A

Project Report

On

“EQUITY RESEARCH - AUTOMOBILE INDUSTRY”

At

Submitted To:

Bhulabhai Vanmalibhai Patel Institute of Business

Management, Computer & Information Technology,

Gopal Vidyanagar.

Submitted By:

NAME: PRAJAPATI VIPUL L.

Class: TYBBA (Finance Specialization)

ID NO: 06BBA83

1
 Acknowledgement:

I am greatly thankful to ANGEL BROKING for giving me an opportunity to work on this

project at their company.

I wish to express my sincere thanks to Mrs. Poonam Mittal, Director of Bhulabhai

Vanmalibhai Patel Institute of Business Management, Computer & Information
Technology, Gopal Vidyanagar, Tarsadi, who gave me the chance to do this project
report under ANGEL BROKING.

I wish to express my heartfelt gratitude to my internal guide Mrs. Dhara Acharya whose
constant help and support at all stages of this project has enabled me to complete it.

I am thankful to my external guide Mr. Sailesh Patel, without whom this project would
not have been completed successfully.

Last but not least, I thank all those who have helped me directly or indirectly during the
course of this project.

Prajapati Vipul L.
06 BBA 83

2
 Declaration
I, Vipul Prajapati from Bhulabhai Vanmalibhai Patel institute of Business Management,
Computer, & Information Technology, Tarsadi, here by declare that the project report has
been undertaken as a part of 6th Semester of Bachelor of Business Administration (BBA)
syllabus of Veer Narmad South Gujarat University, Surat. I declare that this report has
not been submitted to any other university or institute for any other purposes.

Date:

Place: Gopal Vidyanagar Prajapati Vipul L.

3
 INDEX
Page
Ch. No Topic
No
Executive Summery

Synopsis

Introduction
1  About Topic 12
 Theoretical Frame Work
2 Research Objectives 37

3 Research Methodology 39

4 Limitation of the Study 42

5 Data Analysis and Interpretations 44

6 Findings & Conclusions 52

7 Recommendations 60

References
8  Bibliography 62
 Appendix

4
5
 Ch.1 EXECUTIVE SUMMERY

I am a student of T.Y.BBA (6th semester) I have prepared this project report on

“EQUITY RESEARCH - AUTOMOBILE INDUSTRY” as a part of finance
specialization. It has been carried out with purpose to acclimatize with the practical
application of theoretical tools and statistical technique in business world.

An investor wants to invest his money in various kinds of securities but each and every
investment contains some level of risk and as a reward he gets the return. But before
making an investment in particular security he makes the analysis on the particular
security. In security analysis I have measured risk, return, correlation between security
price and index price, ratio. For that I have collected the secondary data. I have selected
four automobile companies from the following three criteria.

 Same Industry
 Same Index
 High performance.
In my topic I have selected “EXPLORATORY RESEARCH DESIGN” which is based
on the secondary data.

In my study I have taken 3-year data (1st January 2005 to 31st December 2008) of seven
Automobile Company, which is listed in “NATIONAL STOCK EXCHANGE”

1. TATA MOTORS LTD

2. MARUTI UDYOG LTD.
3. HERO HONDA MOTORS LTD
4. EICHER MOTOTRS
5. ASHOK LEYLAND
6. TVS MOTORS
7. M&M MOTORS

6
The objective of my study is the following.

 To measure the expected return and risk associated with the security.
 To know the relationship between market return and security return.
 To find out correlation between the indexes.
 To find out current position of company.

At last I give the findings, conclusion and recommendation.

7
8
 Ch.2: SYNOPSIS

1. ABOUT THE COMPANY:

 Name: Angel Broking
 Services:
1. Online Share Trading
2. Derivatives
3. Portfolio Management Services (PMS)
4. Commodities
5. IPO
6. Mutual Funds
7. Equity Broking
 Types of Industry: Service Sector
2. ABOUT COMPANY GUIDE:
 Name: Mr. Sailesh Patel
 Designation: Channel Partner
 Qualification: B.com
3. AREA OF RESEARCH:
“Finance management”
4. RESEARCH TOPIC:
“Equity Research - Automobile Industry”

5. OBJECTIVE OF RESEARCH:
 To measure the expected return and risk associated with the security.
 To know the relationship between market return and security return.
 To find out correlation between the indexes.
 To find out current position of company.

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 6. RESEARCH METHODOLOGY:
Research Methodology is a systematic and objective study of a particular problem. The
Research Methodology process involves a number of inter-related activities.

 Research Design:
In my topic I have selected exploratory research design and also descriptive research
design because my study is based on past data and data are collected from secondary
sources and need to be describing these data.

 Sources of Data Collection:

In my topic I have use past data which are available at secondary sources. Secondary data
means data that are already available. Collection of historical data from the following
website. (nseindia.com, business.mapsofindia.com, angelbroking.com)

 Selection Period of Scrip Data:

In my study I have taken 3-year data (1st January 2005 to 31st December 2008) of seven
Automobile Company, which is listed in “NATIONAL STOCK EXCHANGE”

 Sample Size:
For doing equity research of automobile company I have select 7 (seven) automobile
companies.
8. TATA MOTORS LTD
9. MARUTI UDYOG LTD.
10. HERO HONDA MOTORS LTD
11. EICHER MOTOTRS
12. ASHOK LEYLAND
13. TVS MOTORS
14. M&M MOTORS
The following criteria should be used for the selection of a company.

 Same Industry
 Same Index
 High performance.

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11
 Ch.3: Introduction

1) General Introduction about Company

Company Profile

About The Angel Broking Ltd

Angel Broking's tryst with excellence in customer relations began more than 20 years
ago. Today, Angel has emerged as a premium Indian stock-broking and wealth
management house, with an absolute focus on retail business, and a commitment to
provide "Real Value for Money" to all its clients.

The Angel Group is a member of the Bombay Stock Exchange (BSE), National Stock
Exchange (NSE) and the two leading Commodity Exchanges in the country i.e. NCDEX
& MCX. We are also registered as a Depository Participant with CDSL.

Services:

Presence:

 Nation-wide network of 20 Regional Hubs

 Presence in 110 cities.
 5000+ Sub-Brokers & Business Associates
 5 lakhs Clients
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Our vision:

To provide best value for money to investor through innovative products,

trading/investment strategies, state of art technology and personalized service.

