT Analysis
5. Industry Specific Index

1.) Five Forces Model


Michael Porter identifies five forces that influence an industry. These forces are

Degree of Rivalry
Despite the high concentration ratio seen in the automotive sector, rivalry in the Indian auto
sector is intense due to the entry of foreign companies in the market. The industry rivalry is
extremely high with any being product being matched in a few months by the competitors. This
instinct of the industry is primarily driven by technical capabilities acquired over years of
gestation under the technical collaboration with international players.

Threat of Substitutes
The threat of substitutes to the automotive industry is fairly mild. Numerous other forms of
transportation are available, but none offer the utility, convenience, independence and value
offered by automobiles. The switching cost associated with using a different mode of
transportation, may be high in terms of personal time, convenience and utility.

Barriers to entry
The barriers to enter automotive industry are substantial. For a new company, the startup capital
required to establish manufacturing capacity to achieve minimum efficient scale is prohibitive.
Although the barriers to new companies are substantial, establishing companies are entering the
new markets through strategic partnerships or through buying out or merging with other
companies. However, a domestic company, with local knowledge and expertise, has the potential
to compete its home market against the global firms who are not well established there.

Supplier’s power

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In the relationship between the industry and its suppliers, the power axis is tipped in industry’s
favor. The industry is comprised of powerful buyers who are generally able to dictate their terms
to the suppliers.

Buyers’ Power
In the relationship between the automotive industry and its ultimate consumers, the power axis is
tipped in the consumers’ favor. This is due to the fairly standardized nature and the low
switching costs associated with selecting from among competing brands.

2.) BCG Matrix

In an economy, different industries are present and different industries have different growth rate as
compared to the growth of the economy. In an economy, there are a number of major industries and
they all occupy different positions in the BCG matrix according to their growth and contribution
towards the economy. In the Indian economy, some of the major sectors are FMCG, automobiles,
banking and insurance, steel, telecom, software, pharmacology and retail sectors and these can be
placed in the different positions in the matrix as shown below:

INDUSTRY BCG MATRIX

H S
QUESTION
Bank ing
Telecom
M &
a
r AUTOMOBIL Retai
k
e Softwa
t

G CASH D
r
o F
w
t
h

Low

H Relati ve mar ket Low

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STARS Question Marks


BCG matrix Ma hindra&
is used to
determine the
relative Hero TVS
position of
Bajaj General Mo totrs
the
companies of
an industry or Dogs
Cash Cows
different SBU’s of any institution, in terms of the market growth rate and the mar ket share of the
company in the industry. In the Indian automobile sector, the major players are Maruti Suzuki Limited,
General motors, Mahindra and Mahindra, Tata Motors, Hero Honda and Bajaj auto. In the BCG matrix,
the companies a re placed in one of the following four categories: Star, Cash Cows, Dogs and Question
marks. In the Stars we place the companies with high marke t growth and high market share, cash cows
are the companies who have low market growth rateand high relative market share, th e category of the
question marks include the companies with low rela ive
t market share and high market growth rate and
dogs include the companies who have low relative market share and low market growth rate.

COMPANY BCG MATRIX


H

M
a
r
k
e
t

G
r
o
w
TATA
t
h
Maruti

Low
H Relati ve market Low

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3.) Industrial Life Cycle

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

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

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

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

4.) SWOT Analysis

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

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Strengths
Large domestic market Sustainable labor
cost advantage Competitive auto
component vendor base
Government incentives for manufacturing plants
Strong engineering skills in design etc
Weaknesses
Low labor productivity
High interest costs and high overheads make the production uncompetitive
Various forms of taxes push up the cost of production
Low investment in Research and Development
Infrastructure bottleneck

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

Threats
Rising input costs
Rising interest rates
Cut throat competition

5.) Industry Specific Index

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

BSE Auto Index comprises all the major auto stocks in the BSE 500 Index.

