Nifty Auto logs all-time high: Is there more steam left?

Even as the benchmark indices continued to trade flat, the Nifty Auto index in Thursday's intra-day trade (November 23) notched a fresh high of 17,067.95, gaining as much as 0.57 per cent over the previous close. The index has gained a whopping 35 per cent on a year-to-date (YTD) basis.

The buoyancy in the two-wheeler market lifted the auto index to an all-time high in today's session. Global brokerage has raised the target on three of the two-wheeler majors, which signifies its optimism in the space. A Reuters report earlier stated that India's two-wheeler companies will begin posting better wholesale numbers beginning September as exports pick up and domestic demand improves in the upcoming festival season.

And on similar lines, amid festivities, auto players logged healthy sales volume. “The earnings growth in MOFSL Universe was led by domestic cyclicals, such as BFSI and Auto. BFSI clocked a 33 per cent YoY growth, while the auto sector registered a notable growth of 112 per cent YoY (vs. est. of +87 per cent), driven by Tata Motors, Maruti, and M&M,” noted the brokerage report.

In the Nifty Auto basket, several stocks, including the likes of Bajaj Auto, Hero MotoCorp, TVS Motor, and Eicher Motors, hit their respective 52-week highs today.

On Nov-23, Nifty Auto has outperformed all other indices taking it to all-time high, on the back of better than expected Diwali sales after witnessing the highest-ever sales in the month of October-23. We also believe and expect all category segments to post double-digit growth following the Oct-23 trend on credit of festival rush, noted Prashanth Tapse Sr VP Research analyst at Mehta Equities.

"With newer models across segments and the acceleration in EV adoption the industry is certainly reaching the new benchmark in the Financial year. Being an auspicious period during the festive season Nov-23, Indian consumers came out to shop vehicles and celebrate festivals. In general Auto Industry is expecting strong 4Wheelers and 2Wheelers volume growth due to strong festival demand posting growth on the back of new launches and strong demand in the EV segment. As per the SIAM data it says a record milestone would continue to be seen in the month of Nov-23,"  Tapse added.

InCredit Equities notes in its Q2 review report on the sector that it reiterates its overweight rating as the NSE Auto Index valuation trades below the 10-year mean level and EBITDA surprises continue to flow in.

The brokerage downgraded Mahindra to HOLD and expects a sharp correction in tractor sales in the coming quarters, driven by NPA concerns, historic high volume, and the sharp price hike needed to meet new emission norms in FY25F. Festival demand recovery seems uniform in premium and entry-level 2W, it added.

"Our preference order is Maruti, Bajaj, and Ashok as ADD rating. We reiterate REDUCE on Tata Motors, Eicher. We reiterate REDUCE on Tata Motors and TVS, as global operations challenges overrule domestic recovery benefits at current rich valuations," it added in its report.

Going by the technicals, a likely correction in the index in the near future is expected. Jigar S. Patel, Sr. Manager, Equity Research at Anand Rathi, told Zee Business that since March 2023, Nifty Auto has been making higher highs and higher lows, which resulted in a 42 per cent pump and is currently placed near the 17,050 mark.

In the daily time frame, Nifty Auto has made some bear divergence, which can result in some cooling in the said index in the coming few weeks. As we advance, support is expected near 16,650, and resistance is placed near 17,250.