Management:

Mr. Dinesh Thakkar is the founder Chairman & Managing Director of the Angel Group
of Companies. Born into a reputed business family, Mr. Thakkar ventured into the stock
markets essentially to raise capital for his own independent enterprise. However, he
recognized the opportunity offered by the stock markets to serve individual investors, and
established the industrys first retail-focused stock-broking house in 1987. The visionary
in him also ensured that Angel was the first broking firm to introduce the branch-concept
as well as to adopt new technology for faster, more effective & affordable services to
retail investors.

Valued for his understanding of the economy and the stock-markets, Mr. Thakkar is often
sought out by the print and electronic media for his views on the trends in the markets as
well as investment strategies.

Philosophy & Policies:

Business Philosophy:

 Ethical Practices & Transparency In All Our Dealings

 Customers Interest Above Our Own
 Always Deliver What We Promise
 Effective Cost Management.

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Quality Assurance Policy

We are committed to being the Leader in providing World Class Products & Services
which exceed the expectations of our customers achieved by teamwork and a process of
continuous improvement.

Motto

Our motto is to make our customer smile - To have complete harmony between Quality-
in-Process and continuous improvement to deliver exceptional service that will delight
our Customers and Clients.

CRM Policy

Customer is King

A Customer is the most Important Visitor on Our Premises. He is not Dependant on us

but we are dependent on him. He is not an Interruption in our work, but is the Purpose of
it. We are not doing him a favour by serving He is doing us a favour by giving us an
opportunity to do so” -Mahatma Gandhi

STRENGTHS

Our biggest strength is that we understand the needs of a sub – broker and retail investors
are very well. Deriving inspiration from our vision of providing the best value for money
to our customers, strict adherence to compliance norms and ethical biz practices has
enabled us and our associates to grow rapidly in an increasingly competitive market. Our
commitment of providing world-class broking services to the Indian inventors and a
customer centric work culture has led to several innovations in the areas of technology,
processes and HR. This spirit of innovation helps you to grow your business with us.

We have always endeavored to provide timely research based advice to our clients from
the nimble-footed day traders to the long-term value investors. Our 50 member research /
advisory team comprises of experienced fundamental and technical analysts, sector

14
specialists, derivative strategies and commodity analysts who are constantly looking for
new trading ideas. This team is armed with the latest analytical tools and uses
international news services.

ACHIEVEMENTS:

Angel Broking has once again been awarded the prestigious ‘Major Volume Driver’
award for the second consecutive year of 2005-2006 by The Bombay Stock Exchange.
This coveted title was earlier conferred upon Angel by the BSE for the year 2004-2005.
Business:

15
2) Introduction to National Stock Exchange

The Organization

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which recommended
promotion of a National Stock Exchange by financial institutions (FIs) to provide access
to investors from all across the country on an equal footing. Based on the
recommendations, NSE was promoted by leading Financial Institutions at the behest of
the Government of India and was incorporated in November 1992 as a tax-paying
company unlike other stock exchanges in the country.

On its recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM)
segment in June 1994. The Capital Market (Equities) segment commenced operations in
November 1994 and operations in Derivatives segment commenced in June 2000.

Our Mission

NSE's mission is setting the agenda for change in the securities markets in India. The
NSE was set-up with the main objectives of:

 establishing a nation-wide trading facility for equities, debt instruments and

hybrids,
 ensuring equal access to investors all over the country through an appropriate
communication network,
 providing a fair, efficient and transparent securities market to investors using
electronic trading systems,
 enabling shorter settlement cycles and book entry settlements systems, and
 Meeting the current international standards of securities markets.

16
Promoters:

NSE has been promoted by leading financial institutions, banks, insurance companies and
other financial intermediaries:

 Industrial Development Bank of India Limited

 Industrial Finance Corporation of India Limited
 Life Insurance Corporation of India
 State Bank of India
 ICICI Bank Limited
 IL & FS Trust Company Limited
 Stock Holding Corporation of India Limited
 SBI Capital Markets Limited
 Bank of Baroda
 Canara Bank
 General Insurance Corporation of India
 National Insurance Company Limited
 The New India Assurance Company Limited
 The Oriental Insurance Company Limited
 United India Insurance Company Limited
 Punjab National Bank
 Oriental Bank of Commerce
 Indian Bank
 Union Bank of India
 Infrastructure Development Finance Company Ltd.

17
Securities Available for Trading:

The Capital Market (Equities) segment of NSE facilitates trading in the following
instruments:

A. Shares

 Equity Shares
 Preference Shares

B. Debentures

 Partly Convertible Debentures

 Fully Convertible Debentures
 Non Convertible Debentures
 Warrants / Coupons / Secured Premium Notes/ other Hybrids
 Bonds

C. Units of Mutual Funds

Internet Based Trading

The Securities & Exchange Board of India (SEBI) approved the report on Internet
Trading brought out by the SEBI Committee on Internet Based Trading and Services In
January 2000. Internet trading can take place through order routing systems, which will
route client orders to exchange trading systems for execution. Thus a client sitting in any
part of the country would be able to trade using the Internet as a medium through brokers'
Internet trading systems.

SEBI-registered brokers can introduce Internet based trading after obtaining permission
from respective Stock Exchanges. SEBI has stipulated the minimum conditions to be
fulfilled by trading members to start Internet based trading and services, vide their
circular no.SMDRP/POLICY/CIR-06/2000 dated January 31, 2000.

18
2) Topic: Equity Research – Automobile Industry

General Introduction about Equity Research

What is Equity?

Definition:

Ownership interest in a corporation in the form of common stock or preferred stock.

Total assets minus total liabilities; here also called shareholder's equity or net worth or
book value.

Fairness in law.

Equity shares are common stock, implies ownership in the company. Stock trading goes
on in the stock market at places like the National Stock Exchange.

Equity Research

Investment brings back high returns and value. It is crucial and critical for any
organization or business to invest for growth. You might be confident of your investment
plans but there is always a doubt about the company in which you are investing. Equity
Research is the answer to avoid any kind of investment risk.

