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    Nifty Auto index outperforms benchmark indices; zooms 46% since April

    Nifty Auto index outperforms benchmark indices; zooms 46% since April

    Nifty Auto index outperforms benchmark indices; zooms 46% since April
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    By Ankit Gohel   IST (Updated)


    The automobile sector seems to have gained the most since the coronavirus-induced lockdown was lifted gradually from May 4 which led to a slow restart of automotive operations in India.

    Auto sector gauge, Nifty Auto index has zoomed 46 percent so far since April, outperforming the benchmark Nifty50, which has returned 27 percent during the same period. The gains in auto shares have come as the government decided to gradually lift the coronavirus-induced lockdown from May 4 onwards, giving the much-needed boost to the sector as operations resumed in plants slowly.
    The stock prices of automobile companies that rebounded and emerged as some of the top-performing stocks in the June quarter.
    “The outperformance has been driven by the gradual lifting of lockdown from 4th May 2020, resulting in the slow restart of automotive operations in India. By mid-June, demand has recovered to 60–100 percent of pre-COVID-19 levels across segments,” brokerage firm Motilal Oswal said.
    Top-performing stocks during this period were Mahindra & Mahindra with over 90 percent returns and Escorts gaining over 69 percent so far since April.
    Since the gradual lifting of the lockdown, the auto ecosystem has restarted operations in varied stages of normalisation across segments.
    In two-wheeler OEMs, over 90 percent of dealerships are now operational and demand is back at 65–70 percent of pre-COVID-19 levels. Manufacturing operations are also returning and are currently at 60–65 percent of pre-COVID-19 production levels. Inventory at the dealer level, at 20–25 days, is the lowest level in the last few years, the report noted.
    The passenger vehicle (PV) segment witnessed 85–90 percent dealership outlet openings, while demand stands at 75– 80 percent of pre-COVID-19 retail. However, manufacturing operations are lagging behind demand due to the complexity of the supply chain.
    According to the report, the Tractors segment is best positioned to achieve near-normalcy at the frontend (sales outlets and demand) and more positivity on the ground around the Farm ecosystem.
    However, production is lagging behind demand at 85 percent of capacity, although retail is not impacted due to inventory available with dealers.
    Meanwhile, the commercial vehicle (CV) segment is the worst impacted due to a weak demand environment and poor financial health among fleet operators. As a result, manufacturing operations have not been ramped-up currently and would operate at 30 percent of pre-COVID19 levels, the report said.
    The brokerage said that the valuations of auto companies are reflecting for recovery from H2FY21, leaving a limited margin for safety for any negative surprises. Hence, it prefers companies with higher visibility in terms of demand recovery, strong competitive positioning, margin drivers, and balance sheet strength.
    It expects that the segment is likely to surpass FY20 volumes only in FY23, except in Tractors. The brokerage expects the recovery to be near ‘L’ shaped, although a stronger growth in FY22.
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