SUMMER INTERNSHIP PROJECT REPORT

Fundamental and Technical Analysis of Automobile Sector

Finoability Private Limited

CORPORATE MENTOR:
Piyush Agarwal
Co-Founder & Director

SUBMITTED BY:
Prabin Pathak
UR23099
MBA-RM (2023-25)

SUBMITTED TO:

XIM UNIVERSITY, BHUBANESWAR

 Certificate

This is to certify that the summer internship report on “Fundamental and

Technical Analysis of Automobile Sector” submitted to Finoability Private
Limited, Kolkata in partial fulfilment of the requirement for the degree of
'Masters in Business Administration-Rural Management (MBA-RM) of the
School of Rural Management, XIM University, Bhubaneswar, is a record of the
bonafide original academic writing work carried by Mr. Prabin Pathak. The
published part has been fully acknowledged. All assistance and help received
during the study have been duly recognized by the author. No part of the academic
writing has been plagiarized and submitted for any other degree.

Name of the Student: Prabin Pathak

Sign of the Student:

Place: Remote

Date:
 Acknowledgement

Summer Internship is an integral part of an MBA Program and I take this

opportunity to express my gratitude towards Finoability Pvt Ltd, Kolkata which
helped me to accomplish this project. I am highly grateful to my industry mentor
Mr. Piyush Agarwal, (Co-Founder & Director) for providing me the opportunity
to have such a good experience of the Internship program. It was indeed very
gracious of him to spare his valuable time and give an elaborate insight into the
functioning of the department.

I would like to thank my faculty mentor for their help and constant supervision
throughout the project. Their opinions and deep insight on the subject matter and
various parts of the SIP report helped in successful completion of this project.

At last, I am also thankful to my friends, all known and unknown individuals who
have given me their constructive advice, encouragement, co-operation, and
motivation during this project and while preparing this report.

I thank my college XIM University, Bhubaneswar which gave me an opportunity

to show my skills and work with such a big organization.

Thank You,
Prabin Pathak
 Contents
Research Methodology .............................................................................................................. 5
1. EXECUTIVE SUMMARY ................................................................................................ 7
2. Auto-Mobile Sector ............................................................................................................ 8
2.1 Introduction to Auto-Mobile Sector: ........................................................................... 8
2.2 Market Size: ................................................................................................................ 8
2.3 Investments in Auto-Mobile Sector: ........................................................................... 9
2.4 Automotive Mission Plan 2016-26 (AMP 2026): ......................................................... 11
2.5 Road Ahead: .............................................................................................................. 12
3. Financial Analysis............................................................................................................. 12
3.1 Introduction to Fundamental Analysis: ..................................................................... 12
3.2 Advantage of Fundamental Analysis: ....................................................................... 14
3.3 Disadvantage of Fundamental Analysis: ................................................................... 14
4. Fundamental Analysis of Auto-Mobile Sector: ................................................................ 15
4.1. Valuation of stocks: ........................................................................................................... 15
4.2 Selection of Growth Based Stocks and Value Based Stocks: ......................................... 16
4.2 Ranking of selected stocks: ............................................................................................ 17
5. Technical Analysis ............................................................................................................ 18
5.1 Long-Term Technical Analysis: ..................................................................................... 19
5.2 Long-Term Technical Analysis of Auto-Mobile Sector: ................................................ 27
5.3 Short Term Technical Analysis .......................................................................................... 31
Conclusion ............................................................................................................................... 34
References ................................................................................................................................ 34
Research Methodology

Type of Study – Secondary Research

Sources – [Link], [Link]
Sampling Unit – Stock of Information Technology
 ABOUT THE COMPANY

Finoability is a dedicated financial services firm committed to helping individuals and families
achieve their financial goals with confidence and precision. Recognizing the importance of
being on the right track and overcoming financial challenges, Finoability specializes in
providing personalized strategies for a variety of financial aspirations. Whether it’s planning
for early retirement, funding college educations, investing in real estate, purchasing a second
home, or financing a new business venture, Finoability's tailored approach ensures that clients
reach their desired milestones effectively.
At the core of Finoability's philosophy is the belief that meeting financial goals requires careful
and diligent planning rather than leaving outcomes to chance. The firm excels in creating
customized portfolios that reflect each client’s unique circumstances and aspirations. This
personalized touch begins with a thorough understanding of individual needs and goals,
followed by the application of integrated expertise and a systematic approach to financial
management.

Finoability’s comprehensive services include:

1. Reviewing and Evaluating: Conducting in-depth assessments of income, assets, and
investment portfolios to establish a clear picture of the client’s financial situation.
2. Goal Setting: Assisting clients in establishing and prioritizing their financial goals, and
setting realistic time frames for achieving each one.
3. Strategic Development: Crafting strategies that address financial weaknesses while
capitalizing on financial strengths, ensuring a balanced and robust plan.
4. Monitoring and Adjustment: Continuously monitoring and adjusting portfolios to
keep them aligned with evolving goals and changing circumstances, ensuring the
relevance and effectiveness of financial plans.
5. Asset Protection and Growth: Implementing measures to protect and grow assets,
providing clients with the stability and security necessary for long-term success.
6. Financial Independence: Focusing on helping clients create and preserve financial
independence, particularly for retirement, enabling them to enjoy the future they have
always envisioned.
Finoability is dedicated to empowering clients with the tools and guidance necessary to
navigate their financial journeys confidently. With its expert team and systematic approach,
Finoability ensures that clients can achieve their life goals and financial dreams, transforming
aspirations into reality.

