SUMMER TRAINING PROJECT AT Tata Motors Limited- CVBU Regional Office New Delhi

In partial fulfillment of the Requirement for the award of Degree of Master of Business Administration 2010-12

FUNDAMENTAL AND TECHNICAL ANALYSIS OF TATA MOTORS AND MARUTI SUZUKI

Submitted to: D.M.S. Bhimtal Kumaun University Submitted By: Dinesh Chandra Pant MBA 3rd Sem. R.No. 101587

CONTENTS Acknowledgements Declaration Certificate Preface Chapter 1 Company Profile Introduction Chapter 2 Research Methodology Review of Literature Objectives Chapter 3 Economy Analysis Industry Analysis Company Analysis Chapter 4 Price Charts Type of Trends Chart pattern Beta of Tata Motors And Maruti Suzuki Chapter 5 Findings & Suggestions Bibliography

PG NO. I ii iii iv 1 2 9 14 15 18 20 21 22 24 28 47 49 53 57 71 77 78 79

ACKNOWLEDGEMENTS

I am indebted to all who helped me undertake this study:

I express my heartfelt gratitude Mr. Alok Salooja, Regional in-charge Accounts & Admin, Tata Motors, & Dr. L.K.Singh Sir for his patient and comprehensive briefings regarding the project and the market environment, which gave me highly useful leads to enable a right approach towards answering the various issues affecting the markets.

I am also highly thankful to Mr. Hari Om Gupta, who pillared my training in the best way possible and shared his immense knowledge on every aspect of the training making it an educative experience; Mr. Pankaj Chakravarty, Mr. Dhruv Sehgal for comprehensive briefings about the analysis and strategy for all the learning & for enhancing my knowledge in the areas of analysis.

Dinesh Pant

DECLARATION

I Dinesh Chandra Pant, the student of MBA 2nd year (3rd sem.) Department of Management Studies Bhimtal. Hereby declare that, I completed my summer training from Tata Motors CVBU North Region Delhi on the project report Fundamental and Technical Analysis of Tata Motors and Maruti Suzuki is my original work and has not been submitted by any other person. I also declare that I have done my work sincerely and accurately even then if any mistake or error had kept in, I request to readers to point out this errors and guide me to remove these errors in future.

Dinesh Chandra Pant Date:

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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 sixth position in the entire world with being 1 position in Two Wheelers and position 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 4.3 million units in 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.

CHAPTER 1

COMPANY PROFILE OF TATA MOTORS Tata Motors is India's largest automobile company in India. It is the largest commercial vehicle manufacturer in India and 2nd largest passenger car manufacturer. It is the 5th largest medium and heavy commercial vehicle manufacturer in the world. The popular brands of the company are Tata Indica, Tata Indigo, Tata Sumo and Tata Safari. Tata Motors Limited is the largest automobile company in India with revenues touching to Rs. 20,483 crores (USD 4.7 billion) in the financial year 2004-05. It leads the market in commercial vehicles in each segment and is the second largest in the passenger vehicles segment. Globally, Tata Motors stands fifth in the medium and heavy commercial vehicle manufacturer category. Established just in 1945, the company's presence cuts across the length and breadth of the country. More than 3 million its-manufactured-vehicles ply on the Indian roads since the first one rolled out in 1954. This company is the first from the country's engineering sector to be listed in the New York Stock Exchange (Sep. 2004) and has also emerged as a global automotive company. Through its subsidiaries, Tata Motors has engaged in providing engineering and automotive solutions. With the pace of new product development, the company has launched Tata Ace, in the year 2005, India's first indigenously developed mini-truck.Tata Motor's 22,000 employees are guided with the vision, "best in the manner in which we operate, best in the products we deliver, and best in our value system and ethics."

Founder Year of Establishment Industry Business Group Listings & its codes

Jamshedji Tata 1945 Automotive The Tata Group BSE - Code: 500570 NSE - Code: TELCO & TATAMOTORS NYSE - Code: TTM

Corporate Office

Bombay House 24, Homi Mody Street Mumbai 400 001, India Tel.: +(91)-(22)-56561676
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Works E-mail

Jamshedpur, Pune, Lucknow and Dharwad am@tatamotors.com rbc@telco.co.in (for international inquiries)

Website

www.tatamotors.com www.tata.com/tata_motors

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PRODUCTS Passenger Cars

BRANDS Indica V2 Indigo Manza Indica V2 Xeta Tata Sumo Grande Safari Dicor Tata Aria Tata Indigo CS Indica V2 Turbo Indigo XL Sumo Victa Indigo Marina Tata Nano Tata Indicruz New

Utility Vehicles Trucks Buses

All types of Medium & Heavy Commercial Vehicles SFC 407 Turbo Starbus Globus Mini- bus LP 407 Turbo Mini- bus LP / LPO 1510 LP 709 E Turbo LPO 1510 CGS Bus bus (CNG bus) LP / LPO 1512 TC LP / LPO 1512 TC Turbo Bus Turbo Bus LP 1109 Bharat Stage II Tata LPTA 713 TC (4 x4)

Defence

LPO 1610 TC RE Semi LPO 1616 TC Low Floor Bharat Stage Luxury Bharat - II Bus Stage - II Bus Tata 407 / (4 x2) Tata 407 (4 x 4) Soft Hard Top Troop Top Troop Carrier Carrier

Tata LPT 709 E Hard Tata SD 1015 TC Tata LPTA 1615 Top Troop Carrier (4 x4) TC (4 x 4) Tata LPTA 1621 TC (6 Tata LPTA 1615 x6) TC (4 x2) Other Auto Companies: Apollo Tyre Ashok Leyland Daewoo Motors Escorts Limited General Motors Hero Honda Skoda Auto India Bajaj Auto Eicher Motors Fiat India Ford India Toyota Kirloskar Motor Hero Motors

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COMPANY PROFILE OF MARUTI SUZUKI Maruti Suzuki India Limited (MSIL), a subsidiary of Suzuki Motor Corporation (SMC), Japan, is the leader in passenger cars (PCs) and multipurpose vehicles (MPVs) in India, accounting for nearly 50 per cent of the total industry sales. In 2009-10, the Company sold 1,018,365 vehicles. This comprised 870,790 vehicles in the domestic market and 147,575 vehicles in export markets. Cumulatively, it has produced and sold over 8 million cars. The total income of the Company for 2009-10 stood at Rs.301,198 million. Maruti Suzuki has a strong balance sheet with reserves and surplus of Rs. 116.9 billion and debt equity ratio of 0.07 as on 31st March, 2010. MSIL is a public limited company and is listed on Bombay Stock Exchange Limited and National Stock Exchange of India Limited. SMC is the majority shareholder with 54.21% equity stake in the Company. MSIL has two manufacturing facilities in Gurgaon and Manesar, Haryana, India, with a combined manufacturing capacity of over 1 million cars per annum. In terms of number of cars produced and sold worldwide, the Company is the largest subsidiary of SMC, Japan. CARS Maruti New Swift Maruti Suzuki Kizashi Maruti Suzuki Vitara 2.4 Grand Vitara MarutiRIII Concept Maruti Eeco Maruti Jimny Maruti Suzuki XL7 Maruti Alto Alto Alto Lx Alto Lxi Alto K10 LXI Maruti Suzuki Alto Flash

Grand Omni 5 seater Maruti Omni 8 seater Maruti Omni LPG Maruti Omni

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Maruti Zen Classic Maruti Zen Estilo Maruti Zen Estilo Lx Maruti Zen Estilo Lxi Maruti Zen Estilo Vxi

Wagon R WagonR Lx WagonR Lxi WagonR Vxi WagonR Ax WagonR Duo

Versa 5 seater 8 seater ( DX & DX2)

Maruti Suzuki Zen Estilo New Wagon R Sports Maruti Esteem Maruti Esteem Lx Baleno Baleno Sedan VXi Swift Swift LXi

Maruti Esteem Lxi Maruti Esteem Vxi Baleno Sedan LXi

Swift VXi Swift ZXi Swift Diesel'Ldi' Swift Diesel 'Vdi' Swift DZire

Maruti Gypsy Hard top Soft top

Maruti SX4 Maruti SX4 Vxi Maruti SX4 Zxi New Maruti Suzuki SX4 Maruti Suzuki SX4 Diesel

Maruti A-Star

Maruti Suzuki Ritz Maruti Suzuki Ritz Genus

Maruti Suzuki Concept R3

Maruti 800 Maruti 800 STD BS III Maruti 800 AC BS III Maruti 800 Duo

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CHAPTER 2

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RESEARCH METHODOLOGY: DEFINITION OF RESEARCH Research is defined as human activity based on intellectual application in the investigation of matter. The primary purpose for applied research is discovering, interpreting, and the development of methods and systems for the advancement of human knowledge on a wide variety of scientific matters of our world and the universe. Research can use the scientific method, but need not do so. Scientific research relies on the application of the scientific method, a harnessing of curiosity. This research provides scientific information and theories for the explanation of the nature and the properties of the world around us. It makes practical applications possible. Scientific research is funded by public authorities, by charitable organizations and by private groups, including many companies. Scientific research can be subdivided into different classifications according to their academic and application disciplines. Historical research is embodied in the historical method. The term research is also used to describe an entire collection of information about a particular subject. TYPES OF RESEARCH: Qualitative research: Qualitative research allows you to explore perceptions, attitudes and motivations and to understand how they are formed. Quantitative research: Quantitative research is descriptive and provides hard data on the numbers of people exhibiting certain behaviours, attitudes, etc. RESEARCH DESIGN: Planning how information is to be gathered for an assessment or evaluation that includes identifying the data gathering method(s), the instruments to be used/created, how the instruments will be administered, and how the information will be organized and analyzed. TYPES OF RESEARCH DESIGN: 1. Philosophical/discursive: This may cover a variety of approaches, but will draw primarily on existing literature, rather than new empirical data. A discursive study could examine a particular issue,
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perhaps from an alternative perspective (eg. feminist). Alternatively, it might put forward a particular argument or examine a methodological issue. 2. Literature review: This may be an attempt to summaries or comment on what is already known about a particular topic. By collecting different sources together, synthesizing and analysing critically, it essentially creates new knowledge or perspectives. 3. Case study: This will involve collecting empirical data, generally from only one or a small number of cases. It usually provides rich detail about those cases, of a predominantly qualitative nature. 4. Survey: Where an empirical study involves collecting information from a larger number of cases, perhaps using questionnaires, it is usually described as a survey. Alternatively, a survey might make use of already available data, collected for another purpose. A survey may be cross-sectional (data collected at one time) or longitudinal (collected over a period). Because of the larger number of cases, a survey will generally involve some quantitative analysis. 5. Evaluation: This might be an evaluation of a curriculum innovation or organisational change. An evaluation can be formative (designed to inform the process of development) or summative (to judge the effects). Often an evaluation will have elements of both. 6. Experiment: This involves the deliberate manipulation of an intervention in order to determine its effects. The intervention might involve individual pupils, teachers, schools or some other unit. STEPS IN RESEARCH DESIGN:
a)

b) c) d) e) f) g)

Data collection from the organization. Determining the project topic. Data collection from the other sources. Selecting the research design Organizing and analyzing the data. Summarizing and evaluating the data. Suggestion and conclusion.

