Tata Motors share price risk/reward is getting unfavourable

Tata Motors (NSE: TATAMOTORS) share price surged to a record high as the best-performing Nifty 50 constituent rally continued. The shares surged to an all-time high of ₹633.05, which was about 856% above the lowest level during the pandemic. It has jumped by over 60% this year.

Tata Motors is doing well

Tata Motors, the biggest Indian automaker, is doing well as demand for its vehicles jump. The company, which also owns Jaguar Land Rover, published its financial results this week.

These numbers showed that the company’s sales jumped by 5% in the first quarter. It sold over 3.2 million in the quarter that ended in June. Global wholesales of passenger vehicles rose by 8% while its commercial arm fell. 

Jaguar Land Rover sales rose to 93,253 as demand for luxury vehicles remains steady. Despite the strong results, analysts at JP Morgan believe that the Tata Motors share price will drop by about 14%. The analysts noted that there were margin risks at its Jaguar Land Rover business.

Meanwhile, analysts at CLSA reiterated their buy rating on the stock with a target of Rs 690. They noted that there was still high demand for Jaguar Land Rover. The analysts expect that the company’s wholesale volumes will jump by 18%.

Tata Motors faces several challenges ahead. For example, there are signs that the economy is slowing in its key markets of China. North America, and the UK. Data published on Monday revealed that China was moving into a deflation, a sign that the economy was softening.

In the United States, there are signs that the automobile sector is worsening due to high inventories and higher rates. 

Tata Motors share price forecast

In May, I predicted that the Tata Motors stock price would keep rising after it flipped the resistance at ₹536 into a support level. This view was accurate as the shares have continued their bullish trend.

The daily chart shows that the Tata stock price has surged above the 50-day and 100-day moving averages (MA). It has also moved above the key resistance point at ₹536 while the MACD and the Relative Strength Index (RSI) has moved above the overbought levels.

Therefore, while the shares have some more upside, I believe that the risk-reward is getting unfavorable since some investors will start taking profits soon. If this happens, the shares could move below ₹600 in the coming weeks.