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BSE AUTO Index 5 Year Chart

Automobile Industry Index at BSE for 5 Year

COMPANY
Source:Googlefinance.com

Above is the Indian Auto Industry Index(BSE) shows the up’s and down’s over the period of 5 years.
Intially in 2003 when major giants got listed on stock exchange TATA Motors, Maruti Suzuki, etc.
indian auto industry start picking up growth slowly in the first end of 1st quarter index reaches to its
highest in his history. Than we saw a steady fall in the index and in the mid 2006 reaches to years
lowest point it again start booming and than year on year we saw a up and down movement in the
index as lots of new players came in Indian market with foreign colaboration but when 2008 came
with global slowdown it brings the demand of automobile so low that index reaches to its lowest in
past 5year . Most of the company even shut down their manufacturing units for more than a week,
production came down because of less demand in the economy. Also no further launches were made
in mid or late 2008 and postponed to next year. We have also saw a fall in FDI’s in automobile
Industry. But in the beginning of
2009 right from 1st quarter auto industry again start regaining and we saw a tremondous growth in auto
industry which never seen before not in india but all over the world. The demand of 2 and 4 Wheelers
start increasing rapidly which also force auto industry to employ more workers to meet demand and with

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in the 2nd quarter of FY2009-10 Auto index reaches to its highest ever crossed mark of 6000. And this
growth of industry will be carry further as festive season still to come, so there is a lot of scope to growth
in this industry.

c.) COMPANY ANALYSIS (Maruti Suzuki & TATA Motors)


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

Profile of Maruti Suzuki


Maruti Suzuki is one of India's leading automobile manufacturers and the market leader in the car
segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.28% of the
company was owned by the Indian government, and 54.2% by Suzuki of Japan. As of May 10, 2007,
Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer
has stake in Maruti Udyog.

The turnover for the fiscal 2008-09 stood at Rs. 203,583 Million & Profit After Tax at Rs.
12,187ml.Maruti Suzuki India Ltd. has sold a total of 84,808 vehicles in August 2009, an increase of
41.6%, compared to 59,908 vehicles in the same period of 2008. The company's domestic sales in August
2009 increased 29.3% to 69,961 vehicles, compared to 54,113 vehicles in August 2008. Total passenger
car sales in August 2009 increased 30.5% to 69,629 units, compared to 53,351 units in August 2008 The
company's exports increased 156.2% to 14,847 units, compared to 5,795 units in August 2008.

Profile of Maruti Suzuki


Tata Motors Limited is India’s largest automobile company, reported gross revenue (stand-alone) of
Rs.28599.27 crores (2007-08: Rs.33093.93 crores) in 2008-09, a year marked by severe demand
contraction in the automobile industry. Revenues (net of excise) for the year were Rs. 25660.79 crores
compared to Rs.28739.41 crores in 2007-08, a decline of 10.7%. The Profit before Tax was Rs.1013.76
crores compared to Rs.2576.47 crores in 2007-08, a decline of 60.7%. The Profit after Tax for the year
was Rs.1001.26 crores compared to Rs.2028.92 crores, a decline of 50.7%.

It is the leader in commercial vehicles in each segment, and among the top three in passenger vehicles
with winning products in the compact, midsize car and utility vehicle segments. The company is the
world’s fourth largest truck manufacturer, and the world’s second largest bus manufacturer.

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

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Financial Analysis

1. Financial Statements

RATIO ANALYSIS OF TATA MOTORS AND MARUTI SUZUKI


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

EPS = Net incom e- Divi dends on Pr eferred


stock
Average Outstanding shares

The trend shows that Tata’s net profit margin is quite


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

Net profit Ratio = (Net profit) × 100


(Net
sales)

Both giants of Automobile


industry shows positive trend in
Sales Revenue over the past
5year. However recession
brought hurdles but both
companies have potential to grow
in future as lots of products are

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still to add in their portfolio. Moreover increased demand in foreign market also seems to be a
positive signal for better future.

The quick ratio is a very stringent measure of


solvency. A general rule of thumb suggests that
the quick ratio should be around 1. Maruti is
always showing a positive trend as its ratio is
always greater than 1 except in 2008, while
TATA motors was doing good till 2007, but
the performance decreased from 2008 onwards as
shortage of cash was there and current
liabilities and provision increased by Rs800Cr.

A high debt to equity ratio suggests that a


company has financed its growth mostly
via debt. We see that the debt –equity ratio
of TATA motors is very high compared
to that of Maruti. It means that a lot of debt
is used by TATA’s to finance its
increased operations. Sometimes the cost
of the debt financing may outweigh the
return that the company generates on the
debt through investment and business
activities and can
lead to bankruptcy. Maruti is going very swiftly in this field.

Debt-Equity Ratio= Total Debt

Total Equity

The current ratio is a convenient and reliable tool for


measuring a company's level of liquidity. The ratio
acts as an indication that the firm is able to generate

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funds to make all needed payments in the future; thus, the ratio indicates whether the firm is likely to be
a going concern. Both the companies possess a good ratio but the ratio which is close to 2 is desirable, so
we see in graph that Maruti has more strong liquidity than TATA Motors as its current ratio is
always greater than 1. Maruti is more successful in paying off its liabilities. Expansion plans of TATA
brought down its cash & Bank Balance and increase of outside liabilities.

