Maruti, Bajaj Auto, M&M: How to make money in frontline auto stocks

Auto stocks have been in focus off-late in the backdrop of a continuous drop in sales. On its part, the government said it would respond to the demands of the automobile industry, which is facing the worst slump in two decades. Finance Minister Nirmala Sitharaman's assurance to the industry came ahead of the GST Council meeting, slated for September 20.


Domestic sales of passenger vehicles fell 31.6 per cent year-on-year to 196,524 units in August, according to the data released by the Society of Indian Automobile Manufacturers (Siam). The tenth straight month of decline was also the steepest since 1997-98 when Siam started recording industry data. The industry has been demanding a GST rate cut from the current peak rate of 28 per cent.


Valuation-wise, the auto sector is trading at a price-to-earnings (P/E) of 17.4x, in line with its historical average, say analysts at Motilal Oswal Financial Services (MOFSL) in their recent report. While there is a clamour to cut the goods and services tax (GST) rate for the auto industry, MOFSL believes the pre-festive demand was not encouraging as inquiries remain tepid, partly impacted by floods in several parts of the country and demand deferment in anticipation of some sops from the government.


So, should you dump auto stocks given the negative news flow? Here's how the scrips of leading two-and four-wheeler manufacturers look on the technical charts.


Nifty Auto Index: The index is now consolidating after a sharp fall seen since the past few months and has formed a symmetrical triangle on the daily scale. It did manage to break out, suggesting the possibility of higher levels going ahead. A rally towards 7,500 levels seems in progress. If this level is conquered, the index can then make an attempt towards 7,800 mark, which is its strong resistance level. Technically, one can stay bullish till 7,600 and then can gauge the volume scenario to ascertain the road ahead. CLICK TO VIEW CHART


Maruti Suzuki India (MARUTI): Rs 6,800 is the deciding level for this stock. The counter breached 200-weekly moving average (WMA) on the downside in June – dropping 12 per cent to Rs 6,560 levels. Going back to June 2019 levels would require a strong volume push, which the counter lacks at the current juncture. The support comes at Rs 6,000 and Rs 5,820 levels respectively, as per daily chart. CLICK TO VIEW CHART


Tata Motors (TATAMOTORS): The stock is trading above its key resistance of Rs 126.50, which has turned the trend to positive. If the stock manages to extend this positive momentum, an upside to Rs 160 levels is possible. The daily chart suggests a formation of double-bottom. For Tata Motors, Rs 115 remains an immediate support level. CLICK TO VIEW CHART


Mahindra & Mahindra Ltd (M&M): The counter has lost upside momentum, as it failed to cross its 200-days moving average (DMA). Even the 100-DMA and 50-DMA have also become a challenge for the counter. It needs to cross Rs 555, which is its 50-DMA, to form a double-bottom and regain momentum. Rs 585 can then be an immediate target. CLICK TO VIEW CHART


Bajaj Auto (BAJAJ-AUTO): The stock has been consolidating in the range of Rs 2,400 – Rs 3,100. The overall trend looks positive, as the counter witnessed buying around Rs 2,500 when other auto stocks lost sheen. The current trend indicates a rally towards Rs 3,100 levels, which is supported by the Moving Average Convergence Divergence (MACD) indicator. CLICK TO VIEW CHART


Hero MotoCorp (HEROMOTOCO): Besides Bajaj Auto, this is the only stock among the frontline counters in this segment that is trading above its 200-DMA. The last time when it crossed this crucial level in December 2018, it failed to hold on to higher levels. The current momentum needs to give sustained closing above the 200-DMA for the next leg of upside. If that happens, a rally towards Rs 3,000 levels cannot be ruled out. CLICK TO VIEW CHART