Tata motors have been investor’s favorite stock since ages but have continued to disappoint with its performance over the past 2 years. The share touched 600 in the Sep 2016 and has been in a continuous downtrend since then.
Now here arises 2 questions :
1. Why is it investor’s favourite share?
2. Why it has been disappointing?
The answer to the first question is - Probably because it belongs to the reputed Tata Group. The brand Tata is enough to attract investors. (I personally find only that reason)
Now the second questions have a lot of answer.
The problem of Tata Motors lies with its British subsidiary and Jaguar Land Rover Ltd (JLR), which accounts for 70-75% of sales of Tata Motors. The performance of JLR has been an area of concern in the past 2 years. Please note down some of the reasons for downfall :
1. Fall in growth Rate - Monthly sales numbers of JLR have fallen from double-digit growth until FY16, to low single-digits for most months since September 2016. In December 17 quarter results showed a year-on-year drop in sales volumes in the three large markets—the UK, Europe and North America—that account for a little over half of JLR’s total sales.
2. BREXIT – JLR exports 80% of its cars worth 18 billion pounds annually. Brexit has resulted in a major blow to Pound resulting in huge impact on TATA motors profit. Tata Motors-owned Jaguar Land Rover even issued statement that BRexit could hit the Britain's biggest carmaker's annual profits by over 1.2 billion pounds and may even force an exit from the UK.
3. Rakesh Junjunwala losing interest - We tend to follow the top traders and when someone as big as RJ sold around 5 million of shares of TATA Motors, a lot of investors started losing confidence and faith in TAMO.
4. BS III Inventory - TATA motors have around 25000 crores of BS III Inventory. They were not able to sell it before the deadline. This makes us very suspicious about performance. Even after offering lurucative discounts why they were not able to clear stock? Was no one ready to purchase it or their was an operational delay and thus a failure.
5. Domestic Business- With some new launches TATA is trying to compete in a market which is highly competitive, and Maruti has more than 50% share. They may require a product which is far better than existing and at a far lower price point. May take a couple of years.
Even speaking technically share has been forming Lower Highs and Lower Lows since the beginning of 2018. So charts were clearly depicting a downtrend. Also it followed a downward sloping channel. At times the upper channel acted as a resistance and other time the Fibonacci resistances stopped the share from going up.
In August the Share broken the upper channel but was resisted at 38.2% Fibo Level. The share even here failed to cross the prior high and started falling. Thereby making a Lower High 3.
Untill the operational / fundamental issues of Tata Motors get resolved, it would be really not look like a portfolio share for me.
Further from the technical front, the share is trending on the lower channel and it has bounced 4 times from here and we can expect some similar bounce from here.
Thanks, I hope this is Helpful.
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PS : All views welcomed if they intend a fruitful discussion. And If Warren Buffet says he still learns, who are we to say or believe that we know all. Lets learn together and Earn together.