1. EXECUTIVE SUMMARY

Fundamental Analysis:
This project report focuses on the "Fundamental Analysis in the Automobile Sector". We used
both fundamental and technical analysis methods to analyze the sector thoroughly.
As part of our fundamental analysis, we performed valuation to identify which stocks are either
undervalued or overvalued. This helps in determining the best investment opportunities. Here’s
a breakdown of what we did:

• Value Picks: These are stocks that we found to be undervalued. These stocks have
shown an increase in Earnings per Share (EPS) on a Year on Year (YOY) basis.
Essentially, these stocks are currently priced lower than what they are actually worth,
making them good investment options.
• Growth Picks: These are stocks that might seem overvalued at first glance but have a
strong potential for future growth. We chose these based on their Price/Earnings to
Growth ratio (PEG Ratio), which was positive and less than or equal to 1. This indicates
that their future earnings growth is expected to be strong relative to their current price.
To further refine our choices, we used various financial ratios that are particularly important in
the automobile sector. This helped us rank our value picks and growth picks more accurately.
Based on these rankings, we allocated funds to these selected stocks.
Finally, we created a portfolio comprising these chosen automobile sector stocks. We calculated
the Net Asset Value (NAV) of this portfolio and analyzed its performance in comparison to the
BSE index, which serves as our benchmark. By doing this, we aimed to see if our automobile
sector stock portfolio outperforms the BSE index on a daily basis. This analysis can be
especially useful for investors looking to invest in automobile sector companies.

Technical Analysis:
In addition to fundamental analysis, we also conducted a technical analysis of the selected
automobile sector stocks, which include both our growth picks and value picks. We used two
types of technical analysis: short-term and long-term.

• Long-Term Technical Analysis: Here, we looked for various patterns in the stock
prices over a longer period. These patterns help us understand the best times to buy and
sell the stocks. We also identified the current trend of the stocks, which helps in making
informed long-term investment decisions.
• Short-Term Technical Analysis: For this, we used various candlestick patterns.
Candlesticks are a way of displaying price movements of stocks. By observing different
 candlestick positions and patterns, we can get an idea about the stock’s short-term
trends and potential trend reversals. This information is crucial for making quick, short-
term investment decisions.
This project report combines both fundamental and technical analysis to provide a
comprehensive view of investment opportunities in the large-cap automobile sector. By
identifying undervalued stocks (value picks) and high-growth potential stocks (growth picks),
and by analyzing market trends through technical analysis, we aim to help investors make well-
informed decisions and potentially outperform the market benchmark, the BSE index.

2. Auto-Mobile Sector

2.1 Introduction to Auto-Mobile Sector:

The Indian automobile industry serves as a significant indicator of the country’s economic
health. It encompasses various vehicle types, but two-wheelers (such as scooters and
motorcycles) dominate due to their popularity among the middle class and the large number
of young people in India. Additionally, companies are increasingly exploring rural markets,
contributing to sector growth.
Commercial vehicles, including trucks and buses, play a crucial role in logistics and
passenger transportation. Looking ahead, the industry is poised for further growth driven by
trends like vehicle electrification, especially in three-wheelers and small cars.
India holds a strong global position in heavy vehicles, ranking as the largest tractor producer,
second-largest bus manufacturer, and third-largest heavy truck manufacturer worldwide. The
country’s annual automobile production reached 25.9 million vehicles in FY23, with robust
domestic demand and substantial exports.
The automobile sector’s contribution to India’s GDP has risen from 2.77% in 1992-1993 to
approximately 7.1% today. It directly and indirectly employs around 19 million people. The
government’s initiatives, such as the Automotive Mission Plan 2026, scrappage policy, and
production-linked incentive scheme, aim to propel India into a leadership position in both
two-wheeler and four-wheeler markets by 2022.

2.2 Market Size:

• Passenger Car Market and EV Growth: The Indian passenger car market, which
includes regular cars, was valued at around $32.7 billion in 2021. Experts predict that
it will grow to approximately $54.8 billion by 2027. Additionally, the global electric
vehicle (EV) market was worth about $250 billion in 2021, and it’s expected to
skyrocket to a staggering $1.3 trillion by 2028!
 • Production and Sales: In January 2024, India produced a total of 2.32 million
vehicles, including cars, three-wheelers, two-wheelers, and small quadricycles. From
April 2023 to January 2024, the overall production reached 23.36 million vehicles.
During the third quarter of 2023-24, India manufactured 7.13 million vehicles.

• Electric Vehicles (EVs): India is getting serious about EVs. By 2025, the EV market
here could be worth $7.09 billion (that’s a lot of money!). Experts even see a massive
$206 billion opportunity for EVs in India by 2030. But to make this happen, we’ll
need to invest around $180 billion in manufacturing EVs and setting up charging
stations.

• Finance and Export Goals: India aims to be a major player in EV finance, with an
estimated $50 billion industry by 2030. The EV market is expected to grow by 36%
until 2026, and the battery market for EVs will expand by 30% during the same
period. Plus, India wants to export more vehicles (five times more than before)
between 2016 and 2026. In FY23, India exported a whopping 4.76 million vehicles.

