INTERIM REPORT

ON
FUNDAMENTAL AND TECHNICAL
ANALYSIS OF AUTOMOBILE SECTOR

By:
JASH CHHEDA
[21BSP1626]

Submitted to:

COMPANY GUIDE FACULTY GUIDE

Mr. Nikesh Ruparel Prof. Ganesh Mani
Executive Associate Partner Faculty Member
Aditya Birla Capital Ltd. IBS Mumbai

Date of Submission:
13 April 2022
ABSTRACT

This report is part of multiple projects undertaken at Aditya Birla Capital Ltd. In
internship program students are trained for trading in Indian stock market which
involves detailed study of various methods to study the equity markets, live,
long-term, short-term and intraday trading.

In training program students get to learn about how to perform Fundamental and
Technical analysis of a security, by analysing various charts and trends in the
market with the help of indicators and then make informed decision to buy or
sell the security based on the available data and conclusion made from the
charts. Students have to select a particular sector and perform detailed analysis
of it.
Table of Contents
1. Introduction ...................................................................................................................................... 4
1.1. About the Company .................................................................................................................. 4
1.2. What is Life Insurance? ............................................................................................................ 5
1.2.1.Types of Life Insurance Policies ...................................................................................... 5
1.3. Work Done ............................................................................................................................... 6
1.4. Market Size of Insurance Industry ............................................................................................ 7
1.5. Market Share of Top Life Insurance Companies in India ........................................................ 8
2. Fundamental Analysis ...................................................................................................................... 9
3. Industry Overview of Automobile Sector ...................................................................................... 10
4. Index Calculation ........................................................................................................................... 12
5. Technical Analysis ......................................................................................................................... 14
5.1. Long Term Technical Analysis of Automobile Stocks .......................................................... 15
5.2. Short Term Technical Analysis of Automobile Stocks .......................................................... 16
6. Road Ahead .................................................................................................................................... 19
7. References ...................................................................................................................................... 19
Introduction

About the Company

Aditya Birla Capital Limited (ABCL) is the holding company for the financial
services businesses of the Aditya Birla Group.
ABCL is one of the most diversified financial services entities in India, operating
under a single brand, with a presence in non-bank financing, housing finance, asset
management, insurance and advisory businesses. In its major businesses, it is among
the top-5 private players in terms of market share. ABCL has a strong presence
across Protecting, Investing and Financing solutions, and have subsidiaries named
after it:
• Aditya Birla Sun Life Insurance • Aditya Birla Finance Ltd.
• Aditya Birla Health Insurance Ltd. • Aditya Birla Money Ltd.
• Aditya Birla Wellness Pvt. Ltd. • Aditya Birla Housing Finance Ltd.
• Aditya Birla Insurance Brokers Ltd. • Aditya Birla Sun Life Pension
Management Ltd.
• Aditya Birla Sun Life AMC Ltd.
• Aditya Birla Sun Life Mutual Fund

Aditya Birla Capital offers a complete range of protection solutions to help secure
the future of the family and provide financial support for child’s education, wealth
with protection solutions to help stay financially secure in the future with small
disciplined savings at regular intervals. Some of the products offered have been
listed below:
• Life Insurance • Multiply Wellness
• Health Insurance • Travel Insurance
• Motor Insurance • Mutual Funds, among others.

As of December 31st, 2021, ABCL manages aggregate assets under management

over Rs. 3,724 billion, and an active customer base of over 31 million, through its
subsidiaries and joint ventures.

In this section we will be focusing on Life Insurance.‘

4
What is Life Insurance?

In simplest terms, Life Insurance is where the customer i.e., the insured pays a
premium in certain time intervals and the company insures life of the customer. The
company promises to pay certain sum of money in case the insured passes away or
after a set maturity time. Life is very precious and if the breadwinner departs the
world, the financial burden – loans, child’s education/marriage expenses, etc. would
be passed on to the family and it would be very stressful for them. So, life insurance
is the solution.

