Sales of passenger vehicles (PV) of the country's top six car makers cumulatively rose by about 11% in FY18, as compared to 9% growth in FY17. In this backdrop, S&P BSE Auto index which had surged 9.2% in FY18, as compared to around 12% rise in the S&P BSE Sensex, ACE Equity data show. Shah expects the auto index to gain 12% - 15% in FY19.
Given the run-up seen in the last fiscal despite an improvement in the overall demand, A K Prabhakar, head of research at IDBI Capital feels the stocks remain ‘pricey’ at the current levels and investors should buy selectively only on a decline. A status quo by the Reserve Bank of India (RBI) in its upcoming monetary policy review and a good monsoon can rev up demand, especially for the commercial vehicles and two-wheeler segment going ahead, he says.
“I don’t fear drop in sales for the next six – eight months but the current valuation is too steep. If the central bank keeps the key rates unchanged then it will be positive for the markets
and support auto stocks,” Prabhakar said.
Adding: “The demand from the rural sector will be dependent on this year’s monsoon forecast. The government is working on improving the rural segment, but it will not happen immediately. If the monsoon is good this year, then the two-wheeler sales and tractor sales will improve," Prabhakar said.
Among individual stocks, he prefers Ashok Leyland, followed by Mahindra & Mahindra (M&M) and Maruti.
Shah of Geojit, on the other hand, likes Maruti, M&M and Tata Motors. “Among two-wheelers, we are positive on Hero Moto Corp, TVS Motors, Eicher Motors and Bajaj Auto. We also like Ashok Leyland and Escorts,” he says.