2.3 Investments in Auto-Mobile Sector:

In recent months, auto manufacturers have ramped up their investments in various industry
segments to meet growing demand. From April 2000 to December 2023, the automobile sector
received approximately US$ 35.65 billion in cumulative equity Foreign Direct Investment
(FDI). India is on track to become the largest electric vehicle (EV) market by 2030, with
investment opportunities expected to exceed US$ 200 billion over the next 8-10 years.
Here is a summary of some recent and planned investments in India's automobile sector:

• Ola Electric IPO: Ola Electric plans to launch the first auto company IPO in India in
over two decades, aiming to raise US$ 1.01 billion (Rs. 8,500 crore).
• Luxury Car Sales: In January 2024, BMW sold 1,340 luxury cars, capturing a 0.34%
market share, closely followed by Mercedes-Benz with 1,333 cars.
• Hyundai's Investments: Hyundai Motor India announced plans to invest US$ 743.8
million (Rs. 6,180 crore) in Tamil Nadu, including US$ 21.7 million (Rs. 180 crore) for
a ‘Hydrogen Valley Innovation Hub’ in partnership with IIT-Madras. Hyundai also
acquired General Motors India's Talegaon Plant and committed to a US$ 722 million
(Rs. 6,000 crore) investment in Maharashtra.
• Mahindra & IJF Partnership: Mahindra & Mahindra and the India-Japan Fund
(managed by NIIF) agreed on a US$ 48.1 million (Rs. 400 crore) investment in
Mahindra Last Mile Mobility Limited.
 • Maruti Suzuki in Gujarat: Maruti Suzuki announced plans for a new Greenfield plant
and a fourth production line in Gujarat.
• Tata and BPCL Collaboration: Tata Passenger Electric Mobility Ltd. (TPEM) and
Bharat Petroleum Corporation Limited (BPCL) signed an MoU to establish 7,000
public charging stations across India.
• Maruti Suzuki CSR Initiative: Maruti Suzuki entered into an agreement with the
Government of Haryana to upgrade ITI Kansala into the second Japan-India Institute
for Manufacturing, investing US$ 698 thousand (Rs. 5.8 crore).
• Hero MotoCorp and Ather Energy: They announced a partnership to create an
interoperable fast-charging network in India, covering 100 cities with over 1900 fast-
charging points.
• TVS Motor in Europe: TVS Motor entered the European market through a distribution
agreement with Emil Frey.
• SAIC Motor and JSW Group: They formed a strategic joint venture focusing on green
mobility.
• Tata Motors' New Facility: Tata Motors inaugurated a vehicle scrapping facility in
Chandigarh.
• Hero MotoCorp Dealership: Hero MotoCorp opened its first premium dealership in
India.
• Tata Motors' Stake in Freight Tiger: Tata Motors acquired a 27% stake in Freight
Tiger for US$ 17.99 million (Rs. 150 crore).
India's EV market has also seen significant growth, with 8,47,439 EVs sold in FY24 (up to
August 2023), representing a year-on-year growth of 209.17%. Other notable investments
include:

• Renault Nissan: Plans to invest US$ 1,68,762.86 (Rs. 1.4 crore) to upgrade
infrastructure at eight schools near Chennai.
• Mahindra & BII: Mahindra & Mahindra is in talks with British International
Investment (BII) and other investors to raise up to US$ 602.72 million (Rs. 5,000 crore)
for its EV unit.
• Tata Motors' EV Investment: Tata Motors plans to invest US$ 2 billion in developing
new products and platforms over the next four years.
• Hero MotoCorp's Investment: Hero MotoCorp plans to invest up to US$ 180.81
million (Rs. 1,500 crore) in developing premium bikes and EVs.
• Kinetic Green's Funding: Kinetic Green Energy plans to raise US$ 100 million by
selling a 10-15% stake.
• Maruti Suzuki's Expansion: Maruti Suzuki plans to invest over US$ 5.5 billion to
double capacity by 2030.
• Government Support for EVs: The Central government sanctioned US$ 72.41 million
(Rs. 800 crore) under the FAME India Scheme Phase II for setting up 7,432 public fast
charging stations.
 2.4 Automotive Mission Plan 2016-26 (AMP 2026):

The Automotive Mission Plan 2016-26 (AMP 2026) lays out a comprehensive roadmap for the
growth and development of the automotive ecosystem in India. This ambitious plan details the
necessary regulations and policies that will guide various facets of the industry, including
research, design, technology, testing, manufacturing, import/export, sales, usage, repair, and
recycling of automotive vehicles, components, and related services.
Under the AMP 2026, the Indian automobile industry is projected to become the third-largest
in the world, contributing significantly to the country's economic growth. Specifically, the
industry is expected to account for 12% of India's GDP by 2026. Furthermore, it has the
potential to generate substantial revenue, estimated at USD 300 billion, and create
approximately 65 million additional jobs within the same timeframe. This positions the
automotive sector as a critical driver of India's manufacturing industry and a cornerstone of the
“Make in India” initiative.
One of the primary objectives of AMP 2026 is to significantly boost the export of vehicles,
aiming to increase it fivefold. This goal underscores the plan’s focus on expanding India’s
presence in the global automotive market. Additionally, the growth in vehicle production,
particularly in the passenger vehicle segment, is expected to triple, reaching an annual output
of 9.4 million units by 2026.
The AMP 2026 also envisions India becoming a global leader in several automotive segments.
Specifically, India is poised to become the world's leading producer and seller of small cars,
two-wheelers, three-wheelers, tractors, and buses. In the passenger vehicle and heavy truck
segments, India is projected to attain the third position globally.
The comprehensive nature of AMP 2026 highlights its strategic importance. By focusing on
these objectives, the plan aims to bolster India's automotive industry, ensuring it remains a vital
contributor to the nation’s economic development and industrial growth. The AMP 2026’s
emphasis on innovation, regulatory alignment, and global competitiveness is designed to foster
a sustainable and thriving automotive sector that meets both domestic and international
demands.
The Automotive Mission Plan 2016-26 (AMP 2026) is a visionary initiative that outlines the
path for significant advancements in the Indian automotive industry. It aims to harness the
sector’s full potential, driving economic growth, job creation, and positioning India as a global
leader in various automotive categories. The successful implementation of AMP 2026 will not
only enhance the industry's global standing but also contribute substantially to the nation's
economic prosperity.
 2.5 Road Ahead:

The automobile industry in India relies on several crucial factors, including the availability of
skilled labor at low costs, advanced research and development centers, and affordable steel
production. This sector presents excellent investment opportunities and generates both direct
and indirect employment for both skilled and unskilled workers. Notably, the electric vehicle
(EV) industry alone is expected to create 50 million jobs by 2030.
Recognizing the needs of the automotive industry, the Ministry of Heavy Industries (MHI) has
extended the Production Linked Incentive (PLI) Scheme for Automobile and Auto Components
by an additional year. This scheme offers incentives based on specific sales targets over five
consecutive financial years from 2023-24 to 2027-28, with payments made in the following
financial year. The PLI scheme has been highly successful, attracting proposed investments of
USD 8.1 billion (INR 67,690 crore), significantly exceeding the initial target of USD 5.1 billion
(INR 42,500 crore). By December 31, 2023, USD 1.6 billion (INR 13,037 crore) had already
been invested.
In August 2022, the Indian government introduced the country's first double-decker electric
bus in Mumbai, highlighting a long-term vision to revamp the transportation system. The
government is working to establish an integrated electric vehicle (EV) mobility ecosystem that
features a low carbon footprint and high passenger density, focusing on urban transportation
reform. These strategies and policies aim to encourage the widespread adoption of electric
vehicles, responding to the growing demand for cleaner transportation options.
The Government of India anticipates that the automobile sector will attract between USD 8-10
billion in local and foreign investments by 2023. Additionally, India has the potential to become
a leader in shared mobility by 2030, offering significant opportunities for electric and
autonomous vehicles.
In 2023, the Indian automobile sector rebounded from the impacts of the COVID-19 pandemic,
showing single-digit growth across passenger vehicles, commercial vehicles, and two-
wheelers. There was also a notable recovery in three-wheelers, driven by supportive
government schemes. The Indian auto industry is optimistic about continued growth in the
financial year 2024.

3. Financial Analysis

3.1 Introduction to Fundamental Analysis:

Fundamental analysis is a method used to determine the true value of a security, such as a stock,
by examining various economic, financial, and other qualitative and quantitative factors. The
core idea is to use real data to assess a security's value. While most analysts use this approach
to evaluate stocks, it can be applied to almost any type of security. The underlying assumption
is that over the long term, a stock’s price will reflect its intrinsic value.
Fundamental analysts’ study everything that might affect a security’s value. This includes
broader economic factors like the state of the overall economy and specific industry conditions,
as well as company-specific factors such as financial health and management quality.
For example, an investor might perform fundamental analysis on a bond by looking at
economic indicators like interest rates and the general economic climate, as well as details
about the bond issuer, such as potential changes in credit ratings. When analyzing stocks,
fundamental analysts look at metrics such as revenues, earnings, future growth prospects,
return on equity, and profit margins to determine a company's true value and potential for
growth.
Investors must distinguish between the daily short-term fluctuations in stock prices and the
long-term performance of the business. Over time, the stock prices of fundamentally strong
companies typically increase, creating wealth for their investors.
The primary goal of fundamental analysis is to produce a value that an investor can compare
with the security’s current price. This helps determine whether to buy or sell the security. If the
analysis shows that a security is undervalued, it might be a good buy; if it’s overvalued, it might
be a good sell.
Growth is also a crucial factor in fundamental analysis. If a security isn’t growing or is
experiencing negative growth (such as a company losing money), further analysis might not be
worthwhile. For stocks, undervalued stocks are only considered for further analysis if they
show year-on-year growth. These growing undervalued stocks are known as ‘Value Picks.’
Overvalued stocks are only considered if their Price to Earnings Growth (PEG) ratio is between
0 and 1, including those close to 1. These stocks are referred to as ‘Growth Picks.’
Fundamental analysts focus on the company's underlying business and look specifically at
quantitative measures such as:

• Revenues: The total income generated by the company.

• Earnings: The company's profit after all expenses have been deducted from revenues.
• Assets: Resources owned by the company that have economic value.
• Debts: The company's financial obligations.
These financial measures are often combined to produce fundamental or financial ratios.
Analysts use these ratios to compare the company to:

• Other companies in the same industry.

• The overall market.
• The company’s previous performance.
Various ratios are used to make these comparisons, such as net income margin, return on equity
(ROE), and debt to equity ratio. The specific ratios used can vary depending on the sector being
analyzed.
 3.2 Advantage of Fundamental Analysis:

Fundamental analysis involves using various market information and historical and current
data to evaluate companies and identify investment opportunities. This includes examining
financial statements, industry information, and economic indicators. Here are the key benefits:

• Objective Evaluation: Fundamental analysis relies on sound mathematical and

statistical principles to produce ratios, minimizing personal bias.
• Long-Term Insight: It examines long-term economic, demographic, technological, or
consumer trends, which typically drive market movements over time.
• Intrinsic Value Determination: By calculating intrinsic value, analysts can identify
good buy prices, representing true value.
• In-Depth Understanding: Researching fundamentals provides investors with a better
grasp of a company and its business operations.
• Comprehensive Information: Analysts use a wide range of information, including
financial statements, corporate filings, market research, and economic indicators.
• Suitable for Long-Term Investors: Ideal for those with long-term investment
horizons, helping to identify growth and value investment opportunities.
• Risk Management: Provides a thorough understanding of factors affecting a
company’s performance, aiding in portfolio diversification and risk management.