Tata motors and Maruti Suzuki both the companies


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

Dividend Per Share= Total amount of Dividend


Share Outstanding

a.) Balance Sheets


Maruti Suzuki TATA Motors

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b.) Income Statements

Maruti Suzuki TATA Motors

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Non-Financial Analysis

1. Share Holding Pattern for Quarter Ended 30-June-09

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Above is the updated sha re holding patte rn Being a ven ture of Japanese co mpany
of TATA mo tors which sho ws that Indian Suzuki big sta ke of the company is held by
promoter sha re in the company is 41% foreign promoters which shows that they
that means if they are not in the position to can divest their part(small part) to raise
raise further money from general money infutu re. However institu tional
public, Company al ready raised inves tors also held 39% major sta ke in the
huge money by selling th eir largestake company but general public have very
to institu tional investo rs about small pa rt which shows that less presence
27%. General Public also have quite of sha re in the se condary mar ket hence low
large sta ke in the comp any volume trading in stock mar ket.

2. Board of Director
TATA Motors Maruti Suzuki
Mr. Ratan Tata Chairman Mr. R. C. Bhargava Chairman
Mr. N.A. Soonawala Director Mr. Shinzo Hakanishi MD and CEO
Mr. R. Gopalakrishnan Director Mr. Manvinder Singh Banga Director
Mr. S.M. Palia Director Mr. Amal Ganguli Director
Mr. S. Bhargava Director Mr. D. S. Brar Director
Mr. V. K. Jairath Director Mr. Keiichi Asai Director
Mr. Ravi Kant Vice Chairman Mr. Osamu Suzuki Director
Mr. J. J. Irani Director Mr. Shuji Oishi Director
Mr. N. N. Wadia Director Ms. Pallavi Shroff Director
Mr. R.A. Mashelkar Director Mr. Kenichi Ayukawa Director
Mr. n Munjee Director Mr. Tsuneo Shashi Director &
Mr. Prakash M Telang Director Managing
Executive
3. Upcoming Ventures & Products Office (Production)

TATA Motors

Tata Motors is try to be in a position to dominate the Indian Auto industry, at least in four-wheeler
segment. Tata Motors have announced that they are interested in the idea of designing electric cars.
To take it a step further Tata has also initialized plans for the manufacture of a hybrid car which it will
market with Chryster in the U.S.

After the launch of Nano, Tata also apparently has its eye on the European and U.S. markets. The
company hopes to have a version for Europe by 2011 and one for the U.S perhaps by 2012. Tata
Motors,

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is now aiming to launch its cars in Indonesia and is also planning to sell Nano in South America with the
help of Fiat. After launching the world’s cheapest car, Nano, Tata Motors is looking east, towards
neighboring Myanmar to boost its sales by setting up a truck manufacturing plant. As part of its
expansion plans in Southeast Asia, Tata Motors had inked a joint venture with Thailand’s Thonburi
Auto Assembly’s to manufacture up to 35,000 one tone pickup trucks a year over the next 3-5 years.
Tata Motors, is searching options to pump approximately Rs. 8,000 cr. During the next 3-4 years on
capital expenditure and product development.

Maruti Suzuki
Maruti Suzuki has expanded the capacity at its Manesar plant to 1.7 lakhs unit per annum from January
2009. By the year 2010, Suzuki Motors plan to increase their dealership in India. This is a step to
increase their sales to one million units as well as for a better position in the Indian auto market. The
expansion is estimated to cost $ 3.5 billion, out of which a quarter will be assigned for amplifying
leadership network to 1000 in number.

As Maruti Suzuki eyes one million sales by 2010, they have firmed up a massive expansion plan of its
service network and plans to expand it to 1700 towns and cities from the current of about 1200. The
company plans to increase the number of service stations and workshops to over 3800 from about 2800
currently. They have also been coming with specific sales promotion programmes targeted at interior
regions, among them is the “Mera Sapna Meri Maruti: New Panchayati Scheme”. The Haryana
government has allotted 700 acres of land to Maruti Suzuki for hi – tech Research & Development
complex at Rohtak. The upcoming facility, will see an investment in the range of Rs. 1,000 cr. to 1,500
cr. And will introduce world class R&D facilities into India. While the development of the allotted land
and construction of the test tracks will be completed in the first phase by 2012, the overall R&D facilities
will be progressively completed by 2015.

