Auto Share: Auto likely to be in the limelight; M&M, BEML can give more than 20% returns in 3-6 months: Mehul Kothari


“The recent rally in auto stocks is on account of falling metal prices, improving chip availability and attractive valuations as well as adding tailwinds to the sector due to a good monsoon and expected pick-up in new launches ahead of the festive season.” Mehul Kothari – AVP – Technical Research, Anand Rathi Shares & Stock Brokers.

In an interview with ETMarkets, Kothari said: “We can see Nifty moving towards the 16000 – 16200 mark in the coming weeks. But, breaking this zone will be difficult as it is a gap zone in the daily time frame. Edited excerpt:

Q) A strong week for Indian markets as the benchmark index rose nearly 3%. What has been the reason for the price volatility in the last week?

a) In our previous conversation, we had strongly mentioned that we expect a relief rally in the market before any further downside. In line with that, as the week passed, the Nifty 50 index managed to provide a recent recovery.

The primary reason for this is the oversold nature of foreign institutional investors (FIIs), which we discussed earlier.

His long-to-short ratio in index futures was close to 10 per cent and after the surge due to fresh long positions, it is close to 23 per cent.

Q) In which direction do you see Nifty and Nifty Bank in the week ending June? Any critical level one should watch out for? Do you think the boom will continue?

a) The collapse of Thursday’s session (16 June 2022) created havoc on the road when Nifty 50 decisively broke the support of 15,670.

Thus, the high of that trading session which is 15863, would be an important level to watch for an upside.

A daily close on top of the same would confirm that there is a possibility of an extended pullback in the market and in that scenario, we can see Nifty moving towards the 16000 – 16200 mark.

This area will be a tough nut to crack as it is a gaping zone on the daily time frame. On the other hand, the recent low of 15183 can be support below which we can see fresh panic in the market and it could drag the index towards 14800.

With respect to the Nifty Bank Index, it has shown considerable resilience in the recent decline. We can say this because it is yet to cross its March 2022 low of 32000 (in sync with Nifty’s low of 15670).

Thus, a move up to 32000 would be a make-or-break level for the index. On the upside, 34000 – 34500 could be a strong hurdle as that is the gap zone. A move above this could confirm a strong bottom for the index.

Q) We will proceed in the last week of the first six months of 2022. Sensex, and Nifty is down over 7% in the last six months. What is your outlook for the rest of 2022?

a) If we look at the broader picture for 6-12 months we can see that Nifty 50 hasn’t retook even 38.2% of the entire rally from 7500 to 18600.

This level comes around 14500 – 14300 and hence in the worst case, we can expect these types of levels to move down.

However, that fall can be used to start buying Nifty 50 shares in a staggered manner. We expect the worst-case scenario to end in the coming few months and then move towards new highs.

Q) Sector-wise, auto stocks trended up 5-6% in a week. What led to the price action, and do you think the outperformance will continue in the coming weeks? Any strong performing investors to keep an eye on?
a) Auto stocks did not participate much in the post-Covid rally and hence avoided the recent sell-off.

The recent rally in stocks is on account of several factors adding tailwinds to the sector on account of falling metals prices, improving chip availability, and attractive valuations as well as expected pick-up in new launches ahead of a good monsoon and festive season.

going forward; We expect similar performance for auto stocks and on the individual stock front; we are like

M&Ms, and for the whole place.

Q) The performance of small and midcaps in the last week was slightly weak or in line with the benchmark indices. How should investors handle the broader market theme in the second half of 2022?

a) it will be very difficult because Nifty Midcap The index is yet to retrace the entire 2020 rally, while on the other hand Nifty Smallcap The index retreated almost 50%.

If the market moves as we expect in the second half of 2022, initially we expect market leaders to take this step and later on in the broader markets.

However, it may be the play of individual stocks which means that the most damaged stocks in this downtrend may take longer to recover than the trendy stocks.

Q) Top 3-5 stocks that investors can buy in the coming July series?

a) Here are some business ideas for the next 3-6 months:

BEML: Buy in the range 1250 – 1200. LTP Rs 1270| Stop Loss Rs 1050| Target Rs 1600| up 25%

In the last seven months,

That’s a drop of more than 45 percent from the 2078 top. Currently, the stock is hovering above the support of its previous demand zone.

Furthermore, support coincides with the placement of the Ichimoku indicator’s Span B on the monthly time frame.

Thus, we recommend investors to deposit the stock in the range 1250 – 1200 with a stop loss of 1050 for a target above 1600 in 3-6 months.

M&M (Buy): Buy in the range of 1060-1000. LTP Rs 1072| Stop Loss Rs 900| Target Rs 1300. up 21%

After struggling for over four years, M&M finally confirmed a multi-year breakout above the 970 mark. The breakout is confirmed on a monthly close basis and adds more confidence to the bullish outlook.

with price action; The lagging span of the Ichimoku indicator has broken its previous highs on the weekly and monthly time frames. The stock has outperformed Auto Pack during the recent uncertainty in the markets.

Thus, investors are advised to deposit the stock in the range of 1060-1000 with a stop loss of 900 on a closing basis for a possible target above the level of 1300 in the coming 3 to 6 months.

Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. They do not represent the views of The Economic Times.


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