F&O: Auto stocks had breezy run in Oct series, banks a mixed show

Auto stocks were in a fast lane in October series, as nearly all of the ones that trade in the futures and options (F&O) segment recorded solid gains during the series. Tata Motors was the biggest gainer, rising 41 per cent, while its DVR followed with 38 per cent gains.

Tata Motors last week delivered better-than-expected numbers for September quarter, sending the stock soaring. Kotak Institutional Equities raised fair value of the stock to Rs 200 from Rs 190, retaining a ‘buy’ recommendation. CLSA upgraded the stock to ‘buy’ after almost three years of 'sell' rating. The brokerage raised its target to Rs 190 from Rs 120.

Among other automakers, Eicher Motors (up 26 per cent), Maruti Suzuki (up 10 per cent) and Motherson Sumi Systems (up 12 per cent) were other major gainers. Hero MotoCorps was the only loser in the series, sliding 2.8 per cent.

“After the gloom-doom scenario, recovery started as credit supply came back in the system. Sales recovery is getting visible. A large part of the problem was credit supply,” said Vikas Khemani, Founder of Carnelian Capital Advisors. He is positive on auto stocks for the short term.

AK Prabhakar, Head of Research at IDBI Capital, however, doesn’t attach much importance to this rally. “The auto sector is not something I am gung-ho about. After five years of rally, auto started to correct. So it will have some recovery here and there, but I will not attach much importance to it at this point. The rally is done. So, the upside is limited. I will not buy auto at current levels, but I will not sell either,” he said.

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Nifty Auto index rallied 10 per cent in the October series. In comparison, Nifty edged merely 2.35 per cent and 30-share Sensex added 2.72 per cent.
“October series has by far seen some 3-odd percentage gains. If we add September gains, we are already up around 9-odd per cent in last two months. In November, we expect the market to consolidate. It is less likely to show any runaway move. We will see the market trade with some positive bias, but broadly speaking, it is more likely to consolidate in a broad range,” said Milan Vaishnav of Gemstone Equity Research & Advisory Services.

Vaishnav expects auto stocks to be resilient going forward. “They may not move as sharply as they did in October series, but we will still see some relative outperformance,” he said.

Sahaj Agarwal, Head of Derivatives, Kotak Securities, feels the market will consolidate going ahead. “Nifty remains in a structural uptrend and is expected to test 12,200-12,300 levels in the next few weeks. Since we witnessed a rally in the recent past, some consolidation is expected in the 11,650-11,950 range. Accumulation on dips is advisable, as we await the next momentum trade to get triggered. Metals and select banking stocks traded with a positive bias. Selective buying is advised in the midcap space,” he said.

As many as 98 stocks that trade in the F&O segment gained in October series. Apart from Tata Motors, Adani Enterprises (up 28 per cent), NMDC (22 per cent), GMR Infra (21.5 per cent) and Tata Elxsi (20 per cent) were among 29 F&O stocks that gained in double digits in October series.

Among the biggest losers were Century Textiles (down 55 per cent), Dish TV (49 per cent), Indiabulls Housing (48 per cent), Bharti Infratel (29 per cent) and Vodafone Idea (27 per cent). In total, 61 F&O stocks are on course to end the October series in the red.

Interestingly, a number of private bank stocks have given negative returns, with RBL Bank and IndusInd Bank down 25 per cent and 16 per cent, respectively. Federal Bank (down 12 per cent) and Kotak Mahindra Bank (down 3 per cent) were also among losers. YES Bank, on the other hand, was the biggest gainer among F&O banking stocks, up 11 per cent. Nifty Bank was flat during the period.

Khemani said subdued performance from select banks was due to bank-specific issues. He said there were some short-term trade in PSU banks, but otherwise he prefers private banks.

Prabhakar is positive on bank stocks. “I like ICICI Bank, IndusInd Bank and SBI. I will be a buyer on the bank counter. They are the major beneficiaries of the new tax regime, and most of the companies have provided for that. From next quarter onwards, the new tax rate will benefit them,” he said.