5/5/12

Technical Analysis of Automobile Sector

Click to edit Master subtitle style

5/5/12

Objectives & Scope of the Study

OBJECTIVES

To analyze tools of technical analysis can be used in forecasting stock prices. know the movements (upward or downward) of stock prices of selected company stocks through Technical analysis. know how best we can utilize these analyses to meet the financial goals. find out expected rate of return using CAPM model.

To

To

To

SCOPE

5/5/12

Limitations of the Study

Analysis

tools.

involves using of limited technical

The

study is restricted only to five selected stocks. study depends more on secondary data rather then on primary data. cant predict the prices of the stocks for long term. technical analysis cant be applicable to newly listed companies shares.

The

We

This

5/5/12

The stocks so selected are as follows.

Bajaj Auto limited Hero Honda Motors limited Maruti Udyog limited TVS Motors Company limited Tata Motors limited

Chart patterns
Line

charts candlestick chart

Japanese

5/5/12

DOW THEORY
Ripple Wave Tide

Primary Phases of Movements

5/5/12

MACD
Common, the MACD is a trend following, momentum indicator that shows the relationship between two moving averages of prices. To Calculate the MACD subtract the 26day EMA from a 12-day EMA. A 9-day dotted EMA of the MACD called the signal line is then plotted on top of the MACD. There are 3 common methods to interpret the MACD:
Crossover Divergence Overbought/Oversold

5/5/12

ROC Rate of Change Indicator

It

is a very popular oscillator which measures the rate of change of the current price as compared to the price a certain number of days or weeks back. The ROC has to be used along with price chart. The buying and selling signals indicated by the ROC should also be confirmed by the price chart. = (Current Price / Price n period ago) - 1

ROC

5/5/12

RSI
Relative

strength index was developed by Wells Wilder. It is one of the powerful and popular indicators, which identifies overbought and oversold market conditions along with the signals of buying and selling opportunities in the market. It also shows the strength and weakness of a particular scrip or market. If the share price is falling and RSI is rising, a divergence is said to have occurred. Divergence indicates the turning point of the market. If the RSI is rising in the overbought zone, it would indicate the downfall of the price. When the RSI is in the oversold region, it generates the buy signal.

5/5/12

Findings
1. BAJAJ AUTO LIMITED
TECHNICAL INDICATOR MACD RSI ROC BUY SIGNAL SELLING SIGNAL March May January &April February February &January & April May

2. HERO HONDA MOTORS LTD.

TECHNICAL INDICATOR MACD RSI ROC BUY SIGNAL SELLING SIGNAL April January February April April January

3. MARUTI UDYOG LTD.

TECHNICAL INDICATOR MACD RSI ROC BUY SIGNAL SELLING SIGNAL April May Jan & Feb Mar, Apr Jan, May

5/5/12

4. TVS MOTOR COMPANY

TECHNICAL INDICATOR MACD RSI ROC BUY SIGNAL Mar Jan, Feb Feb SELLING SIGNAL May Apr, May

5. TATA MOTORS LTD.

TECHNICAL INDICATOR MACD RSI ROC BUY SIGNAL SELLING SIGNAL March April February April February April

5/5/12

CAPM Model

Capital asset pricing model (CAPM) allows for the calculation of the required rate of return for any risky asset based on the securitys beta

An assets covariance with the market portfolio is the relevant risk measure (helps in beta calculation) can be used to determine an appropriate required rate of return on a risky asset

This

5/5/12

Determining the Expected Return

E(R i ) = RFR + i (R M - RFR)

The

expected rate of return of a risk asset is determined by the RFR plus a risk premium for the individual asset risk premium is determined by the systematic risk of the asset (beta) and the prevailing market risk premium (RM-RFR)

The

5/5/12

The Security Market Line (SML)

The

CAPM model is linear and when plotted on a graph paper gives a straight line called SML. graphical version of CAPM is Security Market Line.

The

5/5/12

Findings from CAPM model applied on the stocks of Automobile sector

Tata Motots Maruti

HERO HONDA

BETA Expected Market Return Risk Free Rate

1.45494 0.12988 7.0%

Beta

0.9236516

BETA Expected Market return Risk free rate Expected rate of return of stock

0.62873352

Market Return 0.1298849 Risk Free Rate 0.07 Expected rate of return of stock 12.53%

0.12988489 7% 10.77%

Expected rate of return of stock Bajaj

15.71%

TVS Motors

Beta Expected Market Return Risk Free Rate Expected rate of return of stock

0.90524100 0.12988489 7 7% 12.42%

BETA Expected Market Return Risk Free Rate Expected rate of return of stock

0.6673765 24 0.1298848 97 7% 11.00%

5/5/12

Thank You