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DATA COLLECTION: Data collection is a term used to describe a process of preparing and collecting data for example as part of a process improvement or similar project. PRIMARY DATA COLLECTION METHODS: In primary data collection, you collect the data yourself using methods such as interviews and questionnaires. The key point here is that the data you collect is unique to you and your research and, until you publish, no one else has access to it. SECONDARY DATA COLLECTION METHODS: All methods of data collection can supply quantitative data (numbers, statistics or financial) or qualitative data (usually words or text). Quantitative data may often be presented in tabular or graphical form. Secondary data is data that has already been collected by someone else for a different purpose to yours. Data Type Data Source TYPES OF DATA: The methodology used in the study involves the collection of primary data as well as secondary data. Majority of the data was collected with the help of the annual reports provided by the company and charts taken from the business websites. SOURCE OF DATA: Secondary data: Secondary data were obtained from the internal records of the company i.e., from the published annual reports, website of the company, journals and magazines and also other books related to the analysis of financial performance. PERIOD OF STUDY: A five year period from 2007 to 2011 has been taken for the study. TIME OF STUDY: 45 days: From 11/07/2011 to 26/08/2011.
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: :

Secondary Data Company Manual, Internet, Books

WHATS THIS EQUITY ANALYSIS? Professional investor will make more money & less loss than, who let their heart rule. Their head eliminate all emotions for decision making. Be ruthless & calculating, you are out to make money. Decision should be based on actual movement of share price measured both in money & percentage term & nothing else. Greed must be avoided patience may be a virtue, but impatience can frequently be profitable. In Equity Analysis anticipated growth, calculations are based on considered FACTS & not on HOPE. Equity analysis is basically a combination of two independent analyses, namely fundamental analysis & Technical analysis. The subject of Equity analysis, i.e. the attempt to determine future share price movement & its reliability by references to historical data is a vast one, covering many aspect from the calculating various FINANCIAL RATIOS, plotting of CHARTS to extremely sophisticated indicators. A general investor can apply the principles by using the simplest of tools: pocket calculator, pencil, ruler, chart paper & your cautious mind, watchful attention. It should be pointed out that, this equity analysis does not discuss how to buy & sell shares, but does discuss a method which enables the investor to arrive at buying & selling decision. The financial analysts always need yardsticks to evaluate the efficiency & performance of any business unit at the time of investment. Fundamental analysis is useful in long term investment decision. In Fundamental analysis a company s goodwill, its performances, liquidity, leverage, turnover, profitability & financial health was checked & analysis with the help of ratio analysis for the purpose of long term successful investment. Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. Technical analysis mainly seeks to predict the short term price travels. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century.

Assumptions for the Equity Analysis: 1. Works only in normal share-market conditions with great reliability, it also works in abnormal share-market conditions, but with low reliability. 2. Equity analysis is purely based on the INVESTMENT PHILOSOPHY, so the investment object has vital importance associated to return along with risk. 3. Cash management gets the magnitude role, because the scenario of equity analysis is revolving around the term money.
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4. Portfolio management, risk management was up to the investors knowledge. 5. Capital market trend is always a friend, whether it is short run or long run. 6. You are buying stock & not companies, so dont be curious or panic to do postmortem of companys performances. 7. History repeats: investors & speculators react the same way to the same types of events homogeneously. 8. Capital market has a typical market psychology along with other issues like; perceptions, the crowd Vs the individual traditions & trust. 9. An individual perceptions about the investment return & associated risk may differ from individual to individual. 10. Although the equity analysis is art as well as sciences so, it also has some exceptions.

EQUITY ANALYSIS

ENVIRONMENT & ECONOMICAL ANALYSIS

FUNDAMENTAL ANALYSIS

TECHNICAL ANALYSIS

Analyzing financial statements of a business is called its financial analysis, but fundamental analysis includes not only financial health but also its management efficiency, competitive advantage of its products and its in-house facilities to produce quality products and services. Fundamental analysis of shares is done based on past and present datas. The main goal of financial analysis is to forecast financial results of nearing future. To highlight several objectives of fundamental analysis items are listed below: (1) To evaluate intrinsic value of shares & compare it with present market price to decide whether a share is overvalued or undervalued

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(2) To evaluate managements efficiency & internal decisions taken by them to run the business. (3) To calculate credit risk There two methods of analyzing shares market prices for investment purposes. One is fundamental analysis and other is technical analysis. (a) Fundamental Analysis: This theory of share evaluation states that due to market volatility and speculation at times the market price of share becomes undervalued for a moment of time. But in due course of time it regains back its fundamental worth. Investors can make profit by buying shares which are under priced for that moment and then wait for its prices to rise back. Fundamental analysis is based of true worth (value) of shares. The actual worth of a share is determined by studying the following elements of business: (i) Analysis of Industry or Sector of shares (ii) Analysis of companies financials, its management effectiveness and competitive advantage (iii) Analysis of economy of country and at times globally. As popularized by the champion investor Warren Buffett, the above three parameter are used to quantify the intrinsic value of shares. The intrinsic value in totality is called true worth (value) of a share. If the intrinsic value of a share is higher than the market value of share than the share is called undervalued making that sharing a very good buy. But if the intrinsic value is lower than the market price of a share than that share is called overvalued. Such overvalued share shall be bought at that moment of time. Due to speculative nature of stocks such overvalued stocks often see price corrections and then they become undervalued. All value investors wait patiently for such moments when a fundamentally strong share becomes undervalued and they buy it. Different Types of Investors use fundamental analysis according to their styles Style (1) Value Investors Example of a value investor is Warren Buffett. Value investors always focus of companies which are well established and have proven records. Value investors waits patiently for the moment when the market price of these established companies fall below its intrinsic value and then they buy it. Value investors make sure that they have sufficient funds when this moment comes. So cash flow management is also a strong precondition for value investors.

Style (2) Buy and Hold Investors This type of investors does extensive research before purchasing a share. Fundamental analysis being the basis of their research, but after they had invested in a share they prefer to hold it for long terms. They believe that a good
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business share will make money for them as it grows. So investing in a growing company is their precondition. Hence such investors focus not always in blue chip companies but also in those companies/ sectors which has a strong potential to grow in the future. Fundamental analysis helps such investors to identify a rapidly growing company. Style (3) Contrarian Investors These investors believes on no body. They prefer to invest alone than to rely on advice of other. They use fundamental analysis to take their decision on selecting a share and evaluating its worth and value on their own. Technical analysis:Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. Technical analysis mainly seeks to predict the short term price travels. It is important criteria for selecting the company to invest. It also provides the base for decision-making in investment. The one of the most frequently used yardstick to check & analyze underlying price progress. For that matter a verity of tools was consider. TECHNICAL ANALYSIS:Technical analysis refers to the study of market generated data like prices & volume to determine the future direction of prices movements. This Technical analysis is helpful to general investor in many ways. It provides important & vital information regarding the current price position of the company. Technical analysis involves the use of various methods for charting, calculating & interpreting graph & chart to assess the performances & status of the price. It is the tool of financial analysis, which not only studies but also reflecting the numerical & graphical relationship between the important financial factors. The focus of technical analysis is mainly on the internal market data, i.e. prices & volume data. It appeals mainly to short term traders. It is the oldest approach to equity investment dating back to the late 19th century. It uses charts and computer programs to study the stocks trading volume and price movements in the hope of identifying a trend. In fact the decision made on the basis of technical analysis is done only after inferring a trend and judging the future movement of the stock on the basis of the trend. Technical Analysis assumes that the market is efficient and the price has already taken into consideration the other factors related to the company and the industry. It is because of this assumption that many think technical analysis is a tool, which is effective for short-term investing. History of Technical Analysis: Technical Analysis as a tool of investment for the average investor thrived in the late nineteenth century when Charles Dow, then editor of the Wall Street Journal, proposed
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the Dow theory. He recognized that the movement is caused by the action/reaction of the people dealing in stocks rather than the news in itself. Technical analysis is a method of evaluating securities by analyzing the statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity. Just as there are many investment styles on the fundamental side, there are also many different types of technical traders. Some rely on chart patterns; others use technical indicators and oscillators, and most use some combination of the two. In any case, technical analysts' exclusive use of historical price and volume data is what separates them from their fundamental counterparts. Unlike fundamental analysts, technical analysts don't care whether a stock is undervalued the only thing that matters is a security's past trading data and what information this data can provide about where the Security might move in the future.

Basic premises of technical analysis 1. Market prices are determined by the interaction of supply & demand forces. 2. Supply & demand are influenced by variety of supply & demand affiliated factors both rational & irrational. 3. These include fundamental factors as well as psychological factors. 4. Barring minor deviations stock prices tend to move in fairly persistent trends. 5. Shifts in demand & supply bring about change in trends. 6. This shifts can be detected with the help of charts of manual & computerized action, because of the persistence of trends & patterns analysis of past market data can be used to predict future prices behaviors. Drawbacks / limitations of technical analysis: 1. Technical analysis does not able to explain the employment or selection of specific tool of Technical analysis. reasons behind the

2. The technical analysis failed to signal an uptrend or downtrend in time. 3. The technical analysis must be a self defeating proposition. As more & more people use, employ it the value of such analysis trends to reduce. Why we use TECHNICAL ANALYSIS?

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1) Technical analysis provides information on the best entry and exit points for a trade. 2) On a chart, the trader can see where momentum is rising, a trend is forming, a price is dipping or other events are developing that show the best entry point and time for the most profitable trade. With the constant movement of various currencies against each other in the Forex market, most traders will focus on using technical indicators to find and place their trades. IS TECHNICAL ANALYSIS DIFFICULT? 1). Technical analysis is not difficult, but it requires studying different types of charts such as hourly or daily charts knowing which technical indicators to use and how to use them. 2) Computers and the Internet have made this process much easier. Most brokers provide basic charts and technical indicators for free or at a very low cost. 3) One way to avoid getting frustrated by all the lines, colors, and graphics is to focus on using only a few indicators that will provide you with the information needed. Try not to clutter your chart with too much information.

OBJECTIVE OF THE PROJECT

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The objective of this project is deeply analyze Tata Motors & Maruti Suzuki for investment purpose by monitoring the growth rate and performance on the basis of historical data. The main objectives of the Project study are: 1). Comparative analysis of two tough competitors Tata Motors and Maruti Suzuki. 2).Application of various Technical Tools and Fundamental tools (like Financial and Non-Financial Ratios). 3) To conduct a company stock valuation and predict its probable price evolution 4) To make a projection on its business performance. 5) To evaluate its management and make internal business decisions. 6) To calculate its credit risk.

