Derivatives outlook | What should be option strategy in Bajaj Auto, Tata Motors ahead of Q1 results?

Bajaj Auto and Tata Motors are set to announce their Q1 earnings results today

The earnings season in the auto sector has commenced with prominent players like Bajaj Auto, TVS Motors, and Tata Motors announcing their financial results this week.

On July 24, TVS Motor reported a 46 percent growth in its standalone net profit, at Rs 468 crore for the quarter ended June 2023, compared to Rs 321 crore in the year-ago period. Revenue from operations during the reporting quarter rose 20 percent year-on-year (YoY) to Rs 7,218 crore. The company achieved its highest-ever operating EBITDA at Rs 764 crore, marking a 27 percent growth for the first quarter.

As for Bajaj Auto and Tata Motors, their results are scheduled to be announced today, creating anticipation among investors and analysts.

Derivatives Outlook

The Nifty Auto index surpassed the important historical price thresholds of December 2017 and November 2021, and since its multi-month breakout at 12100 in July 2022, the index has been steadily heading higher. According to Sacchitanand Uttekar, Vice President-Research & Data Analysis at Tradebulls Securities, the index has consistently maintained itself above its 5 WEMA support during this recent 15-week upsurge, and its current support is located around 15400. Thus, even a pullback towards this level would preserve the bullish structure with a major base at 15000, while an upward move is expected to continue towards the 16850 zone, added Uttekar.

Tata Motors

TATA motors scrip has delivered  significant return of over 56 percent in the past six months, and the company shows signs of sustained growth as the monthly ADX is likely to break out above its 25 mark. As per Sacchitanand Uttekar, the stock has been forming bullish flag formations, supporting the current bullish trend to advance with a base now at 600 and pattern targets at 670, followed by a major target at 760, which may be achieved eventually with time.

Shilpa Rout, Derivatives Lead Analyst at Prabhudas Lilladher Pvt Ltd, stated that the derivative outlook looks very positive, with option chain analysis showing immediate robust support building up at 620/622 zones. Upside levels of 650/660 appear easily achievable, and if sustained she suggest 700 zones should be prepared for. Her recommended derivatives strategy is a Bull call spread for Tata motors in the August series:

- BUY TataMotors 630CE @30/31

- SELL TataMotors 650CE @23/22

Net Outflow 8/9 and Net gains scenario 11/12

Bajaj Auto

In line with the industry's performance, BAJAJ Auto has also been trending higher over the past six months, delivering a price performance of almost 37 percent. Sacchitanand Uttekar suggests that the stop loss for the trade should be kept above 4780, and a move towards 5200 might be initiated with an immediate breakout from the continuation pattern above 4960.

While according to Shilpa Rout, "Bajaj-Auto has been consolidating around 4800 zones for quite some time now, which serves as good support for the stock. However, 5000 levels will act as resistance. A decisive fresh buying opportunity comes above 5000, with extended targets at 5200/5280 levels."
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