As of December 2021, total AUM of Aditya Birla Sun Life Insurance (ABSLI)
Stood at Rs.5,91,141 million. ABSLI recorded a gross premium income of Rs.
80,661 million in 9M FY 2021-22 and registering a y-o-y growth of 23% in Gross
Premium.
Types of Life Insurance Policies
There are broadly 6 types of life insurances:
a. Term Insurance
This is a pure insurance product with no investment option. The premiums are
extremely less and sum insured is high. In this policy the nominee will get a
predetermined amount only when the insured passes away, there will be no
benefits if the insured survives.

b. Term Plan with Return on Premiums (TROP)

This is exactly the same policy as pure term insurance; the only difference is that
the premiums paid would be returned if the policyholder survives the policy
term.

c. Savings Plan
Savings Plan has two components – insurance component which works exactly
as the term plan and savings component which exactly works like TROP but with
extra benefits like bonus if the policy holder survives.

d. Money Back Plan

It is a savings-oriented policy basically an investment option. In this policy
unlike any other type of policy wherein the policyholder receives the benefit on
maturity or death the benefits are received periodically.

e. Unit Linked Insurance Plan (ULIP)

This policy gives the benefit of insurance plus it allows you to invest in different
funds like equity, debt or a mix of the two.

f. Retirement Plan
These plans are meant to set aside a portion of our income throughout the
income-earning years in the form of premiums and that will provide financial
support post-retirement.

5
Work Done

Along with the training to analyze stocks technically and fundamentally we interns were
given life insurance policies to sell amongst various products and services offered by
Aditya Birla Capital Ltd. The policies were:

• Savings Plan
• Money-Back Plan
• Child Plan
• Retirement Plan

Learnings:

• How to pitch
• What to pitch
• Importance of follow-ups after the first meet
• Difference between contacting on call and meeting in person

My Observations:

Since the time sales have been given by the company I have been pitching to certain
clients, following are some of the observations I have made till now:

• The policies offered have fixed returns and is not risky which is preferable for
long-term investment.
• Approximately 65% of the customers pitched were below 35 and had very high-
risk taking capacity, therefore, these less risky policies were not a fit.
• The interests of the customer were different from what the policy offers in terms
of the policy term and returns expected. Customers who were pitched needed
less tenure with more returns.
• Due to financial year-end, almost 60% of customers who were pitched had
already bought certain policies or renewed their running policies for taxation
benefits.

Contacting prospective customers is ongoing.

6
Market Size of Insurance Industry

In India, the overall market size of the insurance sector is expected to US$ 280
billion in 2020.

The life insurance industry is expected to increase at a CAGR of 5.3% between 2019
and 2023. India’s insurance penetration was pegged at 4.2% in FY21, with life
insurance penetration at 3.2%.

In the first half of FY22, the life insurance industry recorded growth rate of 5.8%
compared with 0.8% in the same period last year.

In September 2021, new premiums of life insurers registered 22.2% growth in

September 2021, up from 2.9% in September 2020.

Source: India Brand Equity Foundation (IBEF)

Out of 24 Life Insurance companies in India, Life

Insurance Corporation (LIC) is the sole public
sector company. In FY20, share of private sector in
life insurance in India increased to 33.78% from
33.58% in FY19.

Source: IRDAI, Life Insurance Council

7
Market Share of Top Life Insurance Companies in India

In India LIC is the only Public Sector company for life insurance, along with other 23
private companies.

LIC alone has a total market share of approx. 61.43% (calculated according to the total
premiums collected) and among the private players the top 3 companies are:

• SBI Life
• HDFC Life
• ICICI Prudential Life

Aditya Birla Sun Life Insurance is ranked at top 8th with approx. 1.83% of the market
share as of 28th February, 2022.

8
Fundamental Analysis

Fundamental analysis is one of the two major methods of market analysis, with the other
being Technical Analysis. While technical traders look at factors outside of the price
movements of the asset itself.

Fundamental Analysis is a method of evaluating the intrinsic value of an asset and

analysing the factors that could influence its price in the future. This form of analysis is
based on external events and influences, as well as financial statements and industry
trends.

