The multi-billion dollar auto component sourcing industry in India has brought relief to many domestic component suppliers in the form of improved margins and long-term supply contracts.
Global auto majors such as Daimler, General Motors, Ford, Volkswagen, Renault, Nissan and Honda have been buying higher quantities of components from India, which has resulted in the margins of component firms improving 8-10 per cent.
As of the last financial year, auto component sourcing has touched $3 billion in India and is expected to double by next financial year-end. Many such auto majors have set up an India purchase office, which buys inexpensive Indian components to cater to their huge overseas plants.
Such sourcing has provided Indian players with the opportunity to charge a premium that varies between 5 and 10 per cent. Many foreign car makers prefer to make engineering changes to the components before incorporating them in their engines and other parts.
Some of the more common components sourced include axle bar, propeller shaft, crank shaft, cylinder heads, bearings and cylinder blocks. Foreign firms get a 25-30 per cent cost advantage through such deals.
M Radhakrishnan, joint managing director, Autoline Industries, said, “We are supplying original equipment makers (OEM) such as GM, Ford, Nissan and Honda. Not only have the margins improved due to premium pricing, but volumes have grown significantly, too. These players get a benefit of 20 per cent cost reduction for our products.”
According to projections made by the Auto Components Manufacturers Association, global sourcing from India will increase to $20 billion by 2014.
Daimler India sourced components worth $2.2 billion from India last year and this year the figure is expected to swell by 20 per cent or $440 million.
Many component manufacturers say that though there are servicing (fabrication) costs involved, which tend to raise the overall cost, it is compensated through premium settlements by OEMs.
Praveen Gupta, chief executive, auto and engineering business, Yash Birla Group, said, “Direct supplies to tier I players do involve high margins, stable demand and volume. We are looking to expand our reach beyond our tier II customers such as Cummins.”
Experts believe that strong negotiations on component prices by Tata Motors for the Nano, which lead to a squeeze on margins for suppliers, will be tackled through sourcing deals.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
No comments:
Post a Comment