Companies globally are adopting equity research before taking critical decisions of
investment. The equity research combined with the awareness of the strengths and
weaknesses of your company is highly beneficial. It provides you with a clear picture for
investments.

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Indian Equity Market

The Indian Equity Market is also the other name for Indian share market or Indian stock
market. The forces of the market depend on monsoons, global fundings flowing into
equities in the market and the performance of various companies. The Indian market of
equities is transacted on the basis of two major stock indices, National Stock Exchange of
India Ltd. (NSE) and The Bombay Stock Exchange (BSE), the trading being carried on in
a dematerialized form. The physical stocks are in liquid form and cannot be sold by the
investors in any market. Two types of funds are there in the Indian Equity Market,
Venture Capital Funds and Private Equity Funds.

The equity indexes are correlated beyond the boundaries of different countries with their
exposure to common calamities like monsoon which would affect both India and
Bangladesh or trade integration policies and close connection with the foreign investors.
From 1995 onwards, both in terms of trade integration and FIIs India has made an
advance. All these have established a close relationship between the stock market indexes
of India stock market and those of other countries. The Stock derivatives adds up all
futures and options on all individual stocks. This stock index derivatives was found to
have gone up from 12 % of NSE derivatives turnover in 2002 to 35 % in 2004. The
Indian Equity Market also comprise of the Debt Market, dominated by primary dealers,
banks and wholesale investors.

Indian Equity Market at present is a lucrative field for the investors and investing in
Indian stocks are profitable for not only the long and medium-term investors, but also the
position traders, short-term swing traders and also very short term intra-day traders. In
terms of market capitalization, there are over 2500 companies in the BSE chart list with
the Reliance Industries Limited at the top. The SENSEX today has rose from 1000 levels
to 8000 levels providing a profitable business to all those who had been investing in the
Indian Equity Market. There are about 23 stock exchanges in India which regulates the
market trends of different stocks. Generally the bigger companies are listed with the NSE
and the BSE, but there is the OTCEI or the Over the Counter Exchange of India, which

20
lists the medium and small sized companies. There is the SEBI or the Securities and
Exchange Board of India which supervises the functioning of the stock markets in India.

In the Indian market scenario, the large FMCG companies reached the top line with a
double-digit growth, with their shares being attractive for investing in the Indian stock
market. Such company like the Tata Tea, Britannia, to name a few, has been providing a
bustling business for the Indian share market. Other leading houses offering equally
beneficial stocks for investing in Indian Equity Market, of the SENSEX chart are the
two-wheeler and three-wheeler maker Bajaj Auto and second largest software exporter
Infosys Technologies.

Other than some restricted industries, foreign investment in general enjoys a majority
share in the Indian Equity Market. Foreign Institutional Investors (FII) need to register
themselves with the SEBI and the RBI for operating in Indian stock exchanges. In fact
from the Indian stock market analysis it is known that in some specific industries
foreigners can have even 100% shares. In the last few years with the facility of the Online
Stock Market Trading in India, it has been very convenient for the FIIs to trade in the
Indian stock market. From an analysis on the Indian Equity Market it can be said that the
increase in the foreign investments over the years no doubt have accentuated the
dynamism of the Indian market of equities. Foreign investors are allowed to buy Indian
equity for the purpose of converting the equity into ADR or GDR.

Thus, the growing financial capital markets of India being encouraged by domestic and
foreign investments is becoming a profitable business more with each day. If all the
economic parameters are unchanged Indian Equity Market will be conducive for the
growth of private equities and this will lead to an overall improvement in the Indian
economy.

21
History of Automobile Industry

AUTOMOBILE INDUSTRY

The automotive industry designs, develops, manufactures, markets, and sells the world's
motor vehicles. In 2007, more than 73 million motor vehicles, including cars and
commercial vehicles were produced worldwide.

INDIAN AUTOMOBILE HISTORY

During the 1920s, cars exhibited design refinements such as balloon tires, pressed-steel
wheels, and four-wheel brakes.

The origin of automobile is not certain. In this section of

automobile history, we will only discuss about the phases
of automobile in the development and modernization
process since the first car was shipped to India. We will
start automotive history from this point of time.

The automobile industry has changed the way people live

and work. The earliest of modern cars was manufactured
in the year 1895. Shortly the first appearance of the car followed in India. As the century
truned, three cars were imported in Mumbai (India). Within decade there were total of
1025 cars in the city.

The dawn of automobile actually goes back to 4000 years

when the first wheel was used for transportation in India. In
the beginning of 15th century Portuguese arrived in China
and the interaction of the two cultures led to a variety of
new technologies, including the creation of a wheel that
turned under its own power. By 1600s small steam-powered
engine models was developed, but it took another century
before a full-sized engine-powered vehicle was created.

22
The actual horseless carriage was introduced in the year 1893 by brothers Charles and
Frank Duryea. It was the first internal-combustion motor car of America, and it was
followed by Henry Ford's first experimental car that same year.

One of the highest-rated early luxury automobiles was the

1909 Rolls-Royce Silver Ghost that featured a quiet 6-
cylinder engine, leather interior, folding windscreens and
hood, and an aluminum body. It was usually driven by
chauffeurs and emphasis was on comfort and style rather
than speed.

During the 1920s, the cars exhibited design refinements

such as balloon tires, pressed-steel wheels, and four-wheel brakes. Graham Paige DC
Phaeton of 1929 featured an 8-cylinder engine and an aluminum body.

The 1937 Pontiac De Luxe sedan had roomy interior and rear-hinged back door that
suited more to the needs of families. In 1930s, vehicles were less boxy and more
streamlined than their predecessors. The 1940s saw features like automatic transmission,
sealed-beam headlights, and tubeless tires.

The year 1957 brought powerful high-performance cars such as Mercedes-Benz 300SL. It
was built on compact and stylized lines, and was capable of 230 kmh (144 mph).

This was the Indian automobile history, and today modern cars are generally light,
aerodynamically shaped, and compact.

23
Rational Behind Study

In India there are 100 people per vehicle, while this figure is 82 in China. It is expected
that Indian automobile industry will achieve mass motorization status by 2014.

Indian Automobile Market

The Indian Automobile Market is expected to grow at a CAGR of 9.5 percent amounting
to Rs. 13,008 million by 2010. The Commercial Vehicle Segment has been contributing
to the automobile market to a great extent.

