Stock Insight | Stocks and Commodities

P R Sundar, Aditya Trading Solutions

Stock Insight: 

Tata Motors DVR: Buy

1. From now onwards, we will give one recommendation for stock investment every two weeks, with investment horizon of two to three years.
2. Our first recommendation is Tata Motors DVR which is trading around Rs 140.
3. Tata Motors is a true global Indian company.
4. JLR contributes about 75% of the profit.
5. JLR derives its sales mostly from Europe and China.
6. European and Chinese economies are stabilizing and all the data coming out of these countries look positive.
7. So JLR will continue to do well.
8. In India also, the auto sector seems to be bottoming out.
9. Tata Motors is a well diversified company with presence in passenger vehicles, commercial vehicles and Luxury segments through JLR.
10. Recently its chairman bought a good amount of shares from the open market, is a very positive factor.

Strategy:

1. Buy 1000 shares of Tata Motors DVR which will cost Rs 1,40,000.
2. Then pledge the shares and sell 1 lot Nifty December 8500 Call option at Rs 80.
3. The total premium will be Rs 4000, this amount along with dividend yeild, your return will be about 2 to 3% per annum.
4. Since Tata Motors DVR is a growth stock not a value stock, dividend yeild is less than 1%. That is why we sell 8500 Call option in order to increase the yield.
5. Since Tata Motors Beta is 1.83. Nifty level of 8500 is about 50% higher from here, if Nifty reaches 8500, then Tata Motors DVR will give 100% return.
6. The possibility of Nifty reaching 8500 by the end of 2014 is very less. Even if it reaches, by the time value, the premium will be very less on this call.
7. We will review this investment strategy once in every three months.