The Fundamental analyst attempts to study everything that can affect the security's
value, including macroeconomic factors (like the overall economy and industry
conditions) and company-specific factors (like financial condition and management).

The end goal of performing fundamental analysis is to produce a value that an investor
can compare with the security's current price.

In case of stocks, Undervalued stocks can be considered for further analysis only if they
grow Year on Year (YoY). The undervalued securities with positive Year on Year
growth are considered as Value Picks.

Overvalued stocks can be considered for further analysis only if their P/E growth ratios
(also known as PEG ratios) lie between 0 and 1.

Analysts use a variety of ratios to compare the two companies or the stocks of the two
companies like Return on Capital Employed, Debt to Equity, EV/EBITDA, Price to
Earnings, Current Ratio, etc. The ratios used for comparison vary from sector to sector.

9
Industry Overview of Automobile Sector

The Sector chosen for the project is Automobile Sector in India.

Driving the most luxurious car has been made possible by the stiff competition in the
automobile industry in India. Every other day, we have been hearing about some new
launches, some low-cost cars - all customized in a manner such that the common man
is not left behind.

Automobile Market is split into 4 Segments with each Segment having its own market
leader. The 4 segments are:

1. Two- Wheelers
2. Three- Wheelers
3. Passenger Vehicles, and
4. Commercial Vehicles

In 2020, India was the 5th largest auto market, with ~3.49 million units combined sold
in the passenger and commercial vehicles categories. It was the seventh-largest
manufacturer of commercial vehicles in 2019.
3% 1%

15%
Segment- Wise
Domestic Market Share for 2020-21

Two Wheelers
Passenger Vehicles
Commercial Vehicles
Three Wheelers

81% Source: Society of Indian Automobile Maufacturers (SIAM)

The two wheelers segment dominates the market in terms of volume owing to a
growing middle class and a young population. Moreover, the growing interest of the
companies in exploring the rural markets further aided the growth of the sector.

The Indian automotive industry is expected to grow to US $ 300 billion by 2026.

Domestic automobile production increased at 2.36% CAGR between FY16-FY20

with domestic automobiles sales increasing at 1.29% CAGR between the same period.

10
Indian Car Sales Figures – March 2022

Source: Economic Times, 2 April 2022

The above listed companies are the major passenger car sellers in India. Consumers
have various choices available from lower price cars to luxury cars. As the largest
shareholder is Maruti Suzuki which produces lower price and fuel efficiency cars.

Carmakers sold 3.1 million units in the country in the year ended March. FY22
showed a 13% improvement over the lows from the preceding financial year, despite
the industry failing to keep up with consumer demand amid a global shortage of
semiconductors. Tata Motors sold over 3,70,000 units and recorded the maximum
change in sales amongst all the carmakers.

Automobile Sector in Focus

• Rising middle class income and a huge youth population would result in strong
demand.
• The Government of India expects automobile sector to attract US$ 8-10 billion
in local and foreign investments by 2023.
• In September 2021, the Indian government issued notification regarding a PLI
scheme for automobile and auto components worth Rs. 25,938 crore (US$ 3.49
billion).
• Budget 2022 – Expansion of Network Highways will also increase the sales.
• Global shortage of semiconductor chips affecting production of passenger
vehicles.
• Supply chain disruption of key auto components due to the ongoing Russia-
Ukraine War.

11
Index Calculation

Stock market indexes measure the value of a segment of a country’s stock market by
the method of weighted average of selected stocks. These indexes help investors and
analysts describe the market and compare different investments. Stocks in numerical
terms. As the stocks within an index change value, the index value also changes
accordingly.

The stocks could be selected on the basis of the type of industry, market capitalization
or the size of the company. The value of the stock market index is calculated using
values of the underlying stocks. Any change taking place in the prices of underlying
stock impact the overall value of the index. If the prices of most of the underlying stocks
rise, then the index will rise and vice-versa. In this way, a stock index reflects overall
market sentiment and direction of price movements of products in the financial,
commodities or any other markets.