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CHAPTER 3

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Fundamental Analysis (E.I.C Approach):

a. Economic analysis b. Industry analysis c. Company analysis ECONOMIC ANALYSIS The Indian Automobile Industry is on overdrive. The rapid urbanization, coupled with an overwhelming growth in the middle class population, has created an Indian market that is extremely conducive for the automobile industry to flourish. Indian automobile industry recorded an average growth rate of 16.07% since 2006-2011. Automobile industry contributes 4% of the national GDP and accounts for 5% of the industrial output in India. It is moreover, a major employment generator in the country. The Indian automobile industry provides employment to around 13 million people directly or indirectly at present, a number that is likely to double by 2016. The automobile industry is also one of the most demanding industries in terms of infrastructural developments. The liberalization policies of government have been one of the biggest factors behind the industry's rapid growth. Supportive policy measures like: (1). Relaxation of foreign exchange and equity regulations (2). Reduction tariffs on imports (3). Banking liberalization These factor leading to a boom in financing driven purchases and convenient EMIs have contributed to the present success of the Indian automobile industry. With a number of foreign brands joining ranks with the domestic manufacturers, the Indian consumer is now flooded with choice. An average Indian can now select from a wide range of Indian and foreign products. Some of the major Indian players are Maruti Udyog, Tata Motors, Mahindra, Ashok Leyland, Hero Honda and Bajaj. Toyota, GM Honda, Daimler Chrysler, Ford, Volvo and Hyundai Suzuki are the key international players in the Indian Automobile market. However, despite the presence of foreign brands, the domestic companies are still the biggest players. Maruti Udyog

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and Tata vehicles share the top honors for passenger and commercial vehicles respectively. Fuel tax prices have the largest effect on the automobile industry. Fuel taxes in India have been the object of discussion. The country is currently undergoing a decline in real fuel tax rates. This is largely because of discrepancies between nominal rates and inflation. Additionally, the above trends have been caused by improved fuel economies among automobile users. The government has been taxing specific products such as tobacco, gasoline and alcohol. This implies that the government can raise sufficient levels of revenue to accommodate public spending. Consequently, the government has to raise taxes in other areas of the economy.

INDUSTRY ANALYSIS OF AUTOMOBILE SECTOR The automotive Industry in India is now working in terms of the dynamics of an open market. Many joint ventures have been set up in India with foreign collaboration, both
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technical and financial with leading global manufacturers. Also a very large number of joint ventures have been set up in the auto-components sector and the pace is expected to pick up even further. The Government of India is keen to provide a suitable economic and business environment conducive to the success of the established and prospective foreign partnership ventures. $5.7 billion is the investment envisaged in the new vehicles projects. The overall recovery in the Indian Auto Sector continues due to a sustained improvement in demand, aided by the green shoots that continue to bloom in the domestic markets. This is due to improving macro-economic factors such as expanding liquidity, lower interest rates and rising consumer confidence. As a result, most Auto stocks have seen a sharp run up in recent times. With this backdrop, we have considered the companies under coverage as a broad sample representation of the Sector, to ascertain the true value potential of the Indian Auto Industry. Going ahead, we expect this economic recovery to help the Auto Sector, which includes passenger vehicles (PVs), commercial vehicles (CVs) and two-wheelers, in registering good growth in the Domestic market, and a decent growth in the Export markets In our Auto Sector Update of July 2008, we had highlighted the various hurdles to the growth and the demand of the Indian Auto industry. Since the beginning of 2008, Auto companies had been reeling under the pressures of high input costs, which were impacting their profitability, high Interest rates, which were affecting consumer affordability, and liquidity constraints, which were affecting consumer demand; all of these had adversely impacted the Volume Sales of the Industry. This coincided with the global economic setback, leading to a considerable slowdown in Indian Auto exports. Thus, the dwindling domestic demand and the retarded global demand delivered a double-whammy, and impacted the fortunes of the industry. However, the auto industry has been turning around, with most of the constraining factors regressing an supporting the recovering demand, which would, in turn, aid better growth in FY2010E and FY2011E. The Indian Automobile Sector had reeled under the pressures of a dismal macroeconomic scenario, with the headwinds intensifying in every quarter during FY2009. After registering an overall positive growth of 12.1% yoy in 1HFY2009, Auto Sector volumes fell Sales 9.3% yoy in 3QFY2009, and dragged the overall Industry sales growth to 3.5% yoy in FY2009 (10.7mn units). However, the Auto Industry witnessed a sequential surge in 4QFY2009 and in 1QFY2010, receiving a boost from the stimulus packages announced by the government in December 2008 and February

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2009 and from the declining interest rates. FY2010 has started on a positive note for the Auto Sector, with volumes improving every month. This has resulted in fresh buying and a sharp upturn in most Auto stocks on the bourses. Overall, we maintain that the long-term key demand drivers remain intact for the Sector. Additionally, the sub-optimal utilization of new capacities and the higher cost of operations, which were major constraining factors in FY2009, are expected to improve sequentially in the future. Over FY2009-11E. We estimate overall Auto Volumes to register a yoy growth of around 7.3% and 9.6% in FY2010E and FY2011E, respectively. The growth in FY2010E would largely come due to a low base effect; this, however, should gradually pick up in FY2011E, aided by the improved economic environment for the Sector.

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High Interest rates paralyze Auto Finance in FY2009; but stage set for recovery: There is a negative correlation between auto finance rates and auto volume growth. Thus, following the contraction in the availability of finance, the conversion ratio (loans approved to those applied) dropped by around 45%, just before the beginning of FY2009. Lending rates had also moved up by almost 300-400bp, which led to an increase in the cash component in Auto loans. A contraction in the total availability of finance, by almost 26% in FY2009 (following a 14.3% CAGR during FY2003-08), had resulted in a sharp decline in auto volumes. The Loan-to-Value (LTV) ratio declined from around 85% to 70% levels in the mentioned period, which further impacted affordability for the customers. As a result,

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finance penetration in the Sector fell to 55% in December 2008, compared to around 75% in FY2008. In the Two-wheeler Segment, the proportion of vehicles financed is projected to have fallen to almost 28%, from 45-50% two years ago, while for cars this figure has dropped to 70% from 85-90%.

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COMPANY ANALYSIS BY RATIO ANALYSIS

Ratio Analysis: Ratio analysis is the process of determining and presenting the relationship of items and group of items in the statements. According to Batty J. Management Accounting Ratio can assist management in its basic functions of forecasting, planning coordination, control and communication. It is helpful to know about the liquidity, solvency, capital structure and profitability of an organization. It is helpful tool to aid in applying judgment, otherwise complex situations. ADVANTAGE OF RATIO ANALYSIS: 1. Helpful in analysis of Financial Statements. 2. Helpful in comparative Study. 3. Helpful in locating the weak spots of the business. 4. Helpful in Forecasting. 5. Estimate about the trend of the business. 6. Fixation of ideal Standards. 7. Effective Control. 8. Study of Financial Soundness. LIMITATIONS OF RATIO ANALYSIS: 1. Comparison not possible if different firms adopt different accounting policies. 2. Ratio analysis becomes less effective due to price level changes. 3. Ratio may be misleading in the absence of absolute data. 4. Limited use of a single data. 5. Lack of proper standards. 6. False accounting data gives false ratio. 7. Ratios alone are not adequate for proper conclusions. 8. Effect of personal ability and bias of the analyst.

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CLASSIFICATION OF RATIO: Ratio may be classified into the four categories as follows: A. Liquidity Ratio a. Current Ratio b. Quick Ratio or Acid Test Ratio

B. Leverage or Capital Structure Ratio a. Debt Equity Ratio c. Proprietary Ratio e. Capital Gearing Ratio C. Activity Ratio or Turnover Ratio a. Stock Turnover Ratio c. Average Collection Period e. Average Payment Period g. Working Capital Turnover Ratio D. Profitability Ratio or Income Ratio (A) Profitability Ratio based on Sales a. Gross Profit Ratio c. Operating Ratio b. Net Profit Ratio d. Expenses Ratio b. Debtors or Receivables Turnover Ratio d. Creditors or Payables Turnover Ratio f. Fixed Assets Turnover Ratio b. Debt to Total Fund Ratio d. Fixed Assets to Proprietors Fund Ratio f. Interest Coverage Ratio

(B) Profitability Ratio Based on Investment: a. Return on Total Shareholders Funds b. Return on Equity Shareholders Funds c. Earning Per Share e. Dividend Payout Ratio g. Price Earning Ratio d. Dividend Per Share f. Earning and Dividend Yield

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LIQUIDITY RATIO: (A) Liquidity Ratio:- It refers to the ability of the firm to meet its current liabilities. The liquidity ratio, therefore, are also called Short-term Solvency Ratio. These ratio are used to assess the short-term financial position of the concern. They indicate the firms ability to meet its current obligation out of current resources. In the words of Saloman J. Flink, Liquidity is the ability of the firms to meet its current obligations as they fall due. Liquidity ratio include two ratio:a. Current Ratio b. Quick Ratio or Acid Test Ratio

a. Current Ratio:- This ratio explains the relationship between current assets and current liabilities of a business. Formula: Current Ratio =Current Assets/ Current liabilities Current Assets:-Current assets includes those assets which can be converted into cash with in a years time. Current Assets = Cash in Hand + Cash at Bank + B/R + Short Term Investment + Debtors (Debtors Provision) + Stock (Stock of Finished Goods + Stock of Raw Material + Work in Progress) + Prepaid Expenses. Current Liabilities:- Current liabilities include those liabilities which are repayable in a years time. Current Liabilities = Bank Overdraft + B/P + Creditors + Provision for Taxation + Proposed Dividend + Unclaimed Dividends + Outstanding Expenses + Loans Payable within a Year.
1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 TATA MOTORS MARUTI SUZ UKI

2007 0.86 1.4

2008 0.64 0.91

2009 0.44 1.51

2010 0.44 0.91

2011 0.77 1.5

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Significance:- According to accounting principles, a current ratio of 2:1 is supposed to be an ideal ratio. It means that current assets of a business should, at least, be twice of its current liabilities. The higher ratio indicates the better liquidity position, the firm will be able to pay its current liabilities more easily. If the ratio is less than 2:1, it indicate lack of liquidity and shortage of working capital. In TATA MOTORS the ratio is less than 1, while in case of MARUTI it is more than 1 but less than 2, which indicates that the ratio of MARUTI is better than TATA MOTORS, but it indicates only quantitatively not qualitatively for that we have to take a look at quick ratio. The biggest drawback of the current ratio is that it is susceptible to window dressing. This ratio can be improved by an equal decrease in both current assets and current liabilities. b. Quick Ratio:- Quick ratio indicates whether the firm is in a position to pay its current liabilities within a month or immediately. Formula: Quick Ratio = Liquid Assets/ Current Liabilities Liquid Assets means those assets, which will yield cash very shortly. Liquid Assets = Current Assets Stock Prepaid Expenses

1.4 1.2 1 0.8 0.6 0.4 0.2 0 TATA MOTORS MARUTI SUZ UKI

2007 0.85 1.13

2008 0.64 0.68

2009 0.43 1.26

2010 0.44 0.68

2011 0.56 1.16

Significance :- An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short-term financial position of the company. Qualitatively the ratio of MARUTI is better than TATA MOTORS which indicates that Maruti is in better place in terms of liquidity and working capital.

