Bulls geared up to ride auto stocks

Bulls on the Dalal Street are putting their weight behind auto sector as the India Meteorological Department raising monsoon forecast to 98 per cent recently has again provided a boost to investor sentiment.

Data show Escorts, Mahindra & Mahindra, Hero MotoCorp and Maruti are witnessing addition of long positions with open interest rising 13.7-113.6 per cent.

ET takes a look at their near-term prospects.

Escorts
The tractor maker is riding high on positive sentiment after the normal monsoon forecast and has already risen 152.6 per cent so far this year. “The stock is continuously making higher top-higher-bottom and has added significant long positions If it continues to hold above Rs 720, this rally can extend to Rs 780,“ said Chandan Taparia, derivative analyst, Motilal Oswal Financial Services.

Mahindra & Mahindra
Daljeet Kohli, head of research at India Nivesh Securities said M&M is his top pick in the sector and could test Rs 1,700 or above level.
"The stock is not factoring in tractor business growth. The drain on UV (utility vehicles) side will be taken care of by its ability to launch new vehicles, innovate and thrust on electric vehicles," said Kohli.

M&M reported a 26.3 per cent jump in net profit from the March quarter, prompting target price increases by many brokerages. CLSA upgraded the stock to outperform from underperform and raised target price to Rs 1,550 from Rs 1,280 earlier.

Hero MotoCorp
Hero MotoCorp, India's largest two-wheeler manufacturer, is drawing interest also because of strong monthly (sales besides good monsoon boosting its prospects. The company sold over 6 lakh units in May, an increase of 8.7 per cent from the previous month.

The stock has seen a steady build-up in open interest and is likely to gain 4-5 per cent more from current levels, said Ashish Chaturmohta, head of derivatives and technical at Sanctum Wealth Management.

Maruti Suzuki India
The stock has beaten the benchmarks this year, gaining close to 33 per cent. Although valuations are rich, analysts said the current financial year is likely to be strong for Maruti given easing capacity constraints and new products.

"The stock has been a consistent performer and it can rise to Rs 7,800 in the near term," said Amit Gupta, head of derivatives at ICICIdirect.