Steps to calculate Stock Market Index (Automobile Sector)

1. Note down the Daily closing price of the stocks (as per sector).
2. Calculate the Market Capitalization by multiplying the closing price with No.
of outstanding shares.
3. Next step in the process is to calculate the weightage of all the stocks by
dividing the individual market cap with total market capitalization.
4. Percentage Change in price is calculated by: (Current Price- Base Price)/ Base
Price*100
5. Change in weightage is calculated by multiplying Weightage with percent
change in price.
6. Last step is to calculate the Final Value - (Change in weightage*1000/100)
assuming base to be 1000.
7. To calculate the change in base every day the previous days base has to be
multiplied by the change in weightage.

Some of the notable indices in India are as follows:

1. Benchmark indices like NSE Nifty and BSE Sensex.
2. Broad-based indices like Nifty 50 and BSE 100.
3. Indices based on market capitalization like the BSE Small and Midcap.
4. Sectorial indices like Nifty Auto, etc.

12
 12 Apr 2022
Closing % Change Market Cap
Script Name Change Weightage
Price Change in Base (Rs. Cr )
Maruti Suzuki 7618.35 53.95 0.71 3.02 230320.16 44.20
Hindustan Motors 12.25 -0.7 -5.41 -0.03 255.12 0.05
Hero MotoCorp 2297.9 -37.5 -1.61 -1.39 46183.89 8.86
TVS Motors 650.25 -0.7 -0.11 -0.06 30908.39 5.93
Tata Motors 438.3 -13.75 -3.04 -8.45 145508.18 27.93
Eicher Motors 2521.8 -23.8 -0.93 -1.19 67865.40 13.02
Total -8.10 521,041.13 100.00
Index on: Previous Trading Day - 11 April 2022, Monday → 972.12

12 April 2022, Tuesday → 972.12 – 8.10 = 964.02

This particular Index calculation started on 24 February 2022; therefore, we can
compare the returns given by the Index calculated and Benchmark Index i.e.,
NIFTY 50 from 24 February 2022 till 12 April 2022.

Calculating the Percentage Change in NIFTY 50 and the Index calculated

Index 24 February 2022 12 April 2022 Percentage
Change
NIFTY 50 16247.95 17530.30 7.89%
Index Calculated 1000 964.02 -3.60%

Therefore, we can conclude that NIFTY 50 has been a better performer than the Index
formed during the time duration specified.

The trading during the internship period was done in NIFTY 50 stocks only.

Ways to trade in the stock market:

1. First way is a basic BUY-SELL situation in which we buy the stock at a lower
pricing predicting that its price will increase in future and sell it at a higher
price to make profit.

2. In second case we do SHORT SELLING. Short selling is motivated by the

belief that a security's price will decrease in future, enabling it to be bought
back at a lower price to make a profit. In simple words we sell the share at a
higher price predicting that it will decline in the future and buy it at a lower
price to make profit.

13
 Technical Analysis

Technical Analysis is a trading study type employed to evaluated investments and identify
trading opportunities in price trends and patterns seen on charts. Technical analyst believe
past trading activity and price changes of security can be valuable indicators of the
security’s future price moments. The objective of the analysis is to forecast the direction of
the future price.

Technical Analysis can be categorised into 2 types:

• Short term – intraday or for less than 1 year.
• Long term – More than 1 year.

Upward trend, Downward trend, support and resistance helps us in technical analysis.

Upward trend – this shows that the share Downward trend – this shows that the
price is going upside. It happens when there share price is going downside. It happens
are more buyers in the stock. when there are more sellers in the stock.

Resistance – It is the price level at which

selling is thought to be strong enough to
prevent stock from rising further.

Support – It is the price level at which

buying is thought to be strong enough to
prevent the stock from declining further.

14
Long Term Technical Analysis of Automobile Stocks

Rounding Bottom – It is a long-term reversal pattern that represents a long

consolidation period that turns from bearish trend to bullish trend.
Buy after rounding bottom line is cut by the candle upwards.