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(B) LEVERAGE OR CAPITAL STRUCTURE RATIO: This ratio discloses the firms ability to meet the interest costs regularly and Long term indebtedness at maturity. These ratio include the following ratios: a. Debt Equity Ratio:- This ratio can be expressed in two ways: First Approach: According to this approach, this ratio expresses the relationship between long term debts and shareholders fund. Formula: Debt Equity Ratio=Long term Loans/Shareholders Funds or Net Worth Long Term Loans:- These refer to long term liabilities which mature after one year. These include Debentures, Mortgage Loan, Bank Loan, Loan from Financial institutions and Public Deposits etc. Shareholders Funds:- These include Equity Share Capital, Preference Share Capital, Share Premium, General Reserve, Capital Reserve, Other Reserve and Credit Balance of Profit & Loss Account. Second Approach: According to this approach the ratio is calculated as follows:Formula: Debt Equity Ratio=External Equities/internal Equities
1.2 1 0.8 0.6 0.4 0.2 0 TATA MOTORS MARUTI SUZ UKI 2007 0.58 0.09 2008 0.8 0.11 2009 1.06 0.07 2010 1.12 0.07 2011 0.79 0.02

Significance:- This Ratio is calculated to assess the ability of the firm to meet its long term liabilities. Generally, debt equity ratio of 2 is considered safe. If the debt equity ratio is more than that, it shows a rather risky financial position from the long-term point of view, as it indicates that more and more funds invested in the business are provided by long-term lenders.
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The lower this ratio, the better it is for long-term lenders because they are more secure in that case. Lower than 2:1 debt equity ratio provides sufficient protection to long-term lenders. The ratio of both the companies is lower than 2, MARUTI and TATA MOTORS are providing more protection to long-term lenders and MARUTI is relying more on the shareholders fund as compared with TATA MOTORS. With the very less use of debt MARUTI is not able to maximize the shareholders wealth. b. Debt to Total Funds Ratio:This Ratio is a variation of the debt equity ratio and gives the same indication as the debt equity ratio. In the ratio, debt is expressed in relation to total funds, i.e., both equity and debt. Formula: Debt to Total Funds Ratio= Long-term Loans/Shareholders funds + Longterm Loans
1.2 1 0.8 0.6 0.4 0.2 0 TATA MOTORS MARUTI SUZ UKI 2007 0.31 0.09 2008 0.49 0.06 2009 0.49 0.07 2010 0.79 0.04 2011 1.11 0.02

Significance:- Generally, debt to total funds ratio of 0.67:1 (or 67%) is considered satisfactory. In other words, the proportion of long term loans should not be more than 67% of total funds. Because it will lead to the point that firm is highly capital structured (leverage). A higher ratio indicates a burden of payment of large amount of interest charges periodically and the repayment of large amount of loans at maturity. Payment of interest may become difficult if profit is reduced. Hence, good concerns keep the debt to total funds ratio below 67%. The lower ratio is better from the long-term solvency point of view. The ratio of TATA MOTORS is keep on increasing , which indicates burden on TATA MOTORS for the payment of interest is increasing .While on MARUTI it is very less.
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c. Proprietary Ratio:- This ratio indicates the proportion of total funds provide by owners or shareholders. Proprietary Ratio = Shareholders Funds/Shareholders Funds + Long term loans Significance:- This ratio should be 33% or more than that. In other words, the proportion of shareholders funds to total funds should be 33% or more.

120.00 100.00 80.00 60.00 40.00 20.00 0.00 TATA MOTOR S MARUTI SUZUKI 2007 63.06 91.57 2008 55.44 90.34 2009 48.44 93.04 2010 47.06 93.51 2011 55.73 97.82

A higher proprietary ratio is generally treated an indicator of sound financial position from long-term point of view, because it means that the firm is less dependent on external sources of finance. d. Fixed Assets to Proprietors Fund Ratio :- This ratio is also know as fixed assets to net worth ratio. Fixed Asset to Proprietors Fund Ratio = Fixed Assets/Proprietors Funds (Net Worth)

350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 TATA MOTORS MARUTI SUZUKI 2007 200.77 142.91 2008 265.94 156.88 2009 273.28 136.49 2010 310.99 151.84 2011 242.55 131.77

Significance :- The ratio indicates the extent to which proprietors (Shareholders) funds are sunk into fixed assets. Normally , the purchase of fixed assets should be
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financed by proprietors funds. If this ratio is less than 100%, it would mean that proprietors fund are more than fixed assets and a part of working capital is provided by the proprietors. This will indicate the long-term financial soundness of business. e. Capital Gearing Ratio:This ratio establishes a relationship between equity capital (including all reserves and undistributed profits) and fixed cost bearing capital. Formula: Capital Gearing Ratio = Equity Share Capital+ Reserves + P&L Balance/ Fixed cost Bearing Capital Whereas, Fixed Cost Bearing Capital = Preference Share Capital + Debentures + Long Term Loan

5000.00 4500.00 4000.00 3500.00 3000.00 2500.00 2000.00 1500.00 1000.00 500.00 0.00 TATA MOTORS MARUTI SUZ UKI

2011 125.88 4483.51

2010 90.01 1440.84

2009 94.14 1337.09

2008 124.82 934.84

2007 171.35 1086.54

Significance:- If the amount of fixed cost bearing capital is more than the equity share capital including reserves an undistributed profits), it will be called high capital gearing and if it is less, it will be called low capital gearing. TATA MOTORS is high capital gearing as compared with MARUTI .The high gearing will be beneficial to equity shareholders when the rate of interest/dividend payable on fixed cost bearing capital is lower than the rate of return on investment in business. Thus, the main objective of using fixed cost bearing capital is to maximize the profits available to equity shareholders. f. Interest Coverage Ratio:- This ratio is also termed as Debt Service Ratio. This ratio is calculated as follows: Interest Coverage Ratio = Net Profit before charging interest and tax / Fixed Interest Charges
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140 120 100 80 60 40 20 0 TATA MOTORS MARUTI SUZ UKI

2007 7.19 61.01

2008 6.28 40.93

2009 2.43 34.21

2010 2.77 105.39

20111 3.05 128.41

Significance :- This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. In MARUTI the margin of safety is higher as compared with TATA MOTORS. This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also , as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate. ACTIVITY RATIO OR TURNOVER RATIO:
(C) Activity Ratio or Turnover Ratio :- These ratio are calculated on the bases of cost of sales or sales, therefore, these ratio are also called as Turnover Ratio. Turnover indicates the speed or number of times the capital employed has been rotated in the process of doing business. Higher turnover ratio indicates the better use of capital or resources and in turn lead to higher profitability.

It includes the following : a). Stock Turnover Ratio:- This ratio indicates the relationship between the cost of goods during the year and average stock kept during that year. Formula: Stock Turnover Ratio = Cost of Goods Sold / Average Stock Here, Cost of goods sold = Net Sales Gross Profit Average Stock = Opening Stock + Closing Stock/2
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35 30 25 20 15 10 5 0 TATA MOTORS MARUTI SUZ UKI

2007 11.02 21.27

2008 14.44 22.93

2009 13.47 30.46

2010 13.07 30.47

2011 13.4 28.69

Significance: This ratio indicates whether stock has been used or not. It shows the speed with which the stock is rotated into sales or the number of times the stock is turned into sales during the year.The ratio is higher for MARUTI which indicates stock is rotated into sales or the number of times the stock is turned into sales during the year as compared with TATA MOTORS. The higher the ratio, the better it is, since it indicates that stock is selling quickly. In a business where stock turnover ratio is high, goods can be sold at a low margin of profit and even than the profitability may be quite high. b. Debtors Turnover Ratio:- This ratio indicates the relationship between credit sales and average debtors during the year : Formula: Debtor Turnover Ratio = Net Credit Sales / Average Debtors + Average B/R While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly.

40 35 30 25 20 15 10 5 0 TATA MOTORS MARUTI SUZ UKI

2007 35.6 33.92

2008 30.08 26.33

2009 19.11 25.76

2010 18.02 21.12

2011 19.23 19.45

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Significance:- This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm. The ratio is declining for MARUTI but for TATA MOTORS it is firstly declining and then increasing but the ratio is higher for MARUTI, which indicates amount is being collected from debtors more quickly in MARUTI as compared with TATA MOTORS. By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not. c. Average Collection Period:- This ratio indicates the time with in which the amount is collected from debtors and bills receivables. Formula: Average Collection Period = Debtors + Bills Receivable / Credit Sales per day Second Formula:- Average Collection Period = Average Debtors *365 / Net Credit Sales Average collection period can also be calculated on the bases of Debtors Turnover Ratio. The formula will be: Average Collection Period = 12 months or 365 days / Debtors Turnover Ratio Significance:- This ratio shows the time in which the customers are paying for credit sales. A higher debt collection period is thus, an indicates of the inefficiency and negligence on the part of management. On the other hand, if there is decrease in debt collection period, it indicates prompt payment by debtors which reduces the chance of bad debts. The ratio is higher for TATA MOTORS which indicates more time is being taken by the management for the collection of debt as compared with MARUTI. d. Fixed Assets Turnover Ratio:-This ratio reveals how efficiently the fixed assetsare being utilized. Formula:- fixed assets turnover ratio=cost of goods sold/net fixed assets Net here fixed assets=Fixed assets depreciation

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7 6 5 4 3 2 1 0 TATA MOTORS MARUTI SUZ UKI

2007 5.01 2.82

2008 2.69 2.38

2009 1.88 2.48

2010 1.93 6.32

2011 2.19 6.59

Significance :This ratio is particular importance in manufacturing concerns where the investment in fixed asset is quite high. Compared with the previous year,if there is increase in the ratio ,it will indicate that there is better utilization of fixed assets. If there is a fall in the ratio , it will show that fixed assets have not been used as efficiently, as they had been used in the previous year. The ratio is firstly decreasing and then increasing in both the companies but the hike in MARUTI is higher than the hike in TATA MOTORS, which indicates better utilization of assets in MARUTI as compared with TATA MOTORS. e. Working capital turnover ratio:This ratio reveals how efficiently working capital has been utilized in making sales. Formula: Working capital turnover ratio=cost of goods sold /working capital. Cost of goods sold=opening stock+ purchases + carriage + wages + other direct expenses-closing stock

500.00 450.00 400.00 350.00 300.00 250.00 200.00 150.00 100.00 50.00 0.00 TATA MOTORS MARUTI SUZ UKI

2007 13.54 439.76

2008 23.37 10.84

2009 12.95 179.80

2010 4.88 12.76

2011 11.63 7.34

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Significance :-This ratio is of particular importance in non-manufacturing concerns where current assets play a major role in generating sales, it shows the number of times working capital has been rotated in producing sales. A high working capital turnover of current assets like stock and debtors. A low working capital turnover ratio under- utilization of working capital The ratio is higher in MARUTI as compared with TATA MOTORS, which indicates effective utilization of working capital in MARUTI as compared with TATA MOTORS. (D) Profitability ratios or income ratios:The main object of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it, the efficiency and the success of a business can be measured with the help of profitability ratio. (a) Gross profit ratio: This ratio shows the relationship between gross profit and sales.

