Analysts see more gains for auto stocks as sales rev up

Topics Automobile

Auto stocks have outperformed markets after the presentation of the Union Budget in February, when overall market sentiment started to improve. Since then, the Nifty Auto index has risen 16.5 per cent compared to 11 per cent rally in Nifty50 index.

The rise comes on the back of an improvement in market sentiment coupled with a rate cut by the Reserve Bank of India (RBI) in April, which augurs well for auto sales. Prediction of a normal monsoon in India by domestic and foreign agencies have bolstered hopes of a pick-up in tractor and auto sales.

Also Read: LIC bets big on auto growth story

Implementation of the Seventh Pay Commission recommendations, One Rank, One Pension (OROP) are the other triggers going ahead, analysts say.

Also Read: Auto sales in top gear

Also Read: Mahindra sales rise 14% to 41,863 units in April

Siddharth Vora, an analyst tracking the sector with Religare Institutional Research, says since four-wheeler stocks have done well in the past few months, it is the two-wheeler segment which was a weak link that is now poised for recovery this year.

Also Read: Mutual funds cut stake in auto, tyre stocks in March quarter

“We also have concerns regarding production capacity of select four-wheelers like Hyundai and Maruti Suzuki, which are among the biggest in terms of size. For Maruti, we are also worried about the movement in yen. On the other hand, surge in tractor sales is a positive sign, but a lot will depend on how the progress of monsoons,” Vora says.

Also Read: India now among top 6 markets for Renault

While the going has been good for these stocks over the past few months, analysts expect the trend to continue. Some even expect gains of as much as 20 to 25 per cent from hereon. “Auto sector stocks should outperform the markets. We like Mahindra & Mahindra (M&M), Bajaj Auto and Hero MotoCorp. That apart, we also like select auto ancillary stocks like Shivam Auto, Gabriel and Motherson Sumi. One can expect a minimum 20–25 per cent return in these stocks over a year,” says A K Prabhakar, head of research, IDBI Capital.

Also Read: Carmakers'exports overtake India sales

But, there are others like Nomura that prefer passenger vehicles over two-wheelers. It expects passenger vehicles volumes to grow 13 per cent in FY17, while pegging growth for two-wheelers at 10 per cent. Maruti Suzuki is their top pick in the segment.

However, there are headwinds as well. Last week, the Supreme Court extended the ban on registration of diesel vehicles with engine capacity of 2,000 cc and above in the National Capital Region till further orders. According to reports, the decision will have an adverse impact on companies such as Toyota, Mercedes, Jaguar Land Rover and Tata Motors. Needless to say, if economic growth slows or if monsoons are weaker than anticipated, the uptrend could reverse.


Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel