M&M, Eicher Motors: Technical charts show further upside in auto stocks

A strong close above Rs 770 in M&M may trigger a rally Rs 825 levels

Nifty Auto index, that gained 1.5 per cent in the intra-day deals, was one of the top sectoral gainers on the NSE on Wednesday. In comparison, the benchmark Nifty50 index was up 0.5 per cent in noon deals. Individually, shares of M&M surged up to 4 per cent to Rs 744 after the company announced that it will increase the price of its passenger vehicles (PVs) and commercial vehicles (CVs) from January 1, 2021, in order to partially offset the impact of rise in input costs. 

According to a Business Standard report, following a rapid recovery in demand for discretionary items including electronics and automobiles, demand for semi-conductors has outstripped supplies, leading to a shortage. A shortage of semi-conductors (micro processors) a critical component that is used in the manufacturing of electronic control unit (ECUs), is set to disrupt the production at auto firms in India. READ ABOUT IT HERE

The shortage comes at a time when demand in world’s fifth largest auto market is in the initial stage of recovery after the Coronavirus (Covid-19) pandemic induced lockdown earlier this year. Last week, data by automobile dealers' body FADA showed that passenger vehicle (PV) retail sales in November witnessed a year-on-year increase of 4.17 per cent to 2,91,001 units as Diwali-Dhanteras period led to rise in vehicle registrations. READ MORE

While the input-shortage has led to price hikes, the move may benefit the auto-companies on revenue front. So, is it the right time to buy auto-stocks? Here's what charts suggest:

NIFTY AUTO INDEX: The index has successfully managed to conquer its 200-weekly moving average (WMA) with volumes suggesting further up move. However, the index looks slightly weaker on the Relative Strength Index (RSI) as it has entered the overbought zone. That said, the price is not showing any major weakness. Overall, the index is en-route hitting the 10,000 levels with support placed at 9,000 levels on a closing basis. CLICK HERE FOR THE CHART
 
Mahindra & Mahindra Ltd (M&M): The stock recently witnessed correction when the RSI indicator entered the overbought zone on the daily scale. That said, the trend in the stock remains bullish from a medium-term persepective as long as it holds Rs 690 levels, weekly charts suggest. If the stock manages to hold today's gains, one can expect a rally towards the resistance zone of Rs 760 to Rs 770 levels. Only a decisive close above Rs 770 level may trigger further upside rally towards Rs 810 and Rs 825 levels. CLICK HERE FOR THE CHART

Tata Motors Ltd (TATAMOTORS): The Tata Group stock has, so far, managed to hold above the support of 100-WMA, placed around Rs 144 levels. This strength may push the stock towards its 200-WMA which is placed at Rs 246 from a medium-term perspective. However, this may take time as the stock is likely to witness a gradual surge. While the trend may remain sluggish, the overall view shall remain positive. CLICK HERE FOR THE CHART

Eicher Motors Ltd (EICHERMOT): A perfect 'Inverse Head and Shoulder' pattern can be seen on the weekly chart and the breakout shows an optimistic outlook from a medium-term perspective. The current momentum shows that the stock is re-testing its 200-WMA support but it is poised to rally in the direction of Rs 3,000 soon. The stock's support is placed at Rs 2,300 mark on a closing basis. CLICK HERE FOR THE CHART

Bajaj Auto Ltd (BAJAJ-AUTO): After a big breakout above Rs 3,200 levels, this counter is showing sideways movement. Any dip in the price looks like a healthy correction as long as the stock manages to rebound over Rs 3,200 levels. At the current levels, a strong up move above Rs 3,350 may trigger a rally towards Rs 3,700 to Rs 3,900 levels. The volumes on the negative close are relatively lower compared to bullish candles. CLICK HERE FOR THE CHART

Ashok Leyland Ltd (ASHOKLEY): Ashok Leyland has successfully managed to conquer the 200-WMA placed at Rs 91.50 levels and the bullish sentiment is driving prices towards higher levels. Till the stock trades above 200-WMA, it may see a rally towards Rs 109 and Rs 116 levels, as per the weekly chart. Further, despite the RSI indicator being in the overbought condition, the price is not showcasing any major weakness. CLICK HERE FOR THE CHART