Auto likely to hog limelight; M&M, BEML could give over 20% return in 3-6 months: Mehul Kothari

“The recent rally in auto stocks are due to multiple factors like decline in metals prices, improving chip availability and attractive valuations along with expected pick up in new launches ahead of good monsoon and festive season adding tailwinds to the sector,” says Mehul Kothari – AVP – Technical Research, Anand Rathi Shares & Stock Brokers.

In an interview with ETMarkets, Kothari said: “We could see NIFTY heading towards 16000 – 16200 mark in the coming weeks. But, this zone would be a tough nut to crack since that is a gap area on the daily time frame.” Edited excerpts:

Q) A strong week for Indian markets as benchmark indices rose nearly 3%. What led to the price action in the week gone by?
A) In our previous interaction, we strongly mentioned that we expect a relief rally in the market before any further fall. In line with that, the Nifty50 index managed to provide a recent recovery as the week went by.

The primary reason for the same seems to be the oversold nature of foreign institutional investors (FIIs) which we discussed earlier.

Their long to the short ratio in index futures was nearing 10 per cent and after a bounce it is near 23 per cent mark due to fresh long positions.

Q) Where do you see Nifty and Nifty Bank headed in the June expiry week? Any important levels which one should watch out for? Do you think the bounce will sustain?
A) The fall of Thursday’s session (16th Jun 2022) created a havoc on the street when Nifty50 breached the support of 15,670 decisively.

Thus, the high of that trading session which is 15863 would be a crucial level to watch out for on the upside.

A daily close above the same would confirm that there is a possibility of an extended pullback in the market and in that scenario, we could see NIFTY heading towards the 16000 – 16200 mark.

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

With regards to the NIFTY BANK index, it has shown great resilience in the recent fall. We can say this because it has not yet breached its March 2022 low of 32000 (In sync with NIFTY low of 15670).

Thus, going ahead to 32000 would be a make-or-break level for the index. On the upside, 34000 – 34500 might a strong hurdle since that is the gap area. A move above the same might confirm a strong bottom for the index.

Q) We will move in the final week of the first six month of 2022. Sensex, and Nifty are down by 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 then we can witness that Nifty50 has not even retraced 38.2% of the entire rally from 7500 – 18600.

That level comes around 14500 – 14300 and hence in a worst-case scenario, we can expect those kinds of levels on the downside.

However, that downside could be used to start buying NIFTY 50 stocks in a staggered manner. We expect that the worst could be over in coming couple of months and then we could be heading for new highs.

Q) Sectorally, auto stocks bucked the trend, up 5-6% in a week. What led to the price action, and do you think the outperformance will continue in the coming week? Any strong performers which investors can watch out for?
A) Auto stocks did not participate much in the post-covid rally and hence also avoided the recent sell-off relatively.

The recent rally in stocks are due to multiple factors like the decline in metals prices, improving chip availability, and attractive valuations along with an expected pick-up in new launches ahead of good monsoon and festive season adding tailwinds to the sector.

Going ahead; we expect a similar kind of performance for the Auto stocks and on the individual stocks front; we are liking Maruti, M&M, and Eicher for the entire space.

Q) Small & Midcaps slightly underperformed or in line with benchmark indices in the week gone by. How should investors play the broader market theme in the second half of 2022?
A) It would be very tricky since the NIFTY MIDCAP index is yet to have a considerable retracement of the entire rally of 2020 whereas on the other hand NIFTY SMALLCAP index almost retraced 50%.

If the market go as per our expectation in the second half of 2022 then initially we expect the markets leaders to drive the move and that would be later on followed by broader markets.

However, it could be a game of individual stocks which means that the most damaged stocks of this fall might take a longer time to recover in comparison to the trendy stocks.

Q) Top 3-5 stocks that investors can buy in the coming for July series?
A) Here are a few trading ideas for the next 3-6 months:

BEML: BUY in the range of 1250 - 1200| LTP Rs 1270| Stop Loss Rs 1050| Target Rs 1600| Upside 25%
In the past seven months, BEML has corrected by over 45 per cent from the top of 2078. At this juncture, the stock is hovering above the support of its previous demand zone.

In addition, the support coincides with the placement of Span B of the Ichimoku indicator on the monthly time frame.

Thus, we advise investors to accumulate the stock in the range of 1250 - 1200 with a stop loss of 1050 for the upside target of 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| Upside 21%
After struggling for more than four years, M&M finally confirmed a multi-year breakout above 970 mark. The breakout has been confirmed on a monthly closes basis and that adds more conviction to the bullish outlook.

Along with the price action; the Lagging Span of Ichimoku indicator has broken its previous high on weekly and monthly time frames. The stock has outperformed the Auto pack during the recent uncertainty in the markets.

Thus, investors are advised to accumulate the stock in the range of 1060 – 1000 with a stop loss of 900 on closing basis for the upside potential target of 1300 levels in the coming 3 – 6 months.

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