Hero MotoCorp Declines 3.06%: Valuation Shift and Option Activity Shape Week

9 February: Stock Opens Slightly Lower Despite Sensex Rally

Hero MotoCorp began the week at ₹5,755.20, a marginal decline of 0.01% from the previous close, even as the Sensex surged 1.04% to 37,113.23. The stock’s volume was relatively robust at 35,192 shares, but the lack of upward momentum suggested cautious investor sentiment amid broader market optimism. This initial weakness foreshadowed the subdued performance that would characterise the week.

10 February: Continued Mild Decline Amid Steady Market Gains

The stock edged down further by 0.08% to ₹5,750.70 on 10 February, with volumes dropping to 21,708 shares. The Sensex continued its upward trajectory, gaining 0.25% to close at 37,207.34. Hero MotoCorp’s slight underperformance relative to the benchmark index reflected a tentative stance among investors, possibly awaiting fresh catalysts to drive price action.

11 February: Notable Price Drop Amid Market Stability

On 11 February, Hero MotoCorp’s share price fell sharply by 1.20% to ₹5,681.50, marking the largest single-day decline of the week. This drop occurred despite the Sensex posting a modest 0.13% gain to 37,256.72, highlighting the stock’s relative weakness. Trading volumes contracted further to 11,796 shares, indicating reduced investor participation. The decline may have been influenced by profit-booking or sector-specific concerns, as the stock traded below key moving averages except the 5-day and 20-day averages.

12 February: Surge in Call Option Activity Signals Bullish Sentiment

Despite the prior day’s weakness, 12 February saw a rebound in Hero MotoCorp’s share price, which rose 0.94% to ₹5,735.10 on increased volume of 38,219 shares. This recovery coincided with a significant surge in call option activity ahead of the 24 February expiry, particularly at the ₹5,800 strike price. A total of 8,443 contracts were traded, generating turnover of approximately ₹1365.99 lakhs, with open interest standing at 3,436 contracts. This heightened derivatives market activity suggested that investors were positioning for a potential upside breakout in the near term.

However, the broader market was weaker, with the Sensex declining 0.56% to 37,049.40, underscoring Hero MotoCorp’s relative resilience. The stock’s technical setup remained cautiously optimistic, trading above its 5-day, 20-day, 100-day, and 200-day moving averages but still below the 50-day average.

12 February: Valuation Metrics Shift to Very Attractive Amid Volatility

Alongside the surge in derivatives activity, Hero MotoCorp’s valuation parameters improved markedly. The company’s price-to-earnings (P/E) ratio stood at 20.55, reflecting a shift from an already attractive to a very attractive valuation rating. The price-to-book value (P/BV) ratio was 5.41, supported by a strong return on equity (ROE) of 25.15% and return on capital employed (ROCE) of 49.38%. These metrics positioned Hero MotoCorp favourably against peers such as Bajaj Auto (P/E 30.81) and Eicher Motors (P/E 39.47), underscoring its relative value proposition within the automobile sector.

Despite the stock’s recent price softness, these valuation improvements suggest that the market may be underestimating the company’s earnings potential and operational efficiency. The PEG ratio of 0.62 further indicated undervaluation relative to growth prospects, contrasting with higher PEGs among competitors.

13 February: Week Closes with Sharp Decline Amid Broader Market Weakness

The final trading day of the week saw Hero MotoCorp’s share price fall 2.71% to ₹5,579.65 on volume of 15,167 shares. This decline outpaced the Sensex’s 1.40% drop to 36,532.48, signalling increased selling pressure on the stock. The sharp fall erased much of the prior day’s gains and contributed to the overall weekly loss of 3.06%. The decline may reflect profit-taking following the surge in call option activity or broader market volatility impacting investor sentiment.

Daily Price Performance vs Sensex

Key Takeaways

Positive Signals: The surge in call option activity at the ₹5,800 strike price ahead of the February expiry indicates bullish positioning by market participants, suggesting expectations of a potential upside breakout. The stock’s valuation metrics have improved significantly, with a P/E ratio of 20.55 and a PEG ratio of 0.62, positioning Hero MotoCorp as attractively valued relative to its peers. Strong profitability ratios, including a ROCE of 49.38% and ROE of 25.15%, underpin the company’s fundamental strength.

Cautionary Signals: Despite the positive derivatives activity and valuation shift, the stock underperformed the Sensex, declining 3.06% over the week. The downgrade in mojo grade from ‘Strong Buy’ to ‘Buy’ reflects a moderation in momentum. Delivery volumes have decreased, and the sharp price drop on 13 February suggests profit-taking or increased volatility risk. Investors should monitor price action around the ₹5,800 level and open interest trends closely as expiry approaches.

Conclusion

Hero MotoCorp’s week was characterised by mixed signals. While the stock’s valuation has become very attractive and call option activity points to bullish sentiment, the share price declined notably, underperforming the broader market. The company’s strong financial metrics and relative value compared to peers provide a solid foundation, but recent price volatility and a downgrade in mojo grade counsel caution. The coming days, particularly around the February expiry, will be critical in determining whether the bullish positioning translates into sustained price gains or if profit-taking pressures persist. Investors should remain attentive to technical levels and market developments to navigate this evolving landscape effectively.

Upgrade at special rates, valid only for the next few days. Claim Your Special Rate →