In a move ahead, Maruti Suzuki India limited launched the Estilo with all new overall looks and
advanced technological features.

The upcoming cars in near future by both companies are:

TATA Motors Maruti Suzuki


Products (CAR) Expected Launch
Maruti Grand Vitara Diesel December- 2009
Maruti 02 December 2009
Maruti SX4 Diesel December 2009
Maruti Cervo December 2009
Maruti Kizashi December 2009
Maruti xl7 March 2010

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Maruti APV June 2010


Maruti Jimny July 2010

4. Government Policies Towards Indian Automobile Industry

Automobile industry in India also received an unintended boost from stringent government auto
emission regulations over the past few years. This ensured that vehicles produced in India conformed to
the standards of the developed world.

Though it has an advantage in India, thanks to low costs and government policies it soon faces stiff
competition from it multinational competitors all eyeing for a share in the ever growing Indian auto
sector. The policies adopted by Government will increase competition in domestic market, motivate
many foreign commercial vehicle manufactures to set up shops in India, whom will make India as a
production hub and export to nearest market.

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


foreign equity ownership
Automatic approval for foreign equity investment upto 100% of manufacture of automobiles and
component is permitted
FIIs including overseas corporate bodies (OCBs) and NRIs are permitted to invest up to 49 per
cent of the paid-up equity capital of the investee company, subject to approval of the board of
directors and of the members by way of a special resolution. .
Investments in making auto parts by a foreign vehicle maker will also be considered a part of the
minimum foreign investment made by it in an auto-making subsidiary in India. The move is
aimed at helping India emerge as a hub for global manufacturing and sourcing for auto parts.
Specific component of excise duty applicable to large cars and utility vehicles will be reduced to
15,000 rupees per vehicle from 20,000 rupees earlier.
The Proposal by the Govt. to set up an expert group to advise on a viable and sustainable system
of pricing petroleum products, as this will surely had an impact on the Automobile Industry.
The announced reduction on the basic customs on bio-diesel is great news for all companies
working on environmental saving technologies.

2.) TECHNICAL ANALYSIS

Technical analysts track price movements and trading volumes in various securities to identify patterns in
the price behavior of particular stocks, mutual funds, commodities, or options in specific market sectors
or in the overall financial markets.The goal is to predict probable, often short-term, price changes in the
investments that they study, which allows them to choose an appropriate trading strategy. Following is
the Technical Analysis of TATA Motors & Maruti Suzuki to understand their pattern and behavior of
share prices in the market.

Implication of DOW THEORY

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

Public
Accumulati

Contin uati

Exces

Upst rea Correctio

The first tenet of Dow Theory is that the market has three trends; Uptrends are defined as a time when
successive rallies in a security price close at levels higher than those achieved in previous rallies;
Downtrends, which are defined as when the market makes lower lows and lower highs and Corrections,
which are defined as a move after the market makes a move sharply in one direction where the market
recedes in the opposite direction before continuing in its original direction.
In the graph shown above, it is shown that the share prices of Tata motors were increasing in the year
2009, but it then suddenly decreased near the month of June’2009, but then started increasing again.
The second tenet of Dow Theory is that trends have three phases; Accumulation, Public participation and
Excess. The accumulation phase is one in which the expert traders are actively taking positions which are
against the majority of people in the market. The public participation phase, which is when the public at
large catches on to what the experts know and begin to trade in the same direction and in the Excess
phase, where rampant speculations occur and the “smart money” starts to exit their positions.

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Upst rea
m

Primary
trend

Deviati
Reaction
rally

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

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

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

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

SENSEX AND TATA MOTORS

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

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

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1. Resistance & Support Level

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

Resista nce
Lev el

Support level
RS.1275 ap prox.

(1-Ju l-09 to 7- Se pt-

Resis tance
Level

Support Lev el
Rs.430 ap prox.
As it is seen in the past 4 months
TATA sha re price moved up and
it keeps making on new level so
per fect resista nce level for this
sha re is not easy to predict as
perfo rmance of this sha re is very
good compa re to all scrips of this
segment.
The above band of resistance and support level shows that the price of shares will move in between this
range only until unless any wrong reaction came out in economy or when any correction takes place the
prices will move in between this band only.