Formula:- Gross profit sales=gross profit/net sales*100 Here net sales =sales-sales return Significance:- What are the main cause of it: 1) Failure in managing purchases, production, sales and inventory 2) Loose control over direct costs of labour, fuel, freights etc. 3) Lower productivity and lower margin to meet other expenses.

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18 16 14 12 10 8 6 4 2 0 TATA MOTORS MARUTI SUZ UKI

2007 11.19 9.93

2008 8.26 5.77

2009 3.3 10.97

2010 8.84 16.66

2011 7.1 16.95

The ratio is decreasing first and then increasing but the ratio is higher in MARUTI. This ratio measures the margin of profit available on sales. The higher the gross profit ratio. Better it is, no ideal standard is fixed for the ratio. But the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for depreciation, interest on loans, dividends and creation of reserves. (b) Net profit ratio: This ratio indicates the relationship between net profit and sales, it may be calculated by two methods: Formula: Net profit ratio =net profit /net sales*100 Net profit ratio=EBITDA/net sales*100 1. Inefficiency in managing its activities like trading, production, financing and investment. 2. Unsatisfactory control over operating as well as non operating costs 3. Unusual losses like loss by fire, flood etc. 4. Low increase in the net worth or the proprietors funds. 5. Weak capacity of the concern to face bad economic situation
12 10 8 6 4 2 0 TATA MOTORS MARUTI SUZ UKI 2011 3.75 9.53 2010 6.26 10.29 2009 3.77 9.34 2008 6.96 5.72 2007 6.94 8.34

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(c) Operating net profit=operating net profit/net sales*100

Here operating net profit=gross profit-operating expenses such as office and administrative expenses, selling and distribution expenses, discount, bad debts, interest on short term debts etc.

18 16 14 12 10 8 6 4 2 0 TATA MOTORS MARUTI SUZ UKI

2007 9.7 12.74

2008 10.53 9.18

2009 6.71 14.12

2010 11.74 14.88

2011 9.93 15.29

Significance :-The ratio is firstly decreasing and then increasing in MARUTI, while so much up and down is there in TATA MOTORS .This ratio measures the rate of net profit earns on sales. It helps in determining the overall efficiency of the business operations. An increase in the ratio over previous year shows improvement in the overall efficiency and profitability of the business. (d) Operating ratio:-this ratio measures the proportion of an enterprise cost of sales and operating expenses in comparison to its sales.
94.00 92.00 90.00 88.00 86.00 84.00 82.00 80.00 78.00 TATA MOTORS MARUTI SUZ UKI

2007 91.61 83.41

2008 89.32 87.31

2009 92.36 88.74

2010 89.96 87.64

2011 90.80 92.14

Formula:- Operating ratio=cost of goods sold + operating expenses/net sales*100 Where the cost of goods sold=opening stock + purchases+ carriage+ wages+ other direct expenses-closing stock
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Operating expenses=office and administrative expenses+ selling and distribution expenses+ discount +bad debts+ interest on short term loans Significance: The operating ratio is higher for TATA MOTORS till 2010, but in 2011 it is higher for MARUTI. Operating ratio is a measurement of the efficiency and profitability of the business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses. Lower the operating cost better it is because it will leave higher margin of profit on sales. Profitability ratio based on investment in the business:-These ratio reflect the true capacity of the resources employed in the enterprise sometimes the profitability ratio based on sales are high whereas the ratio based on the investment side are low, since the capital is employed to earn profit, these ratios are the real measure of the success of the business and managerial efficiency. Theses ratio may be calculated into two categories: 1. Return on capital employed 2. Return on shareholders fund (a) Return on capital employed:-this ratio reflects the overall profitability of the business. It is calculated by comparing the profit earned and the capital employed to earn it. This ratio is usually in percentage and is also known as rate of return or yield on capital. Return on capital employed=profit before interest, tax, and dividends/capital employed*100
35 30 25 20 15 10 5 0 TATA MOTORS MARUTI SUZUKI

2007 25.82 30.65

2008 18.96 26.18

2009 6.41 17.37

2010 9.66 27.89

2011 9.71 22.1

Where capital employed=equity share capital+ preference share capital+ all reserves+ P&L balance +long term loans-fictitious assets(such as preliminary expenses etc.) nonoperating assets like investment made outside the business

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Capital employed=fixed assets + working capital (1) Advantages of return on capital employed:(b) Return on shareholders funds:Return on capital employed shows the overall profitability of the funds supplied by the long term lenders and shareholders taken together.Whereas return on shareholders funds measures only the profitability of the funds invested by shareholders. Return on total shareholders funds:Formula: Return on total shareholders funds= Net profit after interest and tax/total shareholders funds Where total shareholders funds=equity share capital+ preference share capital+ all reserves+ P&L A/c balance-fictitious assets.
30 25 20 15 10 5 0 TATA MOTORS MARUTI SUZ UKI

2007 27.96 22.79

2008 25.98 20.56

2009 8.09 13.04

2010 14.96 21.1

2011 9.05 16.5

Significance:- this ratio reveals how profitably the proprietors funds have been utilized by the firm. A comparison of this ratio with that of similar firms will throw light on the relative profitability and strength of the firm. (c) Earnings per share (E.P.S.):- This ratio measures the profit available to the equity shareholders on a per share basis. All profit left after payment of tax and preference dividends are available to equity shareholders. Earnings per share= net profit-dividend on preference share/no. of equity shares

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100 80 60 40 20 0 TATA MOTORS MARUTI SUZ UKI 2007 49.65 54.07 2008 52.63 59.91 2009 19.48 42.18 2010 39.26 86.45 2011 28.55 79.21

Significance:-this ratio helpful in the determining of the market price of the equity share of the company. The ratio is also useful in estimating the capacity of the company to declare dividends on equity shares. (d) Dividend per share (D.P.S.):- Profits remaining after payment of tax and preference dividend are available to equity shareholders. but of these are not distributed among equity shareholders as dividend. Out of these profits is retained in the business and the remaining is distributed among equity shareholders as dividend. Dividend per share=dividend paid to equity shareholders/no. of equity shares*100
25 20 15 10 5 0 TATA MOTORS MARUTI SUZ UKI 2007 15 4.5 2008 15 5 2009 6 3.5 2010 15 6 2011 20 7.5

(e) Dividend payout ratio:- It measures the relationship between the earning available to equity shareholders and the dividend distributed among them. D.P. Ratio=dividend paid to equity shareholders /total net profit belonging to equity shareholders*100 D.P. Ratio=D.P.S/E.P.S.*100

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80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 TATA MOTORS MARUTI SUZ UKI

2007 30.21 8.32

2008 28.50 8.35

2009 30.80 8.30

2010 38.21 6.94

2011 70.05 9.47

(f) Earning yield:- This ratio is closely related to E.P.S. and D.P.S. while the E.P.S and D.P.S. are calculated on the basis of the book value of shares, this ratio is calculated on the basis of the market value of share.
12.00 10.00 8.00 6.00 4.00 2.00 0.00 TATA MOTORS MARUTI SUZ UKI

2007 6.82 6.60

2008 8.16 7.22

2009 10.50 5.44

2010 5.12 6.10

2011 2.27 6.27

(g) Dividend yield:- Which is calculated on dividend paid on the basis of market price of share.
3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 TATA MOTORS MARUTI SUZUKI

2007 2.06 0.55

2008 2.33 0.60

2009 3.23 0.45

2010 1.96 0.42

2011 1.59 0.59

(h) Price earning (P.E.) Ratio:- Price earnings ratio is the ratio between market price per equity share &earning per share. The ratio is calculated to make an estimate of

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50.00 40.00 30.00 20.00 10.00 0.00 TATA MOTORS MARUTI SUZ UKI

2007 14.66 15.16

2008 12.26 13.85

2009 9.52 18.38

2010 19.53 16.38

2011 44.13 15.95

Appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Significance:-this ratio shows how much is to be invested in the market in this companys shares to get each rupee of earning on its share. This ratio is used to measure whether the market price of a share is high or low.

CHAPTER 4

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TECHNICAL ANALYSIS

53

Fundamental vs. Technical Analysis Technical analysis and fundamental analysis are the two main schools of thought in the financial markets. As we've mentioned, technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis, on the other hand, looks at economic factors, known as fundamentals. Fundamental analysis takes a relatively long-term approach to analyzing the market compared to technical analysis. While technical analysis can be used on a timeframe of weeks, days or even minutes, fundamental analysis often looks at data over a number of years. The future can be found in the past, If prices are based on investor expectations, then knowing what a security should sell for (i.e., fundamental analysis) becomes less important than knowing what other investors expect it to sell for. That's not to say that knowing what a security should sell for isn't important--it is. But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove. Technical analysis is the process of analyzing a security's historical prices in an effort to determine probable future prices. This is done by comparing current price action (i.e., current expectations) with comparable historical price action to predict a reasonable outcome. The devout technician might define this process as the fact that history repeats itself while others would suffice to say that we should learn from the past. Usually the following tools & instruments are used to do the technical analysis: Price Fields Technical analysis is based almost entirely on the analysis of price and volume. The fields which define a security's price and volume are explained below. Open - This is the price of the first trade for the period (e.g., the first trade of the day). When analyzing daily data, the Open is especially important as it is the consensus price after all interested parties were able to "sleep on it." High -This is the highest price that the security traded during the period. It is the point at which there were more sellers than buyers (i.e., there are always sellers willing to sell at higher prices, but the High represents the highest price buyers were willing to pay). Low - This is the lowest price that the security traded during the period. It is the point at which there were more buyers than sellers (i.e., there are always buyers willing to buy at lower prices, but the Low represents the lowest price sellers were willing to accept). Close - This is the last price that the security traded during the period. Due to its availability, the Close is the most often used price for analysis. The relationship between the Open (the first price) and the Close (the last price) are considered significant by most technicians. This relationship is emphasized in candlestick charts.
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Volume - This is the number of shares (or contracts) that were traded during the period. The relationship between prices and volume (e.g., increasing prices accompanied with increasing volume) is important. Open Interest - This is the total number of outstanding contracts (i.e., those that have not been exercised, closed, or expired) of a future or option. Open interest is often used as an indicator. Bid - This is the price a market maker is willing to pay for a security (i.e., the price you will receive if you sell). Ask - This is the price a market maker is willing to accept (i.e., the price you will pay to buy the security).

