Equity Research refers to the study of the performance of the economy as a whole, the industry and various companies and analyzing the same. It enables to predict the future performance of a particular stock based on its past performance, the current status of the internal as well as the external environment.
This include both fundamental as well as technical analysis. The internal environment includes: * The financial performance * The operational performance * The future deals with the clients * The share price trend * The management of the company, i. e. he Board of Directors etc. * The nature of the business The external environment includes: * The Economy * The global scenario with respect to the business * General economic scenario * Political scenario * Performance of the stock market on the whole * Competitors EQUITY RESEARCH can be done by two methods: 1) Fundamental Analysis Fundamental analysis is a method of forecasting the future price movements of a financial instrument based on economic, political, environmental and other relevant factors and statistics that will affect the basic supply and demand of whatever underlies the financial instrument.It takes a long term approach to analyze the market as compared to technical analysis.
It often looks at data over a number of years. 2) Technical Analysis Technical traders study the price movements of the particular company’s stock in the market. Technical analysts strongly believe that the price movements follow a trend and by identifying the trend, one can accurately predict the price that might occur in future. Technical analysts use financial tools with software support. One can be overawed by the terms and studies of a technical analyst when he/she explains the rationale behind the prediction.Technical analysis is used for a time frame of weeks, days or even minutes. Main differences between the two types of analysis: Fundamental analysis| Technical analysis| Focuses on what ought to happen in a market | Focuses on what actually happens in a market | Factors involved in price analysis: 1.
Supply and demand 2. Seasonal cycles 3. Weather 4. Government policy | Charts are based on market action involving: 1. Price 2.
Volume 3. Open interest (futures only) | Fundamental analysis: 1) Economy analysis According to the estimates by the Ministry of Statistics and Programme Implementation, the Indian economy has registered a growth of 7. per cent in 2009-10, with 8. 6 per cent year-on-year (y-o-y) growth in its fourth quarter.The growth is driven by robust performance of the manufacturing sector on the back of government and consumer spending. GDP growth rate of 7. 4 per cent in 2009-10 has exceeded the government forecast of 7. 2 per cent for the full year.
According to government data, the manufacturing sector witnessed a growth of 16. 3 per cent in January-March 2010, from a year earlier. Economic activities which showed significant growth rates in 2009-10 over the corresponding period last year were mining and quarrying (10. 6 per cent), manufacturing (10. per cent), electricity, gas and water supply (6. 5 per cent), construction (6. 5 per cent), trade, hotels, transport and communications (9. 3 per cent), financing, insurance, real estate and business services (9.
7 per cent), community, social and personal services (5. 6 per cent).The Gross National Income is estimated to rise by 7. 3 per cent in 2009-10 as compared to 6. 8 per cent in 2008-09. The per capita income is estimated to grow at 5. 6 per cent in 2009-10. India’s industrial output grew by 17.
6 per cent in April 2010. The manufacturing sector that accounts for 80 per cent of the index of industrial production (IIP) grew 19. per cent in April 2010, as against 0. 4 per cent a year-ago.
Capital goods production grew by 72. 8 per cent against a contraction of 5. 9 per cent a yearago. Consumer durables output continued to grow at a fast pace of 37 per cent, mirroring higher purchase of goods such as televisions and refrigerators.The Economic scenario The number of registered foreign institutional investors (FIIs) was 1710 as on May 31, 2010 and the total FII inflow in equity during January to May 2010 was US$ 4606. 50 million while it was US$ 5931. 80 million in debt. Net investment made by FIIs in equity between June 1, 2010 and June 14, 2010 was US$ 530.
5 million while it was US$ 875. 73 million in debt. As on June 4, 2010, India’s foreign exchange reserves totalled US$ 271. 09 billion, an increase of US$ 9.
88 billion over the same period last year, according to the Reserve Bank of India’s (RBI) Weekly Statistical Supplement. Moreover, India received foreign direct investment (FDI) worth US$ 25,888 million during April-March, 2009-10, taking the cumulative amount of FDI inflows during August 1991 – March 2010 to US$ 1, 32,428 million, according to the Department of Industrial Policy and Promotion (DIPP).Growing Trade, Investments ; Forex Reserves 2) Industry Analysis: Auto industry in india The Indian Automobile industry is the seventh largest in the world with an annual production of over 2. 6 million units in 2009. In 2009, India emerged as Asia’s fourth largest exporter of automobiles, behind Japan, South Korea and Thailand.
