Auto and auto ancillary stocks have caught investor’s attention offlate, with the Nifty Auto index ruling at its all-time high levels. The optimism is partly on account of healthy sales in July, allaying concerns over a likely fall in demand due to transition to the GST regime.
Leader in passenger car segment, Maruti Suzuki, recorded 22% sales growth in the July 2017, while others too reported better-than-expected numbers as automakers restocked inventories at dealerships ahead of early festive season this year. CLICK HERE FOR FULL REPORT
Analysts tracking the sector say given the lower fuel prices and drop in vehicle prices post the GST implementation, the strong sales momentum could continue going ahead.
Auto and auto ancillary stocks rallied up to 16% in July against 6% surge in the Nifty Auto and Nifty50 indices both. On Tuesday, the Nifty Auto index hit its all-time closing high of 1,182 levels. Among the 15 stocks that comprise the index, Ashok Leyland, Eicher Motors, Maruti Suzuki and Motherson Sumi, hit their respective 52-week high on Tuesday. TVS Motor Company and Apollo Tyres had hit their respective one-year high in July.
“We remain extremely positive on the auto stocks even as the auto sector went through wobbly phases like demonetisation, remonetisation, destocking post GST and now re-stocking. We believe the month-on-month numbers will remain encouraging as we go forward, said Gaurang Shah, Head Investment Strategist at Geojit Financial Services.
He believes entry-level two wheelers and four wheelers will contribute to topline and bottomline growth of the companies, while the introduction of new models in various segments and re-launches of existing models and a robust export market will also add to the sentiment.
Analysts at JM Financial also remain positive on the road ahead for the auto industry and expect the passenger vehicle segment to post double digit growth in FY18 on the back of price cuts in most segments, new model launches and healthy rural recovery on normal monsoons.
It also expects the two-wheeler and tractor industry to register 10-12% and 12-15% volume growth, respectively in fiscal year 2017-18.
Analysts at Edelweiss Securities also echo this view and anticipate the bike segment to recover gradually, even as the M&HCV segment is likely to rebound in the second half of FY18. Ashok Leyland (profitable market share gains), Eicher (structural premiumisation play) and Maruti Suzuki (widening gap with peers on all fronts), are their top picks in the sector.
Meanwhile, G Chokkalingam, Founder, Equinomics Research & Advisory believes growth in auto sector will be positive for tyre stocks like MRF, which will get a boost from sales to auto comapnies.
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