Price Styles (Chart): Price in a chart can be displayed in four styles: 1. Bar Chart 2. Line Chart 3. Candlestick Chart 4. Point and figure Chart 1. Bar Chart:

The highs and lows of a foreign currency are plotted in a diagram and the points are joined with vertical lines (bars). A small horizontal tick to the left denotes the opening level while a small horizontal tick to the right represents the closing price of each interval.
55

2. Line Chart: It gives the detailed information about every aspect. The exchange rates for each time period are plotted in a diagram and the points are joined. Prices on the yaxis, time on the x-axis.

The line chart chooses for example the closing price of consecutive time periods, but can also work with daily, official fixings. The relatively easy handling of line charts is a great advantage. Line charts do not show price movements within a time period. This can be a problem because important information for exchange rate analysis can be lost. This problem was remedied with the development of bar charts that represent a more sophisticated form of line chart. The line chart chooses for example the closing price of consecutive time periods, but can also work with daily, official fixings. The relatively easy handling of line charts is a great advantage. Line charts do not show price movements within a time period. This can be a problem because important information for exchange rate analysis can be lost. This problem was remedied with the development of bar charts that represent a more sophisticated form of line chart. 3. Candlestick Chart: A candlestick is black if the closing price is lower than the opening price. A candlestick is white if the closing price is higher than the opening price.

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POINT AND FIGURE CHART: The point and figure chart is not well known or used by the average investor but it has had a long history of use dating back to the first technical traders. This type of chart reflects price movements and is not as concerned about time and volume in the formulation of the points. The point and figure chart removes the noise, or insignificant price movements, in the stock, which can distort traders' views of the price trends. These types of charts also try to neutralize the skewing effect that time has on chart analysis.

When first looking at a point and figure chart, you will notice a series of Xs and Os. The Xs represent upward price trends and the Os represent downward price trends. There are also numbers and letters in the chart; these represent months, and give investors an idea
57

of the date. Each box on the chart represents the price scale, which adjusts depending on the price of the stock: the higher the stock's price the more each box represents. On most charts where the price is between $20 and $100, a box represents $1, or 1 point for the stock. The other critical point of a point and figure chart is the reversal criteria. This is usually set at three but it can also be set according to the chartist's discretion. The reversal criteria set how much the price has to move away from the high or low in the price trend to create a new trend or, in other words, how much the price has to move in order for a column of Xs to become a column of Os, or vice versa. When the price trend has moved from one trend to another, it shifts to the right, signaling a trend change. TRENDS IN TECHNICAL ANALYSIS: One of the most important concepts in technical analysis is that of trend. The meaning in finance isn't all that different from the general definition of the term - a trend is really nothing more than the general direction in which a security or market is headed. Take a look at the chart below:

Isnt it hard to see that the trend is up? However, it's not always this easy to see a trend. There are lots of ups and downs in this chart, but there isn't a clear indication of which direction this security is headed. Unfortunately, trends are not always easy to see. In other words, defining a trend goes well beyond the obvious. In any given chart, you will probably notice that prices do not tend to move in a straight line in any direction, but rather in a series of highs and lows. In technical analysis, it is the movement of the highs and lows that constitutes a trend. For example, an uptrend is classified as a series of higher highs and higher lows, while a downtrend is one of lower lows and lower highs. It is an example of an uptrend. Point 2 in the chart is the first high, which is determined after the price falls from this point. Point 3 is the low that is established as the price falls from the high. For this to remain an uptrend each successive low must not fall below the previous lowest point or the trend is deemed a reversal. Types of Trend:
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There are three types of trend: 1. Uptrend 2. Downtrend 3. Sideways/Horizontal Trends As the names imply, when each successive peak and trough is higher, it's referred to as an upward trend. If the peaks and troughs are getting lower, it's a downtrend. When there is little movement up or down in the peaks and troughs, it's a sideways or horizontal trend. If you want to get really technical, you might even say that a sideways trend is actually not a trend on its own, but a lack of a well-defined trend in either direction. In any case, the market can really only trend in these three ways: up, down or nowhere. Along with these three trend directions, there are three trend classifications. A trend of any direction can be classified as a long-term trend, Intermediate trend or a short-term trend. In terms of the stock market, a major trend is generally categorized as one lasting longer than a year. An intermediate trend is considered to last between one and three months and a near-term trend is anything less than a month. A long-term trend is composed of several intermediate trends, which often move against the direction of the major trend. If the major trend is upward and there is a downward correction in price movement followed by a continuation of the uptrend, the correction is considered to be an intermediate trend. The short-term trends are components of both major and intermediate trends. Take a look a Figure 4 to get a sense of how these three trend lengths might look.

When analyzing trends, it is important that the chart is constructed to best reflect the type of trend being analyzed. To help identify long-term trends weekly charts or daily charts spanning a five-year period are used by chartists to get a better idea of the longterm trend. Daily data charts are best used when analyzing both intermediate and short59

term trends. It is also important to remember that the longer the trend, the more important it is; for example, a one-month trend is not as significant as a five-year trend. Trend Lines: A trend line is a simple charting technique that adds a line to a chart to represent the trend in the market or a stock. Drawing a trend line is as simple as drawing a straight line that follows a general trend. These lines are used to clearly show the trend and are also used in the identification of trend reversals. An upward trend line is drawn at the lows of an upward trend. This line represents the support the stock has every time it moves from a high to a low. Notice how the price is propped up by this support. This type of trend line helps traders to anticipate the point at which a stock's price will begin moving upwards again. Similarly, a downward trend line is drawn at the highs of the downward trend. This line represents the resistance level that a stock faces every time the price moves from a low to a high.

Channels: A channel, or channel lines, is the addition of two parallel trend lines that act as strong areas of support and resistance. The upper trend line connects a series of highs, while the lower trend line connects a series of lows. A channel can slope upward, downward or sideways but, regardless of the direction, downward or sideways but, regardless of the direction, the interpretation remains the same. Traders will expect a given security to trade between the two levels of support and resistance until it breaks beyond one of the levels, in which case traders can expect a sharp move in the direction of the break. Along with clearly displaying the trend, channels are mainly used to illustrate important areas of support and resistance.

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A descending channel on a stock chart; the upper trend line has been placed on the highs and the lower trend line is on the lows. The price has bounced off of these lines several times, and has remained range-bound for several months. As long as the price does not fall below the lower line or move beyond the upper resistance, the range-bound downtrend is expected to continue. The Importance of Trend: It is important to be able to understand and identify trends so that you can trade with rather than against them. Two important sayings in technical analysis are "the trend is your friend" and "don't buck the trend," illustrating how important trend analysis is for technical traders. IMPORTANCE OF VOLUME:What Is Volume? Volume is simply the number of shares or contracts that trade over a given period of time, usually a day. The higher the volume, the more active the security. To determine the movement of the volume (up or down), chartists look at the volume bars that can usually be found at the bottom of any chart. Volume bars illustrate how many shares have traded per period and show trends in the same way that prices do. Why Volume Is Important? Volume is an important aspect of technical analysis because it is used to confirm trends and chart patterns. Any price movement up or down with relatively high volume is seen as a stronger, more relevant move than a similar move with weak volume. Say, for example, that a stock jumps 5% in one trading day after being in a long downtrend. Is

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this a sign of a trend reversal? This is where volume helps traders. If volume is high during the day relative to the average daily volume, it is a sign that the reversal is probably for real. On the other hand, if the volume is below average, there may not be enough conviction to support a true trend reversal. Volume should move with the trend. If prices are moving in an upward trend, volume should increase (and vice versa). If the previous relationship between volume and price movements starts to deteriorate, it is usually a sign of weakness in the trend. For example, if the stock is in an uptrend but the up trading days are marked with lower volume, it is a sign that the trend is starting to lose its legs and may soon end. When volume tells a different story, it is a case of divergence, which refers to a contradiction between two different indicators. The simplest example of divergence is a clear upward trend on declining volume. Volume and Chart Patterns: The other use of volume is to confirm chart patterns. Patterns such as head and shoulders, triangles, flags and other price patterns can be confirmed with volume, a process which we'll describe in more detail later in this tutorial. In most chart patterns, there are several pivotal points that are vital to what the chart is able to convey to chartists. Basically, if the volume is not there to confirm the pivotal moments of a chart pattern, the quality of the signal formed by the pattern is weakened. Volume Precedes Price: Another important idea in technical analysis is that price is preceded by volume. Volume is closely monitored by technicians and chartists to form ideas on upcoming trend reversals. If volume is starting to decrease in an uptrend, it is usually a sign that the upward run is about to end. Now that we have a better understanding of some of the important factors of technical analysis, we can move on to charts, which help to identify trading opportunities in prices movements.

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Chart Patterns: A chart pattern is a distinct formation on a stock chart that creates a trading signal, or a sign of future price movements. Chartists use these patterns to identify current trends and trend reversals and to trigger buy and sell signals. In the first section of this tutorial, we talked about the three assumptions of technical analysis, the third of which was that in technical analysis, history repeats itself. The theory behind chart patterns is based on this assumption. The idea is that certain patterns are seen many times, and that these patterns signal a certain high probability move in a stock. Based on the historic trend of a chart pattern setting up a certain price movement, chartists look for these Patterns to identify trading opportunities. While there are general ideas and components to every chart pattern, there is no chart pattern that will tell you with 100% certainty where a security is headed. This creates some leeway and debate as to what a good pattern looks like, and is a major reason why charting is often seen as more of an art than a science. There are two types of patterns within this area of technical analysis, reversal and continuation. A reversal pattern signals that a prior trend will reverse upon completion of the pattern. A continuation pattern, on the other hand, signals that a trend will continue once the pattern is complete. These patterns can be found over charts of any timeframe. In this section, we will review some of the more popular chart patterns. 1. Head and Shoulders: This is one of the most popular and reliable chart patterns in technical analysis. Head and shoulders is a reversal chart pattern that when formed, signals that the security is likely to move against the previous trend. As you can see, there are two versions of the head and shoulders chart pattern. Head and shoulders top (shown on the left) is a chart pattern that is formed at the high of an upward movement and signals that the upward trend is about to end. Head and shoulders bottom, also known as inverse head and shoulders is the lesser known of the two, but is used to signal a reversal in a downtrend. Head and shoulders top is shown on the left. Head and shoulders bottom, or inverse head and shoulders, is on the right.

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Both of these head and shoulders patterns are similar in that there are four main parts: two shoulders, a head and a neckline. Also, each individual head and shoulder is comprised of a high and a low. For example, in the head and shoulders top image shown on the left side, the left shoulder is made up of a high followed by a low. In this pattern, the neckline is a level of support or resistance. Remember that an upward trend is a period of successive rising highs and rising lows. The head and shoulders chart pattern, therefore, illustrates a weakening in a trend by showing the deterioration in the successive movements of the highs and lows. 2. Cup and Handle: A cup and handle chart is a bullish continuation pattern in which the upward trend has paused but will continue in an upward direction once the pattern is confirmed.