By 2050, the country is expected to top the world in car volumes with approximately 611 million vehicles on the nation’s roads. 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. Overview Snippets * India, sourcing base for global auto majors. * Passenger car and motorcycle segment is set to grow by 8-9%. * The two-wheeler segment will clock 11. 5% rise by 2007. * Commercial vehicle to grow by 5. 2 per cent.
* Estimated component market size is US$ 6. 7 bn. Facts ; FiguresIndia, in auto sector, is turning to be a sourcing base for the global auto majors. The passenger car and the motorcycle segment is set to grow by 8-9 per cent in coming couple of years, says the ICRA report. The industry is likely to maintain the growth momentum picked up in 2002-03. The ICRA’s analysis points on the auto sector that the passenger car market in the country was inching towards cars with higher displacements. The sports-utility-vehicle (SUV) that was getting crowded everyday, would witness intense competition as many SUVs had been competitively priced, the report said.Honda, Suzuki, General Motors and Hyundai, the global automakers had already launched their premium SUVs in the market to broaden their portfolio and create product excitement in the segment estimated at about 10,000 units annually.
In the two-wheeler segment, according to the report, the motorcycles would clock 11. 5 per cent rise during 2004-2007 over its siblings-scooters and mopeds. Scooters sales would decelerate and mopeds would also see the same. Overseas market would present huge opportunities for the Market Advantage Fast paced urbanisation to rise from 28% to 40% by 2020. * Upward migration of household income levels.
* Middle class expanding by 30-40 million every year. * Growing working population. Passanger Vehicle Production (Qty in ‘000 Nos. ) (Source: McKinsey Report) Market Share- Passenger cars Porter’s Five Force Model:- INDIA AUTOS REPORT Q4 2010 India’s new vehicle market is facing a number of threats in FY11 (ending March 20110, not least rising raw material costs, which have prompted carmakers to hike their prices.Although carmakers will be forced to pass on higher raw material costs to consumers to protect margins, there are a number of reasons why BMI believes vehicle sales could weather the storm. With China accounting for a large proportion of the world’s steel demand, a slowdown in the Chinese economy in H210 would likely impact this demand, lowering prices. While this may not necessarily lead to an immediate reduction in vehicle prices, it would at least create a period of price stability.
In addition, this is the latest in a string of price hikes and consumers have so far been unfazed.Sales of passenger cars for the first three months of FY11 (April to June) were up 33% to 433,641 units, boosted by demand for a raft of new small cars. India stays sixth in BMI’s Business Environment Ratings for the autos sector in Asia Pacific, with 55. 4 from a possible 100. India shares the same pros and cons as China, ranking highly in terms of high production and sales growth potential, but with a low score for country structure (again caused by a large gap between wealthy urban and poorer rural areas), which acts as a restriction on future penetration rates.
However, the country’s regulatory environment rating is bolstered by the government’s efforts to encourage ‘green’ motoring, as well as a number of free trade agreements which are supporting the country’s bid to become a regional export hub. Company Analysis: Maruti Suzuki is India’s number one leading automobile manufacturer and the market leader in the car segment, both in terms of volume of vehicles sold and revenue earned. Until recently, 18.
28% of the company was owned by the Indian government, and 54. 2% by Suzuki of Japan. The Indian government held an initial public offering of 25% of the company in June 2003.As of 10 May 2007, Govt.
of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog. Maruti Udyog Limited (MUL) was established in February 1981, though the actual production commenced in 1983 with the Maruti 800, based on the Suzuki Alto kei car which at the time was the only modern car available in India, its only competitors- the Hindustan Ambassador and Premier Padmini were both around 25 years out of date at that point. Through 2004, Maruti Suzuki has produced over 5 Million vehicles.Maruti Suzukis are sold in India and various several other countries, depending upon export orders.