Many foreign companies have been investing in the Indian Automobile Market in various
ways such as technology transfers, joint ventures, strategic alliances, exports, and
financial collaborations. The auto market in India can boast of attractive finance schemes,
increasing purchasing power, and launch of the latest products.

Total sales of major car manufacturers in India registered a figure of 0.674 million units
at the end of March, 2007. The number of car exports in India was 39,295 units. General
Motors, Maruti, and Honda accounted for 60 percent of the market sales at the end of
April, 2007. There has been an increase in the purchase of motorcycles and cars both, in
the rural as well as urban areas.

Some vital statistics regarding the automobile market in India has been mentioned below:

 Two wheelers - 2nd largest in the world

 Commercial Vehicle - 4th largest in the world
 Passenger car- 11th largest in the world

As such, the Indian automobile market comprises of a wide variety of vehicles such as
light, medium, and heavy commercial vehicles, cars, scooters, mopeds, motor cycles, 3
wheelers, and multi-utility vehicles such as jeeps and trax.

24
The modern automobile market in India has been considering key issues in the process of
growth:

 Customer care, and not just 'service'

 Domestic as well as multinational investments
 Searing through cut-throat competition
 Road safety
 Anti-pollution norms
 Coordination with the government to enable advancement
 Used vehicle trade

The future of Indian Automobile market is bright as it looks forward to manufacturing

and implementing new innovations such as electric cars as provided by Reva, alternate
fuels like CNG and LPG, and probably customized Internet automobile orders.

Snippets:

 The first automobile in India rolled in 1897 in Bombay.

 India is being recognized as potential emerging auto market.
 Foreign players are adding to their investments in Indian auto industry.
 Within two-wheelers, motorcycles contribute 80% of the segment size.
 Unlike the USA, the Indian passenger vehicle market is dominated by cars (79%).
 Tata Motors dominates over 60% of the Indian commercial vehicle market.
 2/3rd of auto component production is consumed directly by OEMs.
 India is the largest three-wheeler market in the world.
 India is the largest two-wheeler manufacturer in the world.
 India is the second largest tractor manufacturer in the world.
 India is the fifth largest commercial vehicle manufacturer in the world.
 The number one global motorcycle manufacturer is in India.
 India is the fourth largest car market in Asia - recently crossed the 1 million mark.

25
Segment Know how

Among the two-wheeler segment, motorcycles have major share in the market. Hero
Honda contributes 50% motorcycles to the market. In it Honda holds 46% share in
scooter and TVS makes 82% of the mopeds in the country.

40% of the three-wheelers are used as goods transport purpose. Piaggio holds 40% of the
market share. Among the passenger transport, Bajaj is the leader by making 68% of the
three-wheelers.

Cars dominate the passenger vehicle market by 79%. Maruti Suzuki has 52% share in
passenger cars and is a complete monopoly in multipurpose vehicles. In utility vehicles
Mahindra holds 42% share.

In commercial vehicle, Tata Motors dominates the market with more than 60% share.
Tata Motors is also the world's fifth largest medium & heavy commercial vehicle
manufacturer.

Industry Investment
Snippets

 By 2010, India is expected to witness over Rs 30,000 crore of investment.

 Maruti Udyog has set up the second car with an investment of Rs 6,500 crore.
 Hyundai will bring in more than Rs 3,800 crore to India.
 Tata Motors will be investing Rs 2,000 crore in its small car project.
 General Motors will be investing Rs 100 crore and Ford about Rs 350 crore.
 Ashok Leyland and Tata Motors have each announced over Rs 1,000 crore of
investment.

26
Why India

The economy of India is emerging. The following table shows the ranking of India in the
past four years.

Rank 2005 2004 2003 2002

1 China China China China

2 India Thailand Thailand Thailand

3 Thailand India USA USA

4 Vietnam Vietnam Vietnam Indonesia

5 USA USA India Vietnam

6 Russia Russia Indonesia India

7 Korea Indonesia Korea Korea

Indian Automobile Industry Growth

The passenger car and motorcycle segment in Indian auto Industry is growing by 8-9
per cent.

Current Scenario

 The Indian automobile industry crossed a landmark with total vehicle production
of 10 million units.
 Car sales was 8,82,094 units against 8,20,179 units in 2004-05.
 The two-wheeler market grew by 13.6 per cent with 70,56,317 units against
62,09,765 units in 2004-05.
 Commercial vehicles segment grew at 10.1 per cent with 3,50,683 units against
3,18,430 units in 2004-05.

27
 Current Scenario

 Hero Honda is the largest manufacturer of motorcycles.

 Hyundai Motors India is the second largest player in passenger car market.
 Sundram Fasteners, Sundaram Clayton, Bharat Forge and Rico Auto supplies
components to global majors like Ford, General Motors and Land Rover.
 Tata Motors is the fifth largest medium & heavy commercial vehicle
manufacturer in the world.

3) Theoretical Prospective

Return:

The purpose of investment is to get a return or income on the funds invested in different
financial assets. Investors want to maximize expected returns subject to their risk
tolerance. Return is the motivating force and the principal reward in the investment
process, and the key method available to investors in comparing alternative investments.

There are two types of return:

1. Realized return
2. Expected return
Realized return is after the fact returns that was earned. Realized return is history.

Expected return is the return from an asset that investors anticipate they will earn over
some future period. It is a predicted return. It may or may not occur. For measurement of
a return statistical method is used.

28
Formula:

Return= X

Formula of Security Return:

Security Return = Today’s price – Yesterday’s price *100

Yesterday’s price

Formula of Market Return:

Market Return = Today’s Index–Yesterday’s Index *100

Yesterday’s Index
Risk:

The dictionary meaning of risk is the possibility of loss or injury; the degree or
probability of such loss. In risk, the probable of all the possible events are listed. Once
the events are listed subjectively, the derived probabilities can be assigned to the entire
possible events.

Risk consists of two components:

1. Systematic Risk
2. Unsystematic Risk

1. Systematic Risk:
The systematic risk affected the entire market. Often we read in the newspaper that the
stock market is the bear hug or in the bull grip. This indicates that the entire market is
moving in particular direction either downward or upward. The economic conditions,
political situations and the sociological changes affect the security Market. The recession
in the economy affects the profit prospect of the industry and the stock market. The 1998
recession experienced by developed and developing countries has affected the stock
markets all over the world. There factors are beyond the control of the corporate and the
investor. They cannot be entirely avoided by the investor.