3.3 Disadvantage of Fundamental Analysis:

While fundamental analysis can be beneficial, it has its drawbacks. Investing based on market
information doesn’t eliminate risks entirely. Here are the main disadvantages:

• Complex and Time-Consuming: Conducting a comprehensive fundamental analysis

requires significant effort and time, making it difficult to gain a competitive edge.
• Short-Term Market Movements: In the short term, market prices may not align with
fundamental values due to momentum and other factors.
• Information Lag: Financial information is typically released semi-annually, meaning
there could be significant changes in a company’s fundamentals that investors cannot
react to immediately.
• Assumption-Based Valuation: Future valuations rely on assumptions, necessitating
best- and worst-case scenario models.
• Unexpected Changes: Valuation models cannot account for unforeseen economic,
political, or legislative changes.
• Reliance on Company Data: Much of the information used in fundamental analysis
comes from the company itself, requiring trust in the accuracy and truthfulness of the
provided data.
 4. Fundamental Analysis of Auto-Mobile Sector:

For conducting fundamental analysis for the stocks in Auto-Mobile Sector, we have taken into
consideration only large cap stocks i.e. stocks with market capitalization greater than 5000
crore rupees. Table below shows the stocks of the companies having market capitalization
greater than 5000 crore rupees and listed under the Nifty 500 Index (as on 23rd April, 2024).

Name Market Cap (in cr.)

Mahindra & Mahindra Ltd. 2,56,490
Tata Motors Ltd. 3,27,969
Maruti Suzuki India Ltd. 4,08,605
Bajaj Auto Ltd. 2,45,560
Hero MotoCorp Ltd. 86,867
Eicher Motors Ltd. 1,23,762

TVS Motor Company Ltd. 92,789

Tata Motors Ltd. DVR 33,632
Bharat Forge Ltd 56,175
Samvardhana Motherson International Ltd. 86,331

4.1. Valuation of stocks:

The P/E ratio of each stock is then compared with the average P/E ratio to determine whether
the stock is Undervalued or Overvalued. For instance, if P/E ratio of a stock is lesser than the
average P/E ratio then that stock is considered as an Undervalued stock on the other hand if the
P/E ratio of a stock is greater than the average P/E ratio then that stock is considered as an
Overvalued stock. (As shown in Table below). All the Undervalued stocks are considered as
‘Value Based Stocks’ and all the Overvalued stocks are considered as ‘Growth based Stocks’.

Name P/E Ratio

 Mahindra & Mahindra Ltd. 23.4 Undervalued
Tata Motors Ltd. 18.2 Undervalued
Maruti Suzuki India Ltd. 33.3 Overvalued
Bajaj Auto Ltd. 31.7 Undervalued
Hero MotoCorp Ltd. 24.2 Undervalued
Eicher Motors Ltd. 32.8 Overvalued
TVS Motor Company Ltd. 58.3 Overvalued
Tata Motors Ltd. DVR 13.73 Undervalued
Bharat Forge Ltd 73.6 Overvalued
Samvardhana Motherson International Ltd. 53.8 Overvalued

Avergae P/E 32.25

4.2 Selection of Growth Based Stocks and Value Based Stocks:

After the selection of Undervalued and overvalued stock, the next step is to analyse the
Overvalued and undervalued stocks and derive determine the Growth and Value Based Stocks.
For determining the Growth Based Stocks, P/E Growth value (PEG value) is calculated for
each Overvalued stock by dividing P/E ratio of each of these stocks by the percentage change
in earnings per share Year on Year and the stocks with positive PEG values and less than or
equal to 1.5 are selected as Growth Based Stocks. The Overvalued stocks with negative PEG
values or with PEG values greater than 1.5 are rejected. For determining the Value Based
Stocks first identifying top line and bottom line of the stock, ones for with both are decreasing
for two consecutive years are rejected and the remaining ones are further analysed.

Growth Picks and Value pick have been determined as shown in the Table below.
Overvalued Stocks:
Growth Based Stocks PE Ratio PEG Ratio Result

Maruti Suzuki India Ltd. 33.3 57.4 Rejected

Eicher Motors Ltd. 32.8 3.98 Rejected

TVS Motor Company Ltd. 58.3 4.28 Rejected

Bharat Forge Ltd 73.6 -6.81 Rejected

Samvardhana Motherson International Ltd. 53.8 -30.6 Rejected

Undervalued Stocks:
 Value Based Stocks PE Ratio Top Line Bottom Line Result
(Sales) (PAT/ Net
Profit)
Mahindra & Mahindra Ltd. 23.4 Increasing Increasing Selected

Tata Motors Ltd. 18.2 Increasing Decreasing Selected

Bajaj Auto Ltd. 31.7 Increasing Increasing Selected

Hero MotoCorp Ltd. 24.2 Increasing Increasing Selected

4.2 Ranking of selected stocks:

The provided ranking chart offers a fundamental analysis of four selected companies in the
automobile sector: Mahindra & Mahindra Ltd., Tata Motors Ltd., Bajaj Auto Ltd., and Hero
MotoCorp Ltd. The analysis evaluates these companies based on several key financial ratios
to assess their financial health and performance. The ratios considered include the Current
Ratio and Quick Ratio, which measure liquidity; the Debt-Equity Ratio, which indicates
financial leverage; the Interest Coverage Ratio, which assesses the ability to pay interest on
debt; the Return on Equity, which evaluates profitability; and the Net Profit Margin, which
shows overall profitability.
In this analysis, higher values for the Current Ratio, Quick Ratio, Interest Coverage Ratio,
Return on Equity, and Net Profit Margin are considered better, indicating strong financial
health and performance. Conversely, a lower Debt-Equity Ratio is preferred, suggesting less
reliance on debt. The companies were then ranked based on their performance in these ratios,
with the total rank points determining the final ranking.
Bajaj Auto Ltd. emerged as the top performer (ranked 1st) due to its strong liquidity, minimal
debt, high interest coverage, and solid profitability. Hero MotoCorp Ltd. secured the second
position, also demonstrating good liquidity and debt management but slightly lower interest
coverage. Mahindra & Mahindra Ltd. and Tata Motors Ltd. both tied for the third position,
indicating relatively weaker financial health and performance, characterized by poorer
liquidity, higher debt, and lower profitability ratios compared to the top two companies.
This comprehensive analysis helps investors identify which companies in the automobile
sector are fundamentally strong and potentially better investment opportunities. The detailed
examination of each company's financial ratios provides a clearer picture of their overall
financial stability and growth potential.

