Auto stocks buck downbeat market trend in May; charts suggest further gains

Given the current market volatility, auto stocks seem to be a better bet for long side trades. Select stocks like M&M and TVS Motor can rally up to another 12 per cent.

Shares of automobile companies are likely to be in focus, as the sector can be an indirect beneficiary of the unexpected shap cut in excise duty on petrol and diesel, as well as the export levy on steel and related raw materials.
 

Overall May 2022 so far has been a good month for the auto sector, with stocks outperforming the benchmark indices by a wide margin. So far this month, the benchmark indices, the BSE Sensex and Nifty, have seen a fall of around 5 per cent each; whereas select auto stocks like TVS Motor Company and Hero MotoCorp have gained 7 per cent and 5 per cent, respectively.

In trades on Tuesday, Ashok Leyland has gained 2 per cent, while Mahindra & Mahindra is within striking distance of a new historic peak.

Will this outperformance continue? Here's what the charts suggest: 

NIFTYAUTO

Likely target: 11,800

Upside potential:  5%

The overall outlook for the auto index continues to remain bullish as every correction has witnessed buying and accumulation and the index has successfully defended the most significant support at the 200-weekly moving average (WMA), post breakout in January 2021. The 200-WMA is currently placed at 8,976. On an immediate scale, a conclusive close over 11,200 could see a breakout in the direction of 11,800. The near support for the index exists at 10,800 level, shows the weekly chart. CLICK HERE FOR THE CHART

Ashok Leyland Ltd (ASHOKLEY) 

Likely target:  Rs 153.50

Upside potential:  8%

Shares of Ashok Leyland have a breakout at Rs 142, a bullish pattern of “Golden Cross” which converge 100-WMA and 200-WMA could see the stock hitting a new historic peak over Rs 153.50, shows the weekly chart. The closing basis support for the stock is seen at Rs 133 level, according to the weekly chart. CLICK HERE FOR THE CHART

Mahindra & Mahindra Ltd (M&M)

Likely target: Rs 1,100

Upside potential: 12%

While there are divergences on the Mahindra & Mahindra daily chart, the price action is not letting the selling pressure dominate the bulls. Going ahead, a close above Rs 945, which is its immediate hurdle, could lead to a fresh rally towards a new historic peak of Rs 1,100. CLICK HERE FOR THE CHART

TVS Motor Company Limited (TVSMOTOR) 

Likely target: Rs 750 and Rs 780 

Upside potential: 7% to 11%

The stock is attempting to close with strong volumes above Rs 700, which is presently becoming an obstacle for an upward breakout, shows the daily chart. If this happens, the rally could lead the stock all the way to Rs 750 and Rs 780 levels, according to the daily chart. The current scenario on chart indicates the Moving Average Convergence Divergence (MACD) crossing zero line upward, a positive signal that could trigger a fresh breakout. CLICK HERE FOR THE CHART

Hero MotoCorp Ltd (HEROMOTOCO) 

Likely target: Rs 2,800

Upside potential: 7%

The breakout of “Double Bottom” led to conquer the 200-day moving average (DMA) placed at Rs 2,690 mark. This has further strengthened the positive bias showcasing a rally to Rs 2,800 mark, its next imminent hurdle.   CLICK HERE FOR THE CHART