29
The systematic Risk is further sub-divided into:

I. Market Risk
II. Interest Rate Risk
III. Purchasing Power Risk
Market Risk:

Jack Clark Francis has defined market risk as that portion of total variability of return
caused by alternating forces of bull and bear markets. When the security index moves
upwards haltingly for a significant period of time, it is known as bull market. In the bull
market, the index moves from a low level to the peak. Bear market is just a reverse to the
bull market; the index declines haltingly from the peak to a market low point called
through for a significant period of time. During the bull and bear market more than 80 per
cent of the securities’ prices rise or fall along with the stock market indices.

The forces that affect the stock market are tangible and intangible events. The tangible
events are real events such as earthquake, war, political uncertainty and fall in the value
of currency.

Intangible events are related to market psychology. The market psychology is affected by
the real events.

Interest Rate Risk:

Interest rate risk is the variation in the single period rates of return caused by the
fluctuations in the market interest rate. Most commonly interest rate risk affects the price
of bonds, debentures and stocks. The fluctuations in the interest rates are caused by the
changes in the government monetary policy and the changes that occur in the interest
rates of treasury bills and the government bonds. The bonds issued by the government
and quasi-government are considered to be risk free. If higher interest rates are offered,
investor would like to switch his investments from private sector bonds to public sector
bonds.

Likewise, if the stock market is in a depressed condition, investors would like to shift
their money to the bond market, to have an assured rate of return. The best example is

30
that in April 1996, most of the initial public offerings of many companies remained
undersubscribed but IDBI and IFC bonds were oversubscribed. The assured rate of return
attracted the investors from the stock market to the bond market.

Purchasing Power Risk:

Variations in the returns are caused also by the loss of purchasing power of currency.
Inflation is the reason behind the loss of Purchasing Power. The level of inflation
proceeds faster than the increase in capital value. The rise in price penalizes the returns to
the investor, and every potential rise in price is a risk to the investor.

The inflation may be demand-pull or cost-push inflation. In the demand-pull inflation, the
demand for goods and services are in the excess of their supply. At full employment level
of factors of production, the economy would not be able to supply more goods in the
short run and the demand for products pushes the price upward. The equilibrium between
demand and supply is attained at a higher price level.

The cost-push inflation indicates that the inflation or rise in price is caused by the
increase in the cost. The increase in the cost of raw material, labour and equipment makes
the cost of production high and ends in high price level.

2. Unsystematic Risk:

Unsystematic Risk is unique and peculiar to a firm or an industry. Unsystematic Risk

stems from managerial inefficiency, technological change in the production process,
availability of raw materials, change in the consumer preferences, and labour problems.
The nature and magnitude of the above mentioned factors differ from industry to
industry, company to company. They have to be analyzed separately for each industry
and firm.

Broadly, Unsystematic Risk can be classified into:

1) Business Risk
2) Financial Risk

31
Business Risk:

Business Risk is that portion of the unsystematic Risk caused by the operating
environment of the business. Business Risk arises from the inability of a firm to maintain
its competitive edge and the growth or stability of the earnings. Variation that occurs in
the operating environment is reflected on the operating income and expected dividends.
The variation in the expected operating income indicates the Business Risk. Business risk
is concerned with the difference between revenue and earning before interest and tax.
Business Risk can be divided into:

1. Internal Business Risk:

Internal business Risk is associated with the operational efficiency of the firm. The
operational efficiency differs from company to company. The efficiency of operation is
reflected on the company’s achievement of its pre-set goals and the fulfillment of the
promises to its investors.

a) Fluctuation in the sales:

The sales level has to be maintained. It is common in business to lose customers abruptly
because of competition. Loss of customers will lead to a loss in operational income.
Hence, the company has to build a wide customer base through various distribution
channels. Diversified sales force may help to tide over this problem. Big corporate bodies
have long chain of distribution channels. Small firms often lack this diversified customer
base.

b) Research and development (R&D):

Sometimes the product may go out of style or become obsolescent. It is management,
who has to overcome the problem of obsolescence by concentrating on the in-house
research and development program. New products have to be produced to replace the old
one. Short sighted cutting of R & D budget would reduce the operational efficiency of
any firm.

c) Personnel management:
The personnel management of the company also contributes to the operational efficiency
of the firm. Frequent strikes and lock outs result in loss of production and high fixed
32
capital cost. The labour productivity also would suffer. The risk of labour management is
present in all the firms. It is up to the company to solve the problems at the table level
and provide adequate incentives to encourage the increase in labour productivity.

d) Fixed cost:
The cost components also generate internal risk if the fixed cost is higher in the cost
component. During the period of recession or low demand for product, the company
cannot reduce the fixed cost. At the same time in the boom period also the fixed factors
cannot vary immediately. Thus, the high fixed cost component in a firm would become a
burden to the firm. The fixed cost component has to be kept always in a reasonable size,
so that it may not affect the profitability of the company.

e) Single product:
The internal business risk is higher in the case of firms producing a single product. The
fall in the demand for a single product would be fatal for the firm.

2. External Business Risk:

External Risk is the result of operating conditions imposed on the firm by circumstances
beyond its control. The External environments in which it operates exert some pressure
on the firm. The external factors are social and regulatory factors, monetary and fiscal
policies of the government, business cycle and the general economic environment within
which a firm or an industry operates.

a. Social and regulatory factors:

Harsh regulatory climate and legislation against the environmental derogation may impair
the profitability of the industry. Price control, volume control, import/export public utility
sectors such as telecom, banking and transportation. The governments’ tariff policy of the
telecom sector has a direct bearing on its earnings.

b. Political risk:
Political risk arises out of the change in the government policy. With a change in the
ruling party, the policy also changes.

c. Business cycle:

33
The fluctuations of the business cycle lead to fluctuations in the earnings of the company.
Recession in the economy leads to a drop in the output of many industries. Steel and
white consumer goods industries tend to move in tandem with the business cycle. During
the boom period, there would be hectic demand for steel products and white consumer
goods. But at the same time, they would be hit much during the recession period. At
present, the information technology industry has resisted the business cycle and moved
counter cyclically during the recession period. The effects of the business cycle vary from
one company to another. Sometimes, with inadequate capital and consumer base may be
forced to close down. In some other case, there may be a fall in the profit and the growth
rate may decline. This risk factor is external to the corporate bodies and they may not be
able to control it.