The price pattern forms what looks like a cup, which is preceded by an upward trend. The handle follows the cup formation and is formed by a generally downward/sideways movement in the security's price. Once the price movement pushes above the resistance lines formed in the handle, the upward trend can continue. 3. Double Tops and Bottoms: This chart pattern is another well-known pattern that signals a trend reversal - it is considered to be one of the most reliable and is commonly used. These patterns are formed after a sustained trend and signal to chartists that the trend is about to reverse.

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The pattern is created when a price movement tests support or resistance levels twice and is unable to break through. This pattern is often used to signal intermediate and long-term trend reversals. A double top pattern is shown on the left, while a double bottom pattern is shown on the right. In the case of the double top pattern, the price movement has twice tried to move above a certain price level. After two unsuccessful attempts at pushing the price higher, the trend reverses and the price heads lower. In the case of a double bottom (shown on the right), the price movement has tried to go lower twice, but has found support each time. After the second bounce off of the support, the security enters a new trend and heads upward. 4. Triangles: Triangles are some of the most well-known chart patterns used in technical analysis. The three types of triangles, which vary in construct and implication, are the

symmetrical triangle, ascending and descending triangle. These chart patterns are considered to last anywhere from a couple of weeks to several months. The symmetrical is a pattern in which two trend lines converge toward each other. This
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pattern is neutral in that a breakout to the upside or downside is a confirmation of a trend in that direction. In an ascending triangle, the upper trend line is flat, while the bottom trend line is upward sloping. This is generally thought of as a bullish pattern in which chartists look for an upside breakout. In a descending triangle, the lower trend line is flat and the upper trend line is descending. This is generally seen as a bearish pattern where chartists look for a downside breakout. 5. Flag and Pennants: There is little difference between a pennant and a flag. The main difference between these price movements can be seen in the middle section of the chart pattern. In a pennant, the middle section is characterized by converging trend lines, much like what is seen in a symmetrical triangle. The middle section on the flag pattern, on the other hand, shows a channel pattern, with no convergence between the trend lines. In both cases, the trend is expected to continue when the price moves above the upper trend line.

6. Wedge: The wedge chart pattern can be either a continuation or reversal pattern. It is similar to a symmetrical triangle except that the wedge pattern slants in an upward or downward direction, while the symmetrical triangle generally shows a sideways movement. The other difference is that wedges tend to form over longer periods, usually between three and six months.

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The fact that wedges are classified as both continuation and reversal patterns can make reading signals confusing. However, at the most basic level, a falling wedge is bullish and a rising wedge is bearish. We have a falling wedge in which two trend lines are converging in a downward direction. If the price was to rise above the upper trend line, it would form a continuation pattern, while a move below the lower trend line would signal a reversal pattern. 7. Triple Tops and Bottoms: Triple tops and triple bottoms are another type of reversal chart pattern in chart analysis. These are not as prevalent in charts as head and shoulders and double tops and bottoms, but they act in a similar fashion. These two chart patterns are formed when the price movement tests a level of support or resistance three times and is unable to break through; this signals a reversal of the prior trend.

Confusion can form with triple tops and bottoms during the formation of the pattern because they can look similar to other chart patterns. After the first two support/resistance tests are formed in the price movement, the pattern will look like a double top or bottom, which could lead a chartist to enter a reversal position too soon. 8. Rounding Bottom: A rounding bottom, also referred to as a saucer bottom, is a long-term reversal pattern that signals a shift from a downward trend to an upward trend. This pattern is traditionally thought to last anywhere from several Months to several years.

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Support and Resistance: Once you understand the concept of a trend, the next major concept is that of support and resistance. You'll often hear technical analysts talk about the ongoing battle between the bulls and the bears, or the struggle between buyers (demand) and sellers (supply). This is revealed by the prices a security seldom moves above (resistance) or below (support). Support is the price level through which a stock or market seldom falls (illustrated by the blue arrows). Resistance, on the other hand, is the price level that a stock or market seldom surpasses (illustrated by the Red Arrows).These support and resistance levels are seen as important in terms of market psychology and supply and demand. Support and resistance levels are the levels at which a lot of traders are willing to buy the stock (in the case of a support) or sell it (in the case of resistance). When

these trend lines are broken, the supply and demand and the psychology behind the stock's movements is thought to have shifted, in which case new levels of support and resistance likely be established. Round Numbers and Support and Resistance: One type of universal support and resistance that tends to be seen across a large number of securities is round numbers. Round numbers like 10, 20, 35, 50, 100 and 1,000 tend be important in support and resistance levels because they often represent the major psychological turning points at which many traders will make buy or sell decisions. Buyers will often purchase large amounts of stock once the price starts to fall toward a major round number such as $50, which makes it more difficult for shares to fall below the level. On the other hand, sellers start to sell off a stock as it moves toward a round number peak, making it difficult to move past this upper level as well. It is the increased buying and selling pressure at these levels that makes them important points of support and resistance and, in many cases, major psychological points as well. Role Reversal:
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Once a resistance or support level is broken, its role is reversed. If the price falls below a support level, that level will become resistance. If the price rises above a resistance level, it will often become support. As the price moves past a level of support or resistance, it is thought that supply and demand has shifted, causing the breached level to reverse its role. For a true reversal to occur, however, it is important that the price make a strong move through either the support or resistance.

For example: As you can see, the dotted line is shown as a level of resistance that has prevented the price from heading higher on two previous occasions (Points 1 and 2). However, once the resistance is broken, it becomes a level of support (shown by Points 3 and 4) by propping up the price and preventing it from heading lower again. Many traders who begin using technical analysis find this concept hard to believe and don't realize

that this phenomenon occurs rather frequently, even with some of the most wellknown companies. For example, this phenomenon is evident on the Wal-Mart Stores Inc. (WMT) chart between 2003 and 2006.Notice how strong level of support changes
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to a level of resistance. In almost every case, a stock will have both a level of support and a level of resistance and will trade in this range as it bounces between these levels. The Importance of Support and Resistance: Support and resistance analysis is an important part of trends because it can be used to make trading decisions and identify when a trend is reversing. Support and resistance levels both test and confirm trends and need to be monitored by anyone who uses technical analysis. As long as the price of the share remains between these levels of support and resistance, the trend is likely to continue. It is important to note, however, that a break beyond a level of support or resistance does not always have to be a reversal. For Example: If prices moved above the resistance levels of an upward trending channel, the trend have accelerated, not reversed. This means that the price appreciation is expected to be faster than it was in the channel. Being aware of these important support and resistance points should affect the way that you trade a stock. Traders should avoid placing orders at these major points, as the area around them is usually marked by a lot of volatility. If you feel confident about making a trade near a support or resistance level, it is important that you follow this simple rule: do not place orders directly at the support or resistance level. This is because in many cases, the price never actually reaches the whole number, but flirts with it instead. So if you're bullish on a stock that is moving toward an important support level, do not place the trade at the support level. Instead, place it above the support level, but within a few points. On the other hand, if you are placing stops or short selling, set up your trade price at or below the level of support. Summery Chart:

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MOVING AVERAGES: Most chart patterns show a lot of variation in price movement. This can make it difficult for traders to get an idea of a security's overall trend. One simple method traders use to combat this is to apply moving averages. A moving average is the average price of a security over a set amount of time. By plotting a security's average price, the price movement is smoothed out. Once the day-to-day fluctuations are removed, traders are better able to identify the true trend and increase the probability that it will work in their favor. Types Of Moving Averages:There are a number of different types of moving averages that vary in the way they are calculated, but how each average is interpreted remains the same. The calculations only differ in regards to the weighting that they place on the price data, shifting from equal weighting of each price point to more weight being placed on recent data. The three most common types of moving averages are simple, linear and exponential 1. Simple Moving Average (SMA): This is the most common method used to calculate the moving average of prices. It simply takes the sum of all of the past closing prices over the time period and divides the result by the number of prices used in the calculation. For example, in a 10-day moving average, the last 10 closing prices are added together and then divided by 10. As you can see in Figure 1, a trader is able to make the average less responsive to changing prices by increasing the number of periods used in the calculation. Increasing the number of time periods in the calculation is one of the best ways to gauge the strength of the longterm

trend and the likelihood that it will reverse. Many individuals argue that the usefulness of this type of average is limited because each point in the data series has the same impact on the result regardless of where it occurs in the sequence.
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The critics argue that the most recent data is more important and, therefore, it should also have a higher weighting. This type of criticism has been one of the main factors leading to the invention of other forms of moving averages. 2. Linear Weighted Average: This moving average indicator is the least common out of the three and is used to address the problem of the equal weighting. The linear weighted moving average is calculated by taking the sum of all the closing prices over a certain time period and multiplying them by the position of the data point and then dividing by the sum of the number of periods. For example, in a five-day linear weighted average, today's closing price is multiplied by five; yesterday's by four and so on until the first day in the period range is reached. These numbers are then added together and divided by the sum of the multipliers. 3. Exponential Moving Average (EMA): This moving average calculation uses a smoothing factor to place a higher weight on recent data points and is regarded as much more efficient than the linear weighted average. Having an understanding of the calculation is not generally required for most traders because most charting packages do the calculation for you. The most important thing to remember about the exponential moving average is that it is more responsive to new information relative to the simple moving average. This responsiveness is one of the key factors of why this is the moving average of choice among many technical traders.

A 15-period EMA raises and falls faster than a 15-period SMA. This slight difference doesnt seem likes light difference doesnt seem like much, but it is an important factor to be aware of since it can affect returns. Major Uses of Moving Averages:
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Moving averages are used to identify current trends and trend reversals as well as to set up support and resistance levels. Moving averages can be used to quickly identify whether a security is moving in an uptrend or a downtrend depending on the direction of the moving average. When a moving average is heading upward and the price is above it, the security is in an uptrend. Conversely, a downward sloping moving average with the price below can be used to signal a downtrend.

Another method of determining momentum is to look at the order of a pair of moving averages. When a short-term average is above a longer-term average, the trend is up. On the other hand, a long-term average above a shorter-term average signals a downward movement in the trend. Moving average trend reversals are formed in two main ways: when the price moves through a moving average and when it moves through moving average crossovers. The first common signal is when the price moves through an important moving average. For example, when the price of a security that was in an uptrend falls below a 50-period moving average, it is a sign that the uptrend may be reversing. The other signal of a trend reversal is when one moving average crosses through another. For example, if the 15-day moving average crosses above the 50-day moving average, it is a positive sign that the price will start to increase.

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If the periods used in the calculation are relatively short, for example 15 and 35, this could signal a short-term trend reversal. On the other hand, when two averages with relatively long time frames cross over (50 and 200, for example), this is used to suggest a long-term shift in trend. Another major way moving averages are used is to identify support and resistance levels. It is not uncommon to see a stock that has been falling stop its decline and reverse direction once it hits the support of a major moving average. A move through a major moving average is often used as a signal by technical traders that the trend is reversing. For example, if the price breaks through the 200-day moving average in a downward direction, it is a signal that the uptrend is reversing.