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

Moving Average is an indicator that shows the average value of a security's price over a period of time.
The method of interpreting a moving average is to compare the relationship between a moving average
of the security's price with the security's price itself. In above figure we have compare the share price of
Tata Motor and Maruti with moving average of 50 period of Tata Motors, Maruti respectively.
A buy signal is generated when the security's price rises above its moving average and a sell signal is
generated when the security's price falls below its moving average. It is designed to keep you in line with
the security's price trend by buying shortly after the security's price bottoms and selling shortly after it
tops. Yellow area in the graph indicates buy signal and Green area indicates sell signal. In the near future
both the companies show buy signal as their security prices rises above its moving average. It shows that
both companies are performing better, so industry as whole is also performing outstanding. So keeping a
hold position for the companies would be profitable in future.

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3. Long Term Simple Moving Average (200 periods)

In the above chart Moving Average is an indicator that shows the average value of a security's price over
a period of time. We have compare the share price of Tata Motor and Maruti with moving average of
200 period of Tata Motors, Maruti respectively by taking share prices of 5 year to take out the Moving
average for 200 periods. This Tool of 200 Periods tells us about the position of share to buy or sell for a
long period say for 9-12 months.

A buy signal is generated when the security's price rises above its moving average and a sell signal is
generated when the security's price falls below its moving average. Yellow area in the graph indicates
Buy signal and Green area indicates Sell signal. In the near future both the companies show Buy signal

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

4. TATA MOTORS MACD

Sell

Overboug
Over so Buy

Above graph shows the MACD of TATA motors for the period of 6 months. The MACD is the
difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving
average(EMA), called the "signal" (or "trigger") line is plotted on top of the MACD to show buy/sell
opportunities. here are three popular ways to use the MACD: crossovers, overbought/oversold, and
divergences.

Crossovers: Yellow area shows that there was situation when sell position occurred in the end of month
June till mid of July as MACD curve below EMA or Signal line shows a sell situation otherwise we saw
a buy position of TATA Motors most of the time Light Green area shows that investor want to buy and
wan to be in hold position. The trend of buying is seems to be over here or in coming few days and a
selling or booking of profit could be seen hence MACD line could fall below EMA in coming time.

MARUTI SUZUKI MACD

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Overboug Overso

Crossover: The above graph shows the MACD of Maruti Suzuki, here Yellow area shows the selling
position as MACD line is below EMA line the Light Green area shows the buy position which occur last
time in the end of July but now buy position for Maruti is created as EMA or signal line seems to be
below MACD line and it will probably continue in near future.

For both TATA Motors & Maruti Suzuki

Overbought/Oversold: The amount of green lines in above graph on the up side shows the overbought
situation by the investor which mean that investor buy more shares at this time and oversold situation
occurs when green line is on the downside.

5. Moving Average Crossover


A crossover occurs when a faster Moving Average (i.e. a shorter period Moving Average-20 periods)
crosses either above a slower Moving Average (i.e. a longer period Moving Average-50 periods) which
is considered a bullish crossover or below which is considered a bearish crossover. M.A.C helps in
telling buying opportunities when the shorter moving average crosses above the longer moving average
and selling opportunities when the shorter moving average crosses below the longer moving average.
Following is the MAC of TATA Motors & Maruti Suzuki to understand the position of both companies
average share movement:

S
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20 Periods

50 Periods

Above is the MAC graph of TATA Motors for the period of 6 months in which ‘S’ denote the selling
situation or position whereas ‘B’ is the point after approx 1 month when we saw a bounce back in share
prices hence a buy signal occurs which is because, longer moving average of 50 periods cut shorter
moving average from the lower side and shows a holding position of shares in coming future also. The
increasing trend in the prices after buy signal of shares shows that good amount of profit could be
achieved in future if stick with hold position.
A move below the moving average suggests that the bears are in control of the price action and that the
asset will likely move lower, above yellow circle shows that area when price fall below average price and
then it move onto lower side.
Below is the MAC graph of Maruti Suzuki for past 6 months in which we haven’t see any sell position
till yet the movement of share price is always on the positive side that is increasing so we can say that
buying opportunities is always there in case of Maruti Suzuki. A cross above a moving average
suggests that the bulls are is in control and that the price may be getting ready to make a move higher
and Maruti Share Prices show that trend of moving up prices.

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No Sell Position or
Bu
Always Position of

6.) BOLLINGER BAND


Bollinger bands are used to measure a market’s volatility. Basically, this little tool tells us whether
the market is quiet or whether the market is LOUD! When the market is quiet, the bands contract; and
when the market is LOUD, the bands expand.

