Wednesday, February 28, 2018

The Indian Economy and  Tata Motors Ltd
The Indian economy is slowly limping back to normalcy after that stupidity called "Demonetization" was executed, followed by GST. So now, the obvious question is: where should a stock market guy keep focus? To say in short it is the auto sector. You ask me why?

The logic is: if an economy starts to do well then Factories would be running at full capacity catering to newer clients everyday. These institutions will have to ship their goods to market, either by Road or Railways or by Air. 

Hence, there would be an anticipated boom in the commercial vehicle segment. Or in other words, if manufacturers' profits are rising, it implies that they are producing more. If they produce more, then they have to ship more goods to consumers/customers.

Hence, if an investor is looking for signs of health in manufacturers, he or she should look at the performance of the companies that ship their output to market, the means of transportation and find out their leader, because here the 1st movement will take place. 

Now, tell me who are the leaders in commercial vehicle segment in India? Tata Motors and Ashok Leyland, isn't it?

So, if we discard Ashok Leyland Ltd then Tata Motor Ltd comes out as a clear barometer to the Indian economy.  Therefore, it would be safe to buy the shares of Tata Motors Ltd (Rs.372.55) from the market in intraday dips and keep holding, with appropriate stop losses.  

It is worth mentioning here that, two averages: the transportation average and industrial average should be moving in the same direction in case of a booming economy. When the performance of the averages diverges, it is a warning that change is in the air.

A corollary to this would be: if the Indian economy starts to perform well, then the transportation index should also race with the former. 
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