Models similar to Maruti Suzukis (but not manufactured by Maruti Udyog) are sold by Suzuki Motor Corporation and manufactured in Pakistan and other South Asian countries. The company annually exports more than 50,000 cars and has an extremely large domestic market in India selling over 730,000 cars annually. Maruti 800, till 2004, was the India’s largest selling compact car ever since it was launched in 1983.
More than a million units of this car have been sold worldwide so far.Currently, Maruti Suzuki Alto tops the sales charts and Maruti Suzuki Swift is the largest selling in A2 segment. Due to the large number of Maruti 800s sold in the Indian market, the term “Maruti” is commonly used to refer to this compact car model.
Till recently the term “Maruti”, in popular Indian culture, in India Hindu’s lord Hanuman is known as “maruti”, was associated to the Maruti 800 model. Maruti Suzuki has been the leader of the Indian car market for over two decades. Its manufacturing facilities are located at two facilities Gurgaon and Manesar south of Delhi.Maruti Suzuki’s Gurgaon facility has an installed capacity of 350,000 units per annum.
The Manesar facilities, launched in February 2007 comprise a vehicle assembly plant with a capacity of 100,000 units per year and a Diesel Engine plant with an annual capacity of 100,000 engines and transmissions. Manesar and Gurgaon facilities have a combined capability to produce over 700,000 units annually. More than half the cars sold in India are Maruti Suzuki cars. The company is a subsidiary of Suzuki Motor Corporation, Japan, which owns 54.
2 per cent of Maruti Suzuki. The rest is owned by the public and financial institutions.It is listed on the Bombay Stock Exchange and National Stock Exchange in India. During 2007-08, Maruti Suzuki sold 764,842 cars, of which 53,024 were exported. In all, over six million Maruti Suzuki cars are on Indian roads since the first car was rolled out on 14 December 1983. Maruti Suzuki offers 15 models, Maruti 800, Alto, WagonR, Estilo, A-star, Ritz, Swift, Swif DZire, SX4, Omni, Eeco, Gypsy, Grand Vitara.
Swift, Swift DZire, A-star and SX4 are manufactured in Manesar, Grand Vitara is imported from Japan as a completely built unit (CBU), remaining all models are manufactured in Maruti Suzuki’s Gurgaon Plant.The Vision Statement : We believe our core values drive us in every endeavour * Customer Obsession * Fast, Flexible & First mover * Innovation & Creativity * Networking and Partnership * Openness and learning Concerns – QUARTER1 RESULTS * Maruti Suzuki reported a 20. 25 per cent fall in net profit at Rs 465. 36 crore for the quarter ended June 30. * This is the first time in five quarters that the company has reported a decline in its net profit after record breaking numbers in 2009-10 fiscal. The company had posted a net profit of Rs 583. 54 crore during the corresponding period last fiscal. During the quarter, the company’s market share also declined to 47.
59 per cent from earlier over 55 per cent in the 15 lakh units per annum domestic passenger car segment. It had sold 2,06,377 units during the quarter in a total market of 4,33,641 units. * In the first quarter of this fiscal, total income from operations, however, increased by 26. 78 per cent to Rs 8,231. 53 crore from Rs 6,493 crore in the year-ago period.
* The Indian unit of Suzuki Motor Corp. declined 12 percent to 1,195. 45 rupees, the biggest drop since the shares began trading in July 2003. Maruti posted a 20 percent drop in profit, the first decline in five quarters, as it paid additional royalties to Suzuki and the depreciation of the euro against the rupee hurt repatriated income from its biggest export market.
* Maruti was the worst performer in the Bombay Stock Exchange’s Sensitive Index and the MSCI AC Asia Pacific Index today. SWOT ANALYSIS OF MARUTI UDYOG STRENGTHS Established distribution and after-sales networks:- Maruti Udyog has its distribution centers all over the India and it delivers outstanding after sales service to the customers.Thatswhy Maruti people has faith in the name Maruti Understanding of the Indian market and ability to liaison with the government:- Maruti Udyog understands the Indian market in a very good manner. It knows what exactly Indian people need and provide it accordingly. Maruti Udyog has a lot of ability to liaison with the government Ability to design products with differentiating features:- Maruti has produced the different models of their cars. Maruti Udyog has been producing cars for middleclass range, higher class range so it is fulfilling needs of all classes of the country.