Financial Risk:

Financial Risk refers to the variability of the income to the equity capital due to the debt
capital. Financial Risk in a company is associated with the capital structure of the
company. Capital structure of the company consists of equity funds and borrowed funds.

Risk can be measured by following two instruments:

1. BETA:
Beta is the slope of the characteristics regression line. Beta describes the relationship
between the stock’s return and the index return.

Formula for Beta:

 = * - x*y

*2 - 2

1. BETA = +1.0
1% change in market index return causes exactly 1% change in the stock return. It
indicates that the stock moves in tandem with the market.

2. BETA = +0.5

34
 1% change in market index return causes 0.5% change in the stock return. The stock
is less volatile compared to the market.

3. BETA = +2.0
1% change in market index return causes 2% change in the

Stock return. The stock return is more volatile. The stocks with more than one

Beta value is considered to be risky.

4. Negative beta value indicates that the stock return moves in the opposite direction
to the market return.

2. STANDARD DEVIATION:

It is a measure of the values of the variables around its mean in other words it can be said
that it is the square root of the sum of the squared deviation from the mean divided by
the number of observations.

 ALPHA:
Alpha indicates that the stock return is independent of the market return .A positive value
of alpha is a healthy sign. A positive alpha value would yield profitable return.

FORMULA FOR ALPHA:

 =  - *

CORRELATION:

The correlation co-efficient measures the nature and the extent of relationship between
the stock market index return and the stock return in a particular period.

Formula for correlation:

R= * - x*y

*2 - 2 * *2 - 2

35
36
Ch. 4 Research Objective
Primary objective:
My research objective would be to make research on equity market and security analysis
on automobile industry. Investors are concerned with two principal properties inherent in
securities. The return and the risk that can be expected from holding a security.

Secondary Objective:

 To measure the expected return and risk associated with the security.
 To know the relationship between market return and security return.
 To find out correlation between the indexes.
 To find out current position of company.

37
38
 Ch.5: Research Methodology
Research Methodology is a systematic and objective study of a particular problem. The
Research Methodology process involves a number of inter-related activities.

 Problem statement:
“Equity Research – Automobile Industry”

 Research Objective:

 Primary objective:
My research objective would be to make research on equity market and security analysis
on automobile industry. Investors are concerned with two principal properties inherent in
securities. The return and the risk that can be expected from holding a security.

 Secondary Objective:
 To measure the expected return and risk associated with the security.
 To know the relationship between market return and security return.
 To find out correlation between the indexes.
 To find out current position of company.

 Research Design:
In my topic I have selected exploratory research design and also descriptive research
design because my study is based on past data and data are collected from secondary
sources and need to be describing these data.

 Sources of Data Collection:

In my topic I have use past data which are available at secondary sources. Secondary data
means data that are already available. Collection of historical data from the following
website. (nseindia.com, business.mapsofindia.com, angelbroking.com)

39
  Selection Period of Scrip Data:
In my study I have taken 3-year data (1st January 2005 to 31st December 2008) of seven
Automobile Company, which is listed in “NATIONAL STOCK EXCHANGE”

 Sample Size:
For doing equity research of automobile company I have select 7 (seven) automobile
companies.
1. TATA MOTORS LTD
2. MARUTI UDYOG LTD.
3. HERO HONDA MOTORS LTD
4. EICHER MOTOTRS
5. ASHOK LEYLAND
6. TVS MOTORS
7. M&M MOTORS

40
41
 Ch. 6: Limitation of the Study
Following are the limitation of the study: -

1. By doing equity research of automobile sector only, it cannot compare with

other sectors like I.T., Oil sectors etc.
2. Equity research is based on fundamental analysis (NSE index data) only; it
cannot base on financial data of companies.
3. Data analysis is done on basic of statistical tools (alpha, beta, Correlation etc.)
not on Ratio analysis.
4. The Information source can give limited information.
5. From Automobile Industry, only four companies are selected for research work.

42
43
 Ch.7: Data Analysis and Interpretation
After collecting the previous Three-year data I have make the analysis of risk with the
help of beta () and S.D. alpha (), return, correlation between market index price and
security index price.

Maruti:

Particular Maruti
EXPECTED RETURN 0.0417

 = * - x*y 0.8640

*2 - 2
 =  - * -0.0029
R= * - x*y 0.6494
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 2.5167
VARIANCE OF X 3.5786
VARIANCE OF Y 6.3340

Interpretation:

1. The value of Beta () = 0.8640 means 1 percentage changes in market price will
feed to 0.8640 percentage change in price of stock.
2. The value of alpha () is -0.0029 it means stock performance is better than
market.

44
Hero Honda:

Particular Hero Honda

EXPECTED RETURN 0.0527

 = * - x*y 0.5048

*2 - 2
 =  - * 0.0266
R= * - x*y 0.4398
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 2.1710
VARIANCE OF X 3.5786
VARIANCE OF Y 4.7133

Interpretation:

1. The value of Beta () = 0.5048 means 1 percentage changes in market price will
feed to 0.5048 percentage change in price of stock.
2. The value of alpha () is 0.0266 it means that the unsystematic risk of the
company is less.

45
TATA:

Particular Tata
EXPECTED RETURN -0.0797

 = * - x*y 1.0307

*2 - 2
 =  - * -0.1329
R= * - x*y 0.7041
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 2.7691
VARIANCE OF X 3.5786
VARIANCE OF Y 7.6677

Interpretation:

1. The value of Beta () = 1.0307 means 1 percentage changes in market price will
feed to 1.0307 percentage change in price of stock. And also high volatility
(Risky).
2. The value of alpha () is -0.1329 (negative) it also interpret that stock performance
is worst than market.