Moving averages are a powerful tool for analyzing the trend in a security. They provide useful support and resistance points and are very easy to use. The most common time frames that are used when creating moving averages are the 200-day, 100-day, 50-day, 20-day and 10-day. The 200-day average is thought to be a good measure of a trading year, a 100-day average of a half a year, a 50-day average of a quarter of a year, a 20day average of a month And 10 day average of two weeks. Moving averages help technical traders smooth out some of the noise that is found in day-to-day price movements, giving traders a clearer view of the price trend. So far we have been focused on price movement, through charts and averages. In the next section, we'll look at some other techniques used to confirm price movement and patterns.
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TECHNICAL ANALYSIS OF A STOCK

The Technical analysis is a methodology to assist you in deciding the timing of investments, which is very vital to make wise investment decisions. The technical analysis is based on the assumption that history tends to repeat itself in the stock exchange. If a certain pattern of activity has in the past produced certain results nine out of ten, one can assume a strong likelihood of the same outcome whenever this pattern appears in the future. However technical analysis lacks a strictly logical explanation. Technical Analysis is the study of the internal stock exchange information and not of those external factors which are reflected in the stock market. All the relevant factors, whatever they may be can be reduced to the volume of the stock exchange transactions and the level of share price or more generally, the sum of the statistical information produced by the market. Few of the most commonly used technical analysis methods for share market are Japanese Candlestick (most powerful stock charting method), Price Curves, Trend Lines, High Low Charts and Moving averages.

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INTERPRETATION: For technical analysis number of indicators are required, one indicator cant provide the requisite information about the share for that we are using the following indicators: 1) Price indicator 2) Volume indicator 3) Chart pattern 4) Relative strength analysis 5) Moving average etc. In the pattern of Sep.09 to May 10,Share of Tata motors is showing a pattern of ascending triangle with high volume of share which is indicating an uptrend after this
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double top is forming in the chart of Tata Motors with lower volume which indicates a downtrend. While share of Maruti Suzuki showing a pattern of head and shoulders, where second shoulder is at lower level as compared with first shoulder which indicates an downtrend with lower volume of share and high volatility in the share. After this the share is showing a pattern of ascending triangle with high volume. The above chart of TATA MOTORS & MARUTI SUZUKI they are showing the same the same kind of pattern when the Sensex is going up then both the share are going up and vice versa but the movement in volume of share traded (which includes both buying and selling) is higher in MARUTI SUZUKI as compared with TATA MOTORS.Which assisting the share to make a high price movement in the share. While the price fluctuation in the share of MARUTI SUZUKI is higher as compared with TATA MOTORS. Which indicates volatility in the share of MARUTI is higher with that of TATA MOTORS. BETA OF A SECURITY: In finance, the Beta () of a stock or portfolio is a number describing the relation of its returns with those of the financial market as a whole. An asset has a Beta of zero if its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average. The formula for the beta of an asset within a portfolio is

The value of beta can also be calculated by the ratio of % change in companys share to the % change in market . Beta () = % change in share/% change in market Then by using the Slope Function in Excel
TATA MOTORS CLOSING PRICE MARUTI SUZUKI CLOSING PRICE SENSEX % CHANGE % CHANGE CLOSING IN TATA IN MARUTI % CHANGE PRICE MOTORS SUZUKI IN SENSEX 77

DATE

1-Jul-09 31-Jul-09 3-Aug-09 31-Aug-09 1-Sep-09 30-Sep-09 1-Oct-09 30-Oct-09 3-Nov-09 30-Nov-09 1-Dec-09 31-Dec-09 4-Jan-10 29-Jan-10 1-Feb-10 26-Feb-10 2-Mar-10 31-Mar-10 1-Apr-10 30-Apr-10 3-May-10 31-May-10 1-Jun-10 30-Jun-10 1-Jul-10 30-Jul-10 2-Aug-10 31-Aug-10 1-Sep-10 30-Sep-10 1-Oct-10 29-Oct-10 1-Nov-10 30-Nov-10 1-Dec-10 31-Dec-10 3-Jan-11 31-Jan-11 1-Feb-11 28-Feb-11 1-Mar-11 31-Mar-11 1-Apr-11 29-Apr-11 2-May-11 31-May-11

299.3 421.55 431.25 489.35 517.85 591.35 580.1 565 551.85 660.9 700.75 792.6 827.4 694.35 719.05 711.05 797.1 755.7 775.9 872.85 855.55 754.65 725.65 778.35 762.95 846.15 847.6 1007.45 1008.55 1097.3 1118.85 1159.45 1170.35 1237.1 1288.15 1306.3 1306.45 1148.25 1068.8 1081.8 1140.4 1247.5 1242.9 1229.1 1228.55 1092.5

1070.15 1413.25 1469.55 1436.65 1545.95 1698.9 1651 1403 1418.8 1561.7 1588.15 1559.65 1550.75 1390.1 1399.1 1463.55 1489.65 1416.15 1390.7 1279.75 1282.35 1236.95 1259.2 1423.6 1399.4 1198.15 1208.4 1255.9 1273.25 1440.95 1482.6 1551.2 1508.7 1423.75 1412.8 1420.6 1427.65 1252.8 1240.9 1206.7 1292.9 1263.55 1274.35 1319.75 1291.2 1227.5

14645.47 15670.31 15924.23 15666.64 15551.19 17126.84 17134.55 15896.28 15404.94 16926.22 17198.27 17464.81 17558.73 16357.96 16356.03 16429.55 16772.56 17527.77 17692.62 17558.71 17386.08 16944.63 16572.03 17700.9 17509.33 17868.29 18081.21 17971.12 18205.87 20069.12 20445.04 20032.34 20355.63 19521.25 19850 20509.09 20561.05 18327.76 18022.22 17823.4 18446.5 19445.22 19420.39 19135.96 18998.02 18503.28 78

40.845306 13.472464 14.193299 -2.602999 19.760805 13.107385 -16.08049 -1.112579 -5.193828 12.495167 -11.79358 7.2624544 10.90504 18.859132 8.799762 3.6287259 5.7034221 1.4089974 -12.10915 1.2163174 9.3914416 -1.110307 -11.07403

32.060926 -2.238781 9.8935929 -15.0212 10.071892 -1.794541 -10.3595 4.6065328 -4.934045 -7.977997 -3.540375 13.055909 -14.38116 3.9308176 13.171019 4.6270066 -5.630675 0.5520951 -12.2474 -2.756064 -2.27009 3.5626005 -4.933395

6.99765866 -1.6175978 10.1320221 -7.2267436 9.87527378 1.54980704 -6.8385925 0.44949783 4.50265195 -0.7568692 -2.5391002 6.81189933 2.050107 -0.6088641 10.2343365 -2.0185825 -4.0990134 3.32035264 -10.861751 -1.1031937 5.4141436 -1.4645947 -2.6041661

1-Jun-11 30-Jun-11 1-Jul-11 29-Jul-11

1079.45 993.5 994.5 947.4

1248.9 1158.45 1143.55 1207.9

18608.81 18845.87 18762.8 18197.2

-7.962388 -4.736048

-7.242373 5.6272135

1.27391273 -3.0144755

Beta () of TATA MOTORS=1.398523 or 1.40 (Approximately) Beta () of MARUTI SUZUKI=1.254263 or 1.25 (Approximately) This indicates that for 1% change in SENSEX the change in TATA MOTORS and MARUTI SUZUKI is 1.40 and 1.25 respectively. Beta is also referred to as financial elasticity or correlated relative volatility, and can be referred to as a measure of the sensitivity of the asset's returns to market returns, its non-diversifiable risk, its systematic risk, or market risk. On an individual asset level, measuring beta can give clues to volatility and liquidity in the marketplace. In fund management, measuring beta is thought to separate a manager's skill from his or her willingness to take risk. CORRELATION: This indicates the relationship between the two share. The correlation between share of Tata Motors and Sensex is 0.607074. The correlation between share of Maruti Suzuki and Sensex is 0.662691. The correlation between share of Tata Motors and Maruti Suzuki is 0.6520289. The value of (r) lies between 0.25 and 0.75. This indicates moderate degree of positive correlation between the shares. STANDARD VARIATION: This indicates the variability around the mean value. Standard variation of Tata Motors is 12.64997. Standard variation of Maruti Suzuki is 10.39295. Standard variation of Sensex is 5.491125.

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SIMPLE MOVING AVERAGE:

Significance: The above 15 day moving average shows that both the share are showing almost the same kind of pattern, but the TATA MOTORS is falling much faster as compared with the MARUTI SUZUKI. This indicates that the bearish pattern shown by the TATA MOTORS. They do not predict price direction, but rather define the current direction with a lag. Moving averages lag because they are based on past prices.

Significance: The above moving average chart indicates that long term moving average chart is smoother as compared with that of the short term moving average. The longer the term of the moving average, the smoother the line will be. In order to gauge the strength of a trend in a market, plot the 10, 20, 50 and 200 day SMAs. In an
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uptrend, the shorter term averages should be above the longer term ones, and vice versa in case of a downtrend. EXPONENTIAL MOVING AVERAGE: Exponential Moving average is together with its simple counterpart (MA) considered to be one of the most common Indicators in nearly any technical analysis software available in the market today. Its a trend following indicator and is calculated like so: EMA = Price (t) * + EMA(y) * (1 ) t = today, y = yesterday, N = number of days in EMA, = 2/(N+1) The degree of weighing decrease is expressed as a constant smoothing factor , a number between 0 and 1. may be expressed as a percentage, so a smoothing factor of 10% is equivalent to =0.1. Alternatively, may be expressed in terms of N time periods, Where () alpha=2\(N+1). For example, N=19 is equivalent to =0.1

Significance: The above chart make a comparison between 15 day exponential moving average of TATA MOTORS and MARUTI SUZUKI. This type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average is also known as exponentially weighted moving average. An exponential moving average, which can also be referred to as an exponentially
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weighted moving average, applies weighting factors which decrease exponentially. The weighting for each older data point decreases exponentially, giving much more importance to recent observations while still not discarding older observations entirely.

Significance: Long term exponential moving average rises and falls faster than the simple moving average. It is now used by the brokers more often than the simple moving average because it puts more weight on the recent figure and less weight on the past data.

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CHAPTER 5

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FINDINGS
1) The liquidity ratio of Tata Motors is better as compared with Maruti Suzuki. 2) The leverage ratio of Maruti is better as compared with Tata Motors. 3) The activity ratio of Maruti Suzuki is better as compared with Tata Motors. 4) The profitability ratio of Maruti is better as compared with Tata Motors.
5)

The share of Tata Motors is more volatile as compared with Maruti Suzuki and more patterns are forming in the chart of Maruti Suzuki as compared with the chart of Tata Motors.

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BIBLIOGRAPHY

www.moneycontrol.com www.googlefinance.com www.yahoofinance.com www.technicalanalysis.com www.nseindia.com www.bseindia.com

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