TATA Mo tors

On the graph it can be seen the overall trend of the market and quick reference for supply and demand as
well as support and resistance areas by using a 20 days moving average and 2 standard deviation in
calculating the Bollinger Bands. As we can see in the graph is that the at most of the time the graph lies
between the middle band and the upper band which shows an increasing price trend in the market and it’s
called Riding the Band. When the stock is outside the upper end of the Bollinger band it is considered as

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‘OVERBOUGHT’, which means that stock has gone up too fast and when a stock is outside the lower
band it is ‘OVERSOLD’. An oversold stock has gone down too fast. During the months of April, May,
mid July and mid august the stock of TATA motors crossed the upper band which means that during
these periods the prices rose very fast, while in mid of July the stock went below the lower band, i.e.
The prices fell too fast and are susceptible to bargain hunting. The overbought and oversold stocks are
apt to reverse course. It’s also seen that the volatility increased to new highs after July because the
bands started to widen. It’s better to buy stocks when it touches the lower band, but in regards all
other technical factors should be considered while buying.

Initially the bands show slight slope and lie approximately parallel to each other, this means that the price
of the stock is oscillating up and down between the bands through a channel. The stock also shows
overbought many times during the six months but it did not show any oversold trend, therefore it
becomes an important factor in determining the price trend as it tells that the prices have not fallen very
fast in these six months. During the june month the bands contracted very much which shows low
volatility, but then onwards the bands started to widen which creates high volatility and looking at the
future scenario it may be analysed that the stock will see a fall as at the end of august the band was
overbought, because when price is trading near the upper or lower Bollinger band line, there is a
possibility of trend reversal.
The buy and sell signals are not given when prices reach the upper or lower bands. Such levels merely
indicate that prices are high or low on a relative basis. A security can become overbought or oversold for
an extended period of time. Knowing whether or not prices are high or low on a relative basis can
enhance the interpretation of other indicators, and it can assist with timing issues in trading.

CONCLUSION

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

Indian Automobile has a lot of scope for both two wheelers and four wheelers due to development in
infrastructure of the country and especially the rural sector in which demand of two wheeler has
increased even in recession. According to Indian Statistical Organization the per capita income
(Rs.38000) is increasing and national income at the rate of 14.4% which shows potential to buy vehicle
in auto industry. The growth rate of Indian Automobile is so fast that by 2016 Indian Industry will be
world 7 largest manufacturer in all sections.

The Indian auto market is still untapped the majority of the people in country don’t own a four wheeler
and all the major auto companies are trying to increase their sales by several moves. Like TATA has
launch NANO the people’s car and now TATA motors is also planning to come out with an electric car
as well as hybrid car, moreover in two wheeler segment many companies like Mahindra and
Mahindra grow even more than expectations.

From the Technical Analysis of both companies we come to know that the share price of Maruti will
move in the band of Rs.1275 to Rs.1425 and that of TATA Motors will move in the range of Rs. 430
to Rs. 490 if certain correction made in the market.

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

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

Recommendations
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By analyzing the industry on various parameters with the help of implementing Fundamental and
Technical tools we came to know that this industry has a lot of potential to grow in future. So
recommending to invest in Automobile Industry have no doubt is going to be a good and smart option
because this industry is booming like never before not only in India but all around the world. The returns
which came out of this industry were very impressive recently, as if we take an example of TATA
motors it gives approx 90% return in a period of just 3 months while Maruti Suzuki shows always a
buy and hold position because there is possibility of growth in future, same situation is in two wheeler
segment with market leader Hero-Honda a debt free company also have bright future ahead. The
numbers which came out in the end of financial year 2009 prove that even in the period of recession
the overall sales went up is sufficient to support to this fact. Through Technical analysis of TATA
Motors and Maruti it can be recommended that for now Maruti share price shows that it’s a time to
hold the position or buy more shares as there is scope in further rise in share prices until and unless
any negative reaction or sentiments comes in the Economy.

Investing in Maruti Suzuki for long time could be a good option whereas in TATA motors there is a
chance of getting correction, as it already went on high side in a very short period of time so holding the
shares for long time could be a wrong step, so at this point of time those who invested earlier can book
their profit or new investors can buy now and sell with in short period of time by earning profit in short
period of time.

BIBLIOGRAPHY

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www.bseindia.com
www.googlefinance.com
www.yahoofinance.com
www.google.co.in
www.moneycontrol.com
www.worldfact.com
www.rbi.org.in
FDI statistic government of India
India Central Statistical Organization
Economic Times

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