5. Technical Analysis

Technical analysis is a method used to predict future price movements of stocks by

examining past price data, focusing on patterns and trends influenced by the forces of supply
and demand. The main goal of technical analysis is to forecast the direction in which a stock's
price will move. Unlike fundamental analysis, which looks at the underlying reasons for a
stock's price, such as a company's financial health, technical analysis concentrates solely on
price movements.
Technical analysis can be divided into two main categories based on the duration of the
analysis: long-term technical analysis, which spans 2 to 5 years, and short-term technical
analysis, which covers periods of less than a year.
In technical analysis, various patterns are used to determine whether a stock is in an upward
or downward trend.
Upward trend: Also known as an uptrend, indicates that demand for the stock is higher than
supply, causing prices to rise. An uptrend line is identified by connecting two or more low
points on a price chart, where each subsequent low point is higher than the previous one,
giving the line a positive slope.
Downward trend: Also known as a downtrend, occurs when supply exceeds demand,
leading to falling prices. A downtrend line is formed by connecting two or more high points
on a price chart, with each successive high point being lower than the previous one, resulting
in a line with a negative slope.
Two important concepts in technical analysis are support and resistance levels.
Support: Support is the price level at which demand is strong enough to prevent further price
declines. As the price approaches the support level and becomes cheaper, buyers are more
inclined to purchase the stock, and sellers are less willing to sell. When the price hits the
support level, it is believed that demand will outweigh supply, preventing the price from
dropping further. However, if the price falls below the support level, it indicates that sellers
are more willing to sell, or buyers lack the motivation to buy, which can lead to further price
declines.
Resistance: Resistance is the opposite of support. It is the price level at which selling
pressure is strong enough to prevent the price from rising further. As the price nears the
resistance level, sellers become more inclined to sell, and buyers are less inclined to buy.
When the price reaches the resistance level, it is thought that supply will surpass demand,
stopping the price from increasing. If the price breaks above the resistance level, it suggests
that buyers are more motivated to buy, or sellers are less eager to sell, potentially leading to
higher prices.
By understanding these concepts and using various chart patterns and technical indicators,
technical analysts aim to make informed decisions about when to buy or sell stocks, thus
improving their investment strategies. This method helps investors and traders navigate the
complexities of the stock market by focusing on price movements and trends, ultimately
aiming to maximize their returns.

5.1 Long-Term Technical Analysis:

a) Rounding Bottom:
The rounding bottom is a long-term reversal pattern that is best suited for weekly charts. It is
also referred to as a saucer bottom, and represents a long consolidation period that turns from
a bearish bias to a bullish bias.

b) Cup with Handle:

• The Cup with Handle is a bullish continuation pattern that marks a consolidation
period followed by a breakout. It was developed by William O'Neil and introduced in
his 1988 book, How to Make Money in Stocks.
• b. As its name implies, there are two parts to the pattern: the cup and the handle. The
cup forms after an advance and looks like a bowl or rounding bottom. As the cup is
completed, a trading range develops on the right-hand side and the handle is formed.
A subsequent breakout from the handle's trading range signals a continuation of the
prior advance.
c) Bump and Run Reversal:
A Rising trendline is drawn which connects at least 3 lows of a price series (troughs) of 3
different periods respectively as shown in the below Figure. Then a Bump is seen which
can be observed as a bullish pattern and finally the point where the trendline is broken,
the pattern enters into a Run phase. This point is called as a sell point i.e. Investor is
supposed to sell the stock at this point.

d) Double Top:
The double top is a major reversal pattern that forms after an extended uptrend. As its
name implies, the pattern is made up of two consecutive peaks that are roughly equal,
with a moderate trough in between as shown in below Figure. At least an intermediate
 change, if not long-term change, in trend from bullish to bearish as soon as the support is
broken. Many potential double tops can form along the way up, but until key support is
broken, a reversal cannot be confirmed.

➢ Key Points Regarding Double Bottom Chart Pattern:

• Resistance break: Even after trading down to support, the double top and trend reversal
are still not complete. Breaking support from the lowest point between the peaks
completes the double top.
• Resistance turned support: Broken support becomes potential resistance and there is
sometimes a test of this newfound resistance level with a reaction rally. Such a test can
offer a second chance to exit a position or initiate a short.
• Price Target: The distance from support break to peak can be subtracted from the support
break for a price target. This would infer that the bigger the formation is, the larger the
potential decline.

e) Double Bottom:

• The double bottom is a major reversal pattern that forms after an extended downtrend.
As its name implies, the pattern is made up of two consecutive troughs that are
roughly equal, with a moderate peak in between.
• Although there can be variations, the classic double bottom usually marks an
intermediate or long-term change in trend when the resistance is broken. Many
potential double bottoms can form along the way down, but until key resistance is
broken, a reversal cannot be confirmed.
➢ Key Points Regarding Double Bottom Chart Pattern:

