Tata Motors has been one of the oldest names listed in Auto sector, but in recent times it has not been in the list of favorites for investors. If you are a long term investor and had invested in Tata motors in the year 2013 then you are at par with your capital or just 10% ROI but at the same time if you had invested in the benchmark index then you might have earned around 70% on your investment. So clearly, investor has lost opportunity returns in being invested in Tata Motors.
But what’s next? Should They Exit???…No!
After 2016, JLR sales has slowed down comparatively in US and Europe which was hampering the sales growth of Tata Motors. The reason for this being lack of consumer confidence and lower demand for diesel. JLR sales contribute as much as 65% in absolute terms of total sales of the company on its consolidated balance sheet. So JLR sales has a direct impact on Tata Motors fundamental performance. In the last Quarter, sales of JLR have been picking up again steadily on MoM basis in Europe and US. But now the Asian market contributes approx 27% towards its sales. Now is maybe the right time to be positive on JLR sales in coming quarters.
Looking at the Domestic operations, Tata motors continues to hold pioneer position in Commercial Vehicle sales while Passenger vehicle sales are improving. Tata Motor’s Tigor would be the Game Changer this FY because they have come out with Battery version. They have got order from government for around 10,000 cars. Therefore the Domestic operations are expected to pick up this year.
Now to sum up, the Fundamentals of the company are expected to pick up. So, now let’s have a look at what the charts have to say?
Technically the stock has been trading at the lows of 2013 and also it is around 8 years support trend line on weekly charts. Indicators are oversold on the weekly zone and we have seen sharp short covering last week with heavy volumes which was from the support of the downside trending channel. As a long term investor this is the best time to start accumulating the stock on technical parameters. Maybe we have two resistances at 411 and 450 but once they are breached, we are going to have dream run on the stock. On the downside the support is at 300-314 which could act as stop loss for your investments.
P.S. Fundamentals of the stock looks at attractive valuation while technically the stock has parameters which could give fierce reversal supporting to our fundamental turnaround. So the strategy for investors is to accumulate stock at each dip with SL of 300 while TGTS for short term 411 and 450 but for long term we still have a long way to go!!!!
Auto sector stocks have been out-performing Nifty index which could be clearly measured from NSE Auto index which has almost given 300% return from 2012 lows against approx 75% return on Nifty index in same period. Stocks such as Eicher, Maruti, Ashok ley and TVS Motor has given tremendous returns. One Stock which should on the list but couldnt secure place due to volatile sales Unit is Tata Motors. So what should a Investor do next if he holds? Or what if a investor wants to invest at current levels? …Lets Look at some factors to answer both questions…
Domestic Sales Trend
Tata Motors is into Passenger Vehicles and Commercial Vehicles segment in India which as a sector has seen a good growth. Company’s share in Commercial vehicles is still a healthy one and its going at steady pace but Passenger vehicles market share was shrinking as they didnt have compatible models to fight against competitors. But recent launches HEXA and NIXON could give a tough fight as they have some JLR technology but at an Indian Price. Another game changer could be Tata Tiago’s EV version which is a move to drive Governments goal of developing Electric Vehicle market by 2030. As per my knowledge Tata Tiago could run 150 km at one charge which is compatible with existing models of competitors. Even company has recently won some government orders to supply Electric vehicle which could be helping Domestic sales.
Above graph is Company’s Auto sales number and we could notice that recent past has been in increasing trend which is almost at 8 years high. So company is doing fairly good at Domestic sales level and has favoring conditions to grow in coming quarters.
JLR brand gets almost 80% of Company’s revenue in absolute terms and profits are directly related to this segment’s performance. Brand had many hiccups in the sales performance globally which is the reason why company hasnt been performing well till now. Sales in Europe and US had dipped in last 3 quarters which is now expected to rise after ECB is continuing with QE and US may come with big tax cuts in November.
Though JLR sales is down almost 40% from 2016 highs but still it is on increasing trend since last 8 years. A small positive jump on Auto sales and stock is expected to cover up all lost ground.
Now lets look at Technical Charts
Tata Motors has been in range bound movement since last 2 months which is why i have gone to weekly chart to catch up with some long term support. Interestingly i found that stock has just taken support at 9 year Support trend line which means its at the best time and price to accumulate stock for strong reversal. As you would notice upside trending WHITE support line which is currently around 390 levels which could be taken as a Stop loss. Considering Weekly RSI indicator and MACD indicator , they have given a positive crossover signaling a buy on the stock. But to confirm a positive reversal, safe investors can watch for 440 level on upside which is a breakout from a currently down trending BLUE channel.
To sum up, Tata Motors has been under-performing ,its peers and index ,as Sales number for Company had been sub-dued. Now as we can notice sales has been reversing since quite some time which is yet not discounted in the Stock price so we are technically looking for a entry in the stock. Reading the charts has revealed that a move above 440 could ignite a new long term rally on the stock. So strategy for investors would be accumulating at each dip with sl of 385 while short term traders can buy above 440 for the medium term tgts of 560/600.
Have a safe drive and read disclaimer before driving stock on our recommendation.