These three auto stocks could hit top gear this Diwali

The festive season kicked off with Ganesh Chaturthi in September, and with Diwali around the corner, the automotive sector can expect a surge in demand. Historically, this period has seen a significant uptick in vehicle sales as consumers buy new cars and bikes in droves.

With the equity markets maintaining a long-term bullish trajectory, recent short-term corrections present a prime opportunity for investors. The Nifty50 index has dipped about 5% from its recent highs, while the Nifty Auto Index has fallen by around 10%.

Let us first analyse the Nifty Auto Index before heading to the three stocks.

Nifty Auto Index analysis

A technical analysis of the index reveals a bullish AB=CD harmonic pattern, indicating a potential reversal after the recent downturn. This pattern typically signifies a shift in momentum, suggesting that the dip may have reached its nadir and the index is primed to resume its long-term upward trend.

The index's position near a robust support line further reinforces this outlook, hinting that bullish sentiment is gaining traction.

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Additionally, the index has tested the 100-day exponential moving average (100DEMA), which is instrumental in defining short-term trends. The convergence of these technical indicators presents a favourable environment for a potential recovery in the sector.

Against this backdrop, let us analyse three auto stocks that stand out as potential leaders in driving the index higher.

1. Maruti Suzuki

Maruti Suzuki, India's largest automobile manufacturer, exhibits a similar bullish AB=CD harmonic pattern on its chart. This setup appears at a support zone, signalling a potential reversal of its trend.

These key technical indicators also suggest a favourable outlook:

200DEMA channel support: The stock is taking support from the 200DEMA channel, which has historically acted as a critical pivot point.

Hammer candlestick pattern: The emergence of this pattern indicates potential buying interest at lower levels, hinting at a reversal.

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Relative strength index (RSI): Currently trending in a demand zone, the RSI suggests that bearish momentum is waning, paving the way for bulls to capitalise on the forthcoming trend reversal.

Given these indicators, Maruti Suzuki's stock has the potential to move up as demand rises during the festive season.

2. Tata Motors

Tata Motors is another auto company with a promising technical outlook. The daily chart reveals a bullish bat harmonic pattern forming at the crucial psychological level of ₹900. This pattern is characterised by five points based on Fibonacci ratios, adding depth to the bullish argument.

Here are some key points to consider:

Resistance at 200DEMA channel: While a minor resistance exists at this level, the bullish bat pattern and accompanying bullish divergence in the RSI suggest the stock may overcome this hurdle.

RSI divergence: The recent low of ₹886 shows a bullish divergence, indicating that the downward momentum lacks strength. This suggests the stock may soon attract buying interest, making this a compelling accumulation opportunity for long-term investors.

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Readers should watch Tata Motors closely for this potentially bullish setup, particularly as the festive season stimulates vehicle demand.

3. Hero MotoCorp

As a leader in the two-wheeler segment, Hero MotoCorp offers an intriguing case for a potential investment.

The stock recently retested a demand zone around ₹5,100, which aligns with the 200DEMA channel between ₹4,900 and ₹5,100. This zone is at the support level, potentially providing a springboard for bullish action.

Additional factors to consider:

Rising volumes: The increase in trading volumes as the stock approaches this support level indicates accumulation by discerning investors, a strong bullish signal.

Oversold RSI condition: The RSI entering the oversold zone suggests that bearish pressure may dissipate. As the stock approaches this key support level, long-term investors may find it’s an opportune moment to enter.

Hero MotoCorp’s fundamentals and favourable technical indicators make it a potential candidate for readers looking to capitalise on the upcoming festive buying spree.

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To summarise, the festive season in India presents a unique opportunity for the automotive sector, and the recent market correction may cause investors to take an interest in key stocks. Maruti Suzuki, Tata Motors and Hero MotoCorp are poised to benefit from a potential trend reversal in the Nifty Auto Index, supported by strong technical setups and rising consumer demand.

For more such analysis, read Profit Pulse.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.

Brijesh Bhatia has over 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. He is currently an analyst at Definedge.

Disclosure: As per Sebi guidelines, the writer and his dependants do not hold the stocks discussed here. However, clients of Definedge may or may not own these securities.