• Resistance break: Even after trading up to resistance, the double top and trend reversal
are still not complete. Breaking resistance from the highest point between the troughs
completes the double bottom. This too should occur with an increase in volume and/or an
accelerated ascent.
• Resistance turned support: Broken resistance becomes potential support and there is
sometimes a test of this newfound support level with the first correction. Such a test can
offer a second chance to close a short position or initiate a long.
• Price Target: The distance from the resistance breakout to trough lows can be added on
top of the resistance break to estimate a target. This would imply that the bigger the
formation is, the larger the potential advance.

f) Head & Shoulders Top:

• A head and shoulders reversal pattern forms after an uptrend, and its completion
marks a trend reversal. The pattern contains three successive peaks with the middle
peak (head) being the highest and the two outside peaks (shoulders) being low and
roughly equal. The reaction lows of each peak can be connected to form support, or a
neckline.
 • As its name implies, the head and shoulders reversal pattern are made up of a left
shoulder, head, right shoulder and neckline. Other parts playing a role in the pattern
are volume, the breakout, price target and support turned resistance.

➢ Key Points Regarding Double Bottom Chart Pattern:

• Neckline: The neckline forms by connecting low points 1 and 2. Low point 1 marks the
end of the left shoulder and the beginning of the head. Low point 2 marks the end of the
head and the beginning of the right shoulder. Depending on the relationship between the
two low points, the neckline can slope up, slope down or be horizontal. The slope of the
neckline will affect the pattern's degree of bearishness: a downward slope is more bearish
than an upward slope. Sometimes more than one low point can be used to form the
neckline.
• Neckline Break: The head and shoulders pattern are not complete and uptrend is not
reversed until neckline support is broken.

• Support turned resistance: Once support is broken; it is common for this same support
level to turn into resistance. Sometimes, but certainly not always, the price will return to
the support break and offer a second chance to sell.

• Price Target: After breaking neckline support, the projected price decline is found by
measuring the distance from the neckline to the top of the head. This distance is then
subtracted from the neckline to reach a price target.
 g) Head & Shoulders Bottom:

a. The head and shoulders bottom is sometimes referred to as an inverse head and
shoulders. The pattern shares many common characteristics with its comparable
partner, but relies more on volume patterns for confirmation.
b. As a major reversal pattern, the head and shoulders bottom forms after a downtrend,
and its completion marks a change in trend. The pattern contains three successive
troughs with the middle trough (head) being the deepest and the two outside troughs
(shoulders) being shallower. Ideally, the two shoulders would be equal in height and
width. The reaction highs in the middle of the pattern can be connected to form
resistance, or a neckline.
c. The price action forming both head and shoulders top and head and shoulders bottom
patterns remains roughly the same, but reversed.

➢ Key Points Regarding Double Bottom Chart Pattern:

• Neckline: The neckline forms by connecting reaction highs 1 and 2. Reaction high 1
marks the end of the left shoulder and the beginning of the head. Reaction high 2
marks the end of the head and the beginning of the right shoulder.
Depending on the relationship between the two reaction highs, the neckline can slope
up, slope down or be horizontal. The slope of the neckline will affect the pattern's
degree of bullishness: an upward slope is more bullish than downward slope.
• Neckline Break: The head and shoulders pattern is not complete and the downtrend is
not reversed until neckline resistance is broken.
 • Resistance turned support: Once resistance is broken; it is common for this same
resistance level to turn into support. Often, the price will return to the resistance break
and offer a second chance to buy.
• Price Target: After breaking neckline resistance, the projected advance is found by
measuring the distance from the neckline to the bottom of the head. This distance is
then added to the neckline to reach a price target.

h) Triple Top:
The triple top is a reversal pattern made up of three equal highs followed by a break below
support. In contrast to the triple bottom, triple tops usually form over a shorter time frame and
typically range from 3 to 6 months. Generally speaking, bottoms take longer to form than
tops.

➢ Key Points Regarding Triple Top Chart Pattern:

• Support break: As with many other reversal patterns, the triple top is not complete until
a support break. The lowest point of the formation, which would be the lowest of the
intermittent lows, marks this key support level.

• Support turns resistance: Broken support becomes potential resistance, and there is
sometimes a test of this newfound resistance level with a subsequent reaction rally.

• Price Target: The distance from the support break to highs can be measured and
subtracted from the support break for a price target.
 i) Triple Bottom:
The triple bottom is a reversal pattern made up of three equal lows followed by a breakout
above resistance. While this pattern can form over just a few months, it is usually a long-
term pattern that covers many months.

➢ Key Points Regarding Triple Bottom Chart Pattern:

• Resistance break: As with many other reversal patterns, the triple bottom is not complete
until a resistance breakout. The highest point of the formation, which would be the
highest of the intermittent highs, marks resistance.

• Resistance turns support: Broken resistance becomes potential support, and there is
sometimes a test of this newfound support level with the first correction. Because the
triple bottom is a long-term pattern, the test of newfound support may occur many months
later.

