Automobile stocks show signs of recovery after SIAM report

Laxmikant Khanvilkar & Sujoy Manna

Mumbai, Sept 20: If the recent trend in automobile sales (including two-wheelers) is any indication, the domestic auto sector is poised for a recovery backed by replacement demand and good monsoon. This was seen more likely after the two and four wheeler sales figures, which were recently released by the Society of Indian Automobiles Manufactures (SIAM).

Auto analysts say this will see a good secular demand for all variants of cars. As a result, automobile stocks were amongst the few which were seen rising on Thursday. They recorded a 3-5 per cent jump in their prices during last three trading sessions.

Counters like Ashok Leyland (ALL), Hero Honda (HH), Bajaj Auto (BAL) saw active trading interest coupled with increase in prices. While ALL and HH managed to end the day on positive note, BAL stock ended marginally lower. Telco and Mahindra & Mahindra (M&M) were relatively weak.

Telco and ALL have already shown signs of bottoming out and if the trend continues, then the sector should throw a good investment opportunity, believe auto analysts.

During August, with a 7.2 per cent drop in the car sales, 10 per cent rise in commercial vehicles, along with a 12.5 per cent and 28.9 per cent rise respectively in multi-utility vehicles and motor cycles respectively, the out look for the entire sector has turned positive.

Analysts feel that the rise in auto sales during the last couple of months indicates a pick-up in consumption demand from urban areas even though the rural and investment-led demand continues to remain weak. They further estimated that around 38 per cent of the existing commercial vehicles fleet is more than 10 years old which indicates a potential for replacement demand.

The replacement demand would have kicked off earlier than expected but the recent slowdown in economic activity has delayed this. Another factor which could accentuate the replacement demand is the imposition of the more stringent emission norms.