46
M&M:

Particular M&M
EXPECTED RETURN -0.0217

 = * - x*y 0.2720

*2 - 2
 =  - * -0.0357
R= * - x*y 0.1630
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 3.1561
VARIANCE OF X 3.5786
VARIANCE OF Y 9.9610

Interpretation:

1. The value of Beta () = 0.2720 means 1 percentage changes in market price will
feed to 0.2720 percentage change in price of stock, less volatility.
2. The value of alpha () is -0.0357 it means that the unsystematic risk of the
company is less.

47
 TVS:

Particular TVS
EXPECTED RETURN -0.0793

 = * - x*y 0.9560

*2 - 2
 =  - * -0.1287
R= * - x*y 0.5553
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 3.2571
VARIANCE OF X 3.5786
VARIANCE OF Y 10.6090

Interpretation:

1. The value of Beta () = 0.9560 means 1 percentage changes in market price will
feed to 0.9560 percentage change in price of stock.
2. The value of alpha () is -0.1287 it means that the unsystematic risk of the
company is less.

48
 Ashokleyand:

Particular Ashokley
EXPECTED RETURN 0.0165

 = * - x*y 0.2240

*2 - 2
 =  - * 0.0049
R= * - x*y 0.1173
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 3.6140
VARIANCE OF X 3.5786
VARIANCE OF Y 13.0607

Interpretation:

1. The value of Beta () = 0.2240 means 1 percentage changes in market price will
feed to 0.2240 percentage change in price of stock.(less volatility)
2. The value of alpha () is 0.0049 it means that the stock performance is on par with
market.

49
Eicher:

Particular Eicher
EXPECTED RETURN 0.0496

 = * - x*y 0.8029

*2 - 2
 =  - * 0.0081
R= * - x*y 0.4445
*2 - 2 * *2 - 2
SD OF X 1.8917
SD OF Y 3.4169
VARIANCE OF X 3.5786
VARIANCE OF Y 11.6752

Interpretation:

1. The value of Beta () = 0.8029 means 1 percentage changes in market price will
feed to 0.8029 percentage change in price of stock.
2. The value of alpha () is 0.0081 it means that the unsystematic risk of the
company is average. i.e. stock performance is on par with market.

50
51
 Ch.8: Findings and Conclusion

Expected Return:

Particular Nifty Maruti Hero Tata M&M TVS Ashok Eicher

Honda ley
Expected 0.0517 0.0417 0.0527 -0.0797 -0.0217 -0.0793 0.0165 0.0496
Return

Expected Return

0.06 0.0517 0.0527 0.0496

0.0417
0.04
0.0165
0.02

-0.02 Expected Return

-0.0217
-0.04

-0.06

-0.08
-0.0797 -0.0793
-0.1
Company

Conclusion:

The expected return of nifty is 0.0517. Maruti, Hero Honda and Eicher gives better return
then other automobile company is 0.0417, 0.0527 and 0.0496respectively. In contrast
Tata, M&M, and TVS gives negative return i.e. -0.0797,-0.0217 and -0.0793. So, Hero
Honda gives highest return then other automobile company i.e. 0.0527.

52
Beta ():

Beta describes the relationship between the stock’s return and the index returns.

Formula for Beta:

 = * - x*y

*2 - 2

Particular Maruti Hero Tata M&M TVS Ashokley Eicher

Honda
Beta (b) 0.864 0.5048 1.0307 0.272 0.956 0.224 0.8029

Risk (b)

1.2 1.0307
0.956
1 0.864 0.8029
0.8
0.6 0.5048 Risk (b)
0.4 0.272 0.224
0.2
0

Company

Conclusion:

Beta is high in Tata i.e.1.0307 that means one per cent change in market index return
cause 1.0307 per cent change in the stock return. Moreover Maruti, TVS, and Eicher have
beta are more than average is 0.864, 0.956 and 0.8029 respectively. But Hero Honda,
M&M and Ashok Leyland have less volatility compared to other i.e.0.5048, 0.272 and
0.224.

53
Alpha ():

Alpha indicates that the stock return is independent of the market return .A positive value
of alpha is a healthy sign. A positive alpha value would yield profitable return.

Nifty Maruti Hero Tata M&M TVS Ashokley Eicher

Honda
Alpha -0.0029 0.0266 -0.1329 -0.0357 -0.1287 0.0049 0.0081
(a)

Alpha (a)

0.04 0.0266
0.02 0.0049 0.0081
0
-0.02 -0.0029
-0.04
-0.0357
-0.06 Alpha (a)
-0.08
-0.1
-0.12
-0.14 -0.1287
-0.1329
-0.16
Company

Conclusion:

Tata, M&M, and TVS has negative Alpha i.e. -0.1329, 0.0357 and -0.1287 respectively
that means its stock performance is worst than market. When Hero Honda has high
positive alpha means Hero Honda’s Stock performance better than market.

54
Correlation (R):

The correlation co-efficient measures the nature and the extent of relationship between
the stock market index return and the stock return in a particular period. It gives the
percentage of variation in the stock’s return.

Formula for correlation:

R= * - x*y

*2 - 2 * *2 - 2

Particular Maruti Hero Tata M&M TVS Ashokley Eicher

Honda
Correlation 0.6494 0.4398 0.7041 0.163 0.5553 0.1173 0.4445
(R)

Correlation (R)

0.8 0.7041
0.7 0.6494
0.5553
0.6
0.5 0.4398 0.4445
0.4 Correlation (R)
0.3 0.163
0.2 0.1173
0.1
0

Company

Conclusion:

Maruti, Tata, and TVS are highly correlated with index means they have high variations
in the stock returns. Where Hero Honda, M&M, and Ashok Leyland have less correlated
with index return.

55
S.D. ():

It is a measure of the values of the variables around its mean. It is most common measure
of statistical dispersion, measuring how widely spread the value in a data set is.

Particular Nifty Maruti Hero Tata M&M TVS Ashokley Eicher

Honda
S.D. () 1.8917 2.5167 2.171 2.7691 3.1561 3.2571 3.614 3.4169

S.D.

4 3.614 3.4169
3.5 3.1561 3.2571
3 2.7691
2.5167
2.5 1.8917 2.171
2 S.D. of Y
1.5
1
0.5
0

Company

Conclusion:

In M&M, TVS, Ashok Leyland, and Eicher have large S.D. is 3.1561, 3.2571, 3.614,
3.4169 respectively. It means data points are far from it mean. Hero Honda have smallest
S.D. is 2.171 than other automobile company.