Source: Trading View, TVS Motors

Bump and Run Reversal – Rising trendline which connects minimum 3 points of
candles at different time period and when shows a change in trend then the stock will
go opposite. Sell when the trend starts showing opposite direction.

Source: Trading View, Hero MotoCorp

15
 Short Term Technical Analysis of Automobile Stocks

Indicators and Oscillators

Squeeze Momentum

It is a situation where multiple candles do not expand more and the share price
remains almost constant for a long period of time, this is called squeezing, and at a
point the candle blasts off in a certain direction i.e., upper candle or downward candle.
By observing this, if the candle is going upward, the it is a buy position and if the
candle is going downward, then it is a sell position.

Source: Trading View, Eicher Motors

On 8 April 2022, Squeeze Momentum was seen in EICHER MOTORS and the Target
was achieved.

Entry Price: ₹ 2540 Target: ₹ 2560 (2x of size of Long Candle)

Stop Loss: ₹ 2518 (Low of the Long Candle) Profit: ₹ 24

16
RSI – Relative Strength Index

Relative Strength Index is indicator which shows strength in the stock. When the RSI
curve crosses upper boundary (70), then the stock is overbought and now the share
price of it will fall, so it is the short trade when RSI starts moving downward after it is
overbought.
When RSI curve crosses lower boundary (30), then the stock is oversold and now the
share price will rise, so it is the long trade when RSI starts moving upward after it is
oversold.

Source: Trading View, Maruti Suzuki

Back Testing results:
MARUTI SUZUKI SELL
Winning Losing
PERIOD P&L(Amt) Signals No. of Wins No. of Losses
streak streak
Mar- May -35.1 13 7 6 3 2
June - Aug 75.05 17 9 7 5 2
Sept - Nov 141.65 22 14 8 6 2
Dec- Feb 53.7 21 11 10 4 6
Total 73 41 31
MARUTI SUZUKI BUY
Winning Losing
PERIOD P&L(Amt) Signals No. of Wins No. of Losses
streak streak
Mar- May 141.3 14 6 8 2 3
June - Aug 130.6 21 12 9 4 2
Sept - Nov -544.6 18 7 11 2 4
Dec- Feb 308.25 20 10 10 4 2
Total 73 35 38

Total Signals 146

Total Wins 76
Total Losses 69
Probability of Wins 0.52
Probability of Losses 0.47

17
MACD- Moving Average Convergence Divergence

In MACD, when blue line is crossing orange line from downwards, it is a buy call and
when green line is crossing red line from upwards, it is a sell call.

Source: Trading View, Maruti Suzuki

Back Testing results:
MARUTI SUZUKI BUY
PERIOD P&L(Amt) Signals No. of Wins No. of Losses Winning streak Losing streak
Mar- May -261.05 42 17 24 3 5
June - Aug -55.55 41 18 22 5 4
Sept - Nov -134.75 44 20 23 7 4
Dec- Feb 271.75 48 20 27 3 5
Total 175 75 96
MARUTI SUZUKI SELL
PERIOD P&L(Amt) Signals No. of Wins No. of Losses Winning streak Losing streak
Mar- May 255.45 46 21 24 3 6
June - Aug 253.25 47 21 25 3 4
Sept - Nov 434.7 38 18 19 4 5
Dec- Feb -236.65 47 21 26 4 8
Total 178 81 94

Total Signals 353

Total Wins 156
Total Losses 190
Probability of Wins 0.44
Probability of Losses 0.54

18
 Road Ahead
• The next step in this project is to analyse different companies in the Indian automobile
sector.
• Detailed Technical and Fundamental analysis of major players in this sector.

References

• www.adityabirlacapital.com
• www.irdai.gov.in
• www.siam.in
• www.ibef.org/industry/india-automobiles
• www.moneycontrol.com
• https://in.tradingview.com
• https://www.statista.com
• https://www.bloombergquint.com
• https://www.investing.com
• Economic Times Newspaper dated – 2 April 2022

19