Strategies for auto stocks as Centre proposes 'green tax' on old vehicles

Union Minister for Road Transport and Highways Nitin Gadkari's proposal to levy 'green tax' on old vehicles polluting the environment nudged investors to off-load auto stocks from their portfolio

After an outperformance over the past one month, auto stocks came under pressure during Wednesday's trading session as profit-booking gripped the market ahead of the presentation of the Union Budget of 2021. So far in the month of January, the Nifty Auto index has gained over 13 per cent till Monday, January 25 as against a 2 per cent gain in the Nifty50 index.

That apart, Union Minister for Road Transport and Highways Nitin Gadkari's proposal to levy 'green tax' on old vehicles polluting the environment also nudged investors to off-load auto stocks from their portfolio. The Nifty Auto index declined nearly 2 per cent on the NSE, compared with a per cent cut in the benchmark Nifty. 

Among individual stocks, Ashok Leyland, Bharat Forge and Tata Motors from the auto index were down in the range of 3 per cent to 4 per cent. Eicher Motors, Motherson Sumi Systems, Balkrishna Industries, MRF, Hero MotoCorp and Amara Raja Batteries slipped between 1 per cent and 2 per cent on the National Stock Exchange (NSE). READ MORE

According to analysts at Kotak Institutional Equities, annual operating cost for a 16-ton truck fleet operator may increase marginally by Rs 1,000-3,000 (0.04-0.15 per cent of truck operators' annual revenues) post the approval to the proposal. "As a result this initiative may not lead to scrapping of trucks. Also, we believe that new demand for personal vehicles (PVs and 2Ws) shall remain unaffected," it said in a note.

Here's how auto stocks look on charts:

NIFTY AUTO INDEX: Until the index defends 10,000-mark, the upside bias is likely to stay intact over the next few sessions. Only an aggressive selling pressure below 10,000 could see a shift in sentiment. On the higher side, a strong close above 10,500 may see an upside towards 10,800 to 11,000 levels. The price trend shows "Higher High, Higher Low" formation, as per the daily chart. CLICK HERE FOR THE CHART

Mahindra & Mahindra Ltd (M&M): The stock has an assistance of 50-day moving average (DMA), currently placed at Rs 743 levels. This indicates that the trend may remain upward with the level acting as a strong support. The buying and accumulation level falls around Rs 760 levels, which was  previously the stock's resistance level. The current weakness does not exhibit stiff selling pressure as the volume does not show an exciting picture on the charts. A firm close above Rs 820 may add turn the tide towards higher levels, and see the stock rallying towards Rs 850 and Rs 880 levels. CLICK HERE FOR THE CHART

Tata Motors Ltd (TATAMOTORS): This stock has given a medium-term breakout on a firm close above the 200-weekly moving average (WMA). This upside is attempting to absorb the selling pressure emerging around Rs 300 levels. If the stock manages to sustain above Rs 300, the rally may move in the direction of Rs 350 and Rs 370 levels. The closing basis support stays at Rs 260 levels at current momentum. CLICK HERE FOR THE CHART

Escorts Ltd (ESCORTS): This scrip needs to absorb the selling pressure in the range of Rs 1,260 to Rs 1,275 levels. The stock has a strong support of Rs 1,150 and may turn into a bearish sentiment if this support is broken. The immediate support and resistance come at Rs 1,200 levels and Rs 1,330 levels, respectively. The volume scenario suggests a sluggish move with no indication of any major weakness, as per the daily chart. CLICK HERE FOR THE CHART

Bajaj Auto Limited (BAJAJ-AUTO): The stock is witnessing buying momentum in the overbought condition of Relative Strength Index (RSI), affirming strength in the unchartered territory, as per the daily chart. The Moving Average Convergence Divergence (MACD) is also trading with a positive crossover, suggesting the upwards direction to stay optimistic. The immediate support comes at Rs 4,000 levels with the rally expected to move in the direction of Rs 4,500 levels. CLICK HERE FOR THE CHART