56
Variance ():

Particular Nifty Maruti Hero Tata M&M TVS Ashokley Eicher

Honda

Variance 3.5786 6.3340 4.7133 7.6677 9.9610 10.6090 13.0607 11.6752

()

Variance

14 13.0607
11.6752
12 9.961 10.609
10 7.6677
8 6.334
4.7133 Variance
6 3.5786
4
2
0

Company

Conclusion:

Hero Honda have low variance 4.7133 that means no more fluctuation in its value,
compare to other. Ashok Leyland has high variance 13.0607 it means that data value is
highly fluctuated in market.

57
 Findings:

Particular Nifty Maruti Hero Tata M&M TVS Ashok Eicher

Honda ley
Expected 0.0517 0.0417 0.0527 -0.0797 -0.0217 -0.0793 0.0165 0.0496
Return
Beta () 0.8640 0.5048 1.0307 0.2720 0.9560 0.2240 0.8029
Alpha () -0.0029 0.0266 -0.1329 -0.0357 -0.1287 0.0049 0.0081
Correlatio 0.6494 0.4398 0.7041 0.1630 0.5553 0.1173 0.4445
n (R)
S.D. () 1.8917 2.5167 2.1710 2.7691 3.1561 3.2571 3.6140 3.4169
Variance 3.5786 6.3340 4.7133 7.6677 9.9610 10.6090 13.060 11.6752
() 7

6. From above table it is clear that Hero Honda gives good return, have less beta,
and variance is also less. So, Hero Honda Company is best among other
automobile company. Then Eicher performance is average as have good return
but high beta and variance.
7. Tata, M&M, and TVS have worst performance because they give negative
return and alpha, also have high variance.

Concision:

1. The overall risk in Automobile Industry is less.

2. Investor can only predict the return.
3. Two Wheelers and cars (Hero Honda, Maruti) performance is better than heavy
vehicles and tractors (Tata, M&M, Ashok Leyland, and Eicher).

58
59
 Ch.9 Recommendation

1. Apart from other automobile company Hero Honda gives better return, have low
risk beta, low variance.
2. The overall risk in Automobile Industry is less.
3. Two Wheelers and cars (Hero Honda, Maruti) performance is better than heavy
vehicles and tractors (Tata, M&M, Ashok Leyland, and Eicher).
4. Overall growth of automobile sector is move upwards.

60
61
 Ch. 10 Reference

1. Bibliography:

Books:

1. Punithavathy Padian (2008), “Security Analysis and Portfolio Management”,

Vikash Publishing House Pvt Ltd.
2. G.C. Beri, “Marketing Research” Tata MCGRAW – Hill publishing company
limited, Third Edition.

Journal/Magazine/ periodicals:

Daven Malkan (2008), “Corporate India, The Corporate magazine for Business and
Investor”, New Delhi.

Website:

1. http://www.nseindia.com/content/equities/.htm
2. http://www.moneycontrol.com/nifty/nse/nifty-live
3. http://www.nseindia.com/content/us/us_promoters.htm
4. http://www.surfindia.com/automobile/automobile-industry.html
5. http://en.wikipedia.org/wiki/Fast_moving_consumer_goods#column-one#column-one
6. http://en.wikipedia.org/wiki/Stock
7. http://www.angelbroking.com/index.asp

62
3. Appendix:

Date Nifty (X) Hero Honda (Y)

03-Jan-05 2115 601.05
04-Jan-05 2103.75 612
05-Jan-05 2032.2 566
06-Jan-05 1998.35 576.35
07-Jan-05 2015.5 572.45
10-Jan-05 1982 576.2
11-Jan-05 1952.05 571.1
12-Jan-05 1913.6 550.15
13-Jan-05 1954.55 554.2
14-Jan-05 1931.1 524.55
17-Jan-05 1932.9 521.85
18-Jan-05 1934.05 535.95
19-Jan-05 1926.65 542.65
20-Jan-05 1925.3 537
24-Jan-05 1909 513.95
25-Jan-05 1931.85 524.1
27-Jan-05 1955 540
28-Jan-05 2008.3 531.4
31-Jan-05 2057.6 538.1
01-Feb-05 2059.85 531.45
02-Feb-05 2052.25 529.95
03-Feb-05 2079.45 533.95
11-Dec-08 2920.15 792.05
12-Dec-08 2921.35 781.1
15-Dec-08 2981.2 792.8
16-Dec-08 3041.75 810
17-Dec-08 2954.35 807.6
18-Dec-08 3060.75 820.3
19-Dec-08 3077.5 822.7
22-Dec-08 3039.3 802.7
23-Dec-08 2968.65 809.8
24-Dec-08 2916.85 815.3
26-Dec-08 2857.25 790.75
29-Dec-08 2922.2 805
30-Dec-08 2979.5 811.35
31-Dec-08 2959.15 803.65

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Correlation 0.4398

Expected
Return Ex 0.0517 Ey 0.0527
(Ex)2= 0.0027 (EY)2= 0.0028

= 0.5048
= 0.0266

B=n*EXY-
BETA  (EX)*(EY) 1788351.012
n*EX2-(EX)2 3542920.647

ALPHA  = EY-*EX 0.0266

SD OF X 1.8917

SD OF Y 2.1710

V OF X 3.5786

V OF Y 4.7133

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 Findings:

Particular Nifty Maruti Hero Tata M&M TVS Ashok Eicher

Honda ley
Expected 0.0517 0.0417 0.0527 -0.0797 -0.0217 -0.0793 0.0165 0.0496
Return
Beta () 0.8640 0.5048 1.0307 0.2720 0.9560 0.2240 0.8029
Alpha () -0.0029 0.0266 -0.1329 -0.0357 -0.1287 0.0049 0.0081
Correlatio 0.6494 0.4398 0.7041 0.1630 0.5553 0.1173 0.4445
n (R)
S.D. () 1.8917 2.5167 2.1710 2.7691 3.1561 3.2571 3.6140 3.4169
Variance 3.5786 6.3340 4.7133 7.6677 9.9610 10.6090 13.060 11.6752
() 7

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