Maruti also gives various and different features in their cars. Brand Image:- Brand image is the important thing for any business. Maruti Udyog ahs created its own brand image in the country. Today Maruti Udyog has developed their different image in the mind of people.
Experience and Know-how in technology:- Maruti Udyog has collaborated with Suzuki, the Japanese company. With this collaboration, Maruti has brought hi-tech technologies in their past models and also using some modern techniques in their upcoming models. WEAKNESSESLack of experience with the foreign market:- Though Maruti Udyog has their name in Indian market, they are not having experience with foreign market. When exports of any products starts or increases company gets lot of revenue in foreign currency. Inexperience with foreign workforce If any company recruits foreign experts or foreign technicians who know have better technical knowledge then it helps in product development in more efficient way.
But Maruti is not that much experienced with foreign workforce. Heavy Import tariffs:-Maruti Udyog spends a lot on import tariffs on imported spare parts. It increases the cost of product. Though same thing happens with other companies Maruti incurs more tariffs compare to other companies. OPPORTUNITY Increased purchasing power of Indian middleclass category:- Now a days situation has been changed. Now even Indian middle class people can also afford the luxuries like cars. Their purchasing power is increased so there is lot of scope to Maruti Udyog to increase their volume. Govt.
subsidies:- Maruti Udyog gets a lot of subsidies from Govt.So its good opportunity for Maruti Udyog to reduce their cost which gets increase due to various tariffs. Tax benefits Tax benefit is an important opportunity for any company. Same way Maruti Udyog gets tax benefits from Government which helps them to increase reserves and use it into the research and development and other activities. Foreign collaboration Due to collaboration with Suzuki company, Japan, Maruti has got various foreign techniques which helps in product development. THREATS Threats from Chinese manufacturers:-Support and resistance represent key junctures where the forces of supply and demand meet. Support is the price level at which demand is thought to be strong enough to prevent the price from declining further. Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
The above chart for Maruti Suzuki shows a trading range between September 7, 2009 ; Sep 7, 2010. Support and resistant level line is drawn in a graph. Currently Stock price is near to its support level so in few days either it holds or goes down so if you have share then sell them.CANDLESTICK CHART Analysis of the above chart brings out the following points: From the period June onwards we have noticed that the trend was characterized by short bodies which indicates that the buying/selling pressure had been weak. The chart shows a lot of white candlesticks which shows buying pressure.
The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. We also see existence of doji which conveys a sense of indecision or tug-of-war between buyers and sellers.
Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing. Further existence of doji along with white candle stick following it will indicate buying pressure may be diminishing and the uptrend could be nearing an end. We also see the existence of koma, the candlestick lines that have small real bodies with upper ; lower shadow that are of greater length than the body’s length.They represent indecision between the bulls ; bears. Index Comparison: The index comparison shows that the share is underperforming the market for the past six month.
But it has outperformed the ,market if we compare performance for last 2 years. So it is indicating that it is good for long term investment. Simple Moving Average: The long term SMA is below the short term SMA at present which represent that there is a bullish trend in the market. Also it shows that this is a time to start bearish trends in the market. so sell the share because now in day or 2 market will go down.
Bollinger Bands: As the stock price is within the upper and lower bands during the most of time, the stock is neither overbought nor oversold. But during starting of September it crosses the upper band means stock was over bought and it was alarming level of selling. After few days it again come back but still its near to upper band so wait and watch for few days. At present the Bollinger bands are narrow and diverging which means that the volatility in the market is less and may increase in future. RELATIVE STRENGTH Developed by J.Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements.
RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend. This Chart shows last 1 year RSI. This chart features daily stock prices in dark blue and RSI is based on closing prices.Working from left to right, the stock became overbought in current time and due to this the stock will declined for a few days. So it is recommend to sell a stock.
MACD and Signal ROC: The ROC indicates performance of the particular stock vis a vis the market. It is seen that the trend of ROC is similar to the price trend of the stock. It is seen that from August 29 onwards the ROC is more than zero which shows that the stock performed better than the market and gave higher returns. William %R: RECOMMENDATION On the basis of both fundamental and technical analysis we recommend to sell the stock.