• Price Target: The distance from the resistance breakout to lows can be measured and
added to the resistance break for a price target.
5.2 Long-Term Technical Analysis of Auto-Mobile Sector:

a) TATA MOTORS:

Analysis:
• Ascending Triangle Failure: This failure indicates that despite the bullish pattern
suggesting a potential upward breakout, the price was unable to sustain above the
resistance level and reversed direction. This could be due to a lack of buying pressure
or increased selling pressure at that price level.
• Breakout Failure: The point marked by the arrow shows that after attempting to break
above the resistance, the price quickly fell back, indicating a false breakout. False
breakouts can often lead to significant price drops as traders who bought during the
breakout sell their positions to cut losses.
• Moving Averages: The SMA 50 and SMA 100 lines provide a sense of the overall
trend. If the price is below these moving averages, it generally indicates a bearish trend.
In this case, the price appears to have moved below both SMAs, suggesting a potential
downtrend.
• Volume: High trading volume on days where the price falls below key support levels
(like the SMAs or the horizontal resistance of the triangle) can confirm the strength of
the downward move.
 b) Hero MotoCorp:

Analysis:
• Double Bottom Pattern: This pattern is a bullish indicator that typically signals the
end of a downtrend and the beginning of an uptrend. The double bottom is confirmed
when the price breaks above the resistance level (the peak between the two bottoms).
• Breakout: The breakout above the resistance level indicates that the buying pressure
overcame the selling pressure at that price point, suggesting a potential continuation of
the upward trend. This breakout is often accompanied by higher volume, indicating
strong interest and confirmation of the trend.
• Moving Averages: The SMA 50 and SMA 200 lines provide a sense of the overall
trend. If the price is above these moving averages, it generally indicates a bullish trend.
In this case, the price appears to be above both SMAs, further supporting the bullish
sentiment.
• Volume: The increase in volume during the breakout is a positive sign, indicating
strong buying interest and confirming the validity of the breakout.
 c) Bajaj Auto:

Analysis:
• Bullish Flag Pattern: This pattern is a bullish continuation indicator that suggests the
stock is likely to continue its upward trend following a period of consolidation. The
flagpole represents the initial strong upward move, and the flag represents the
consolidation period.
• Breakout: The breakout above the upper trend line of the flag pattern is a positive
signal that indicates the end of the consolidation phase and the resumption of the
upward trend. This breakout is often accompanied by higher volume, indicating strong
buying interest and confirming the validity of the breakout.
• Moving Averages: The SMA 50 and SMA 200 lines provide a sense of the overall
trend. If the price is above these moving averages, it generally indicates a bullish trend.
In this case, the price appears to be above both SMAs, further supporting the bullish
sentiment.
• Volume: The increase in volume during the breakout is a positive sign, indicating
strong buying interest and confirming the breakout from the flag pattern.
 d) Mahindra & Mahindra:

Analysis:
• Inverse Head and Shoulders Pattern: This is a bullish reversal pattern that typically
signals the end of a downtrend and the beginning of an uptrend. It is formed after a
downtrend and consists of three troughs: the middle trough (head) is the lowest, and the
two troughs on either side (shoulders) are higher and approximately equal in height.
• Neckline: The neckline acts as a resistance level. When the price breaks above the
neckline, it confirms the pattern and suggests a potential reversal of the previous
downtrend. This breakout is often accompanied by increased volume, indicating strong
buying interest.

Moving Averages:
• SMA 50: The price is currently above the SMA 50 line, indicating a positive medium-
term trend.
• SMA 200: The price is also above the SMA 200 line, indicating a positive long-term
trend.
• Volume: The volume generally increases during the formation of the pattern,
particularly during the breakout above the neckline, confirming the reversal.
5.3 Short Term Technical Analysis

Candlestick Chart: Originating in Japan over 300 years ago, candlestick chart requires all
the open, high, low and close prices. A daily candlestick is based on the open price, the
intraday high and low, and the close. A weekly candlestick is based on Monday's open, the
weekly high-low range and Friday's close.

Candlestick Patterns for Reversal of trend:

a) Doji: The relevance of a Doji depends on the preceding trend or preceding candlesticks.
Doji indicate that the forces of supply and demand are becoming more evenly matched
and a change in trend may be near.

b) Hammer: The hammer is a bullish reversal pattern that forms after a decline. After a
decline, hammers signal a bullish revival. The low of the long lower shadow implies
that sellers drove prices lower during the session.

c) Hanging Man: The hanging man is a bearish reversal pattern that can also mark a top
or resistance level. Forming after an advance, a hanging man signals that selling
pressure is starting to increase. The low of the long lower shadow confirms that sellers
pushed prices lower during the session.
d) Shooting Star: The shooting star is a bearish reversal pattern that forms after an
advance and in the star position, hence its name. A shooting star can mark a potential
trend reversal or resistance level.

e) Inverted Hammer: The inverted hammer looks exactly like a shooting star, but forms
after a decline or downtrend. Inverted hammers represent a potential trend reversal or
support levels. After a decline, the long upper shadow indicates buying pressure during
the session.

Candlestick’s position:
a) Star Position:

A candlestick that gaps away from the previous candlestick is said to be in star position. The
first candlestick usually has a large real body, but not always, and the second candlestick in
star position has a small real body. Depending on the previous candlestick, the star position
candlestick gaps up or down and appears isolated from previous price action. The two
candlesticks can be any combination of white and black. Doji, hammers, shooting stars and
spinning tops have small real bodies and can form in the star position. Later we will examine
2- and 3-candlestick patterns that utilize the star position.
Harami Position:

A candlestick that forms within the real body of the previous candlestick is in Harami
position. Harami means pregnant in Japanese and the second candlestick is nestled inside
the first. The first candlestick usually has a large real body and the second a smaller real
body than the first. The shadows (high/low) of the second candlestick do not have to be
contained within the first, though it's preferable if they are. Doji and spinning tops have
small real bodies and can form in the harami position as well. Later we will examine
candlestick patterns that utilize the harami position.
 Conclusion

Equity research plays a very crucial role in order to make wise investment decisions. After
having accessed your risk capacity and tolerance followed by time horizon and intention of
investment, the individual portfolio can fetch your systematic returns.
Relative valuation model is one such method for value analysis. One can use long term and
short-term technical analysis along with fundamental analysis to determine a confirm trade
signal. By calculating long term target price investor one can achieve maximum profit and also
get an idea for how much period they should hold the stock.

References

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