As auto makers gear up to report monthly sales, investors are pinning hopes on the upcoming festive season even as analysts are expecting muted monthly numbers. While the industry continues to struggle against a global shortage of semiconductors and pandemic-hit demand, the ongoing Pitru Paksha period -- a fortnight considered inauspicious for initiating purchases -- back home is delaying bookings.
What's in it for investors on Dalal Street?
Despite challenges, auto stocks have been rising in the recent times. The Nifty Auto index -- which tracks shares of 15 major players in the auto sector -- has risen 34 percent, though lagging behind the headline Nifty50 index's return of almost 57 percent.
Here's how the auto pack has performed in the recent past:
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Commercial and passenger vehicle makers including Maruti Suzuki, Tata Motors, Bajaj Auto, Hero MotoCorp, Ashok Leyland and Mahindra & Mahindra are slated to post their sales figures for September from Friday.
High hopes from festivals
Vinod Nair, Head of Research, at Geojit Financial Services, expects the festive season to revive demand for the sector, also as the economy opens with easing concerns about a third wave of infections.
"Price hikes will take care of material costs and boost the financial conditions, though the semiconductor issue and supply constraints will continue to loom in the medium term," he told CNBCTV18.com.
And here's what analysts make of the sector at the current juncture:
Passenger and commercial vehicles
Mahesh Bendre, Senior Research Analyst at IDBI Capital, is most positive on Maruti Suzuki from the auto basket. "The stock has priced in the barrage of bad news in the recent past, be it the lockdown, the chip issue or the imposition of penalty by the Competition Commission of India (CCI)," he told CNBCTV18.com.
He is not so convinced by the prospects of Mahindra & Mahindra and Eicher Motors at the moment. The Mahindra story is all about tractors, a segment likely to record single-digit growth this year. For Eicher, the premiumisation story in the Indian market has reached a saturation point he said.
M&M is among Nair's three picks from the auto space.
Dhiraj Agarwal, Co-Head Equities at Ambit Capital, said in an interview to CNBC-TV18 his top picks in the space are Tata Motors and Ashok Leyland. "The entire chip shortage issue, because of which 1-2 quarters of production numbers will look weak, is actually temporary and short term in nature. It will pass," he said in an interview to CNBC-TV18.
He said the country is seeing a strong revival in demand for CVs. Agarwal believes Tata Motors is a beneficiary of strong power demand globally. Retail demand continues to be very strong for all of its JLR products, he said.
LKP Securities Research Analyst Ashwin Patil likes Maruti Suzuki within the PV segment, followed by M&M. His top pick among CV makers is Ashok Leyland, which he finds better than Tata Motors.
Reliance Securities Head-Research Mitul Shah remains bullish on commercial vehicles. His top picks are Ashok Leyland, Bharat Forge and Ramkrishna Forging.
Agrawal likes TVS Motor Company. Patil likes Bajaj Auto despite lukewarm demand in the segment.
Bendre is bullish on Sona Comstart, and suggests avoiding two-wheelers due to disruptions caused by electric vehicle players.
Nair is positive on Motherson Sumi and Wabco.
Indian auto makers are also bearing the brunt of the chip shortage issue.
Rajesh Menon, Director General of trade body SIAM, expects the challenges surrounding the shortage of chips to continue for some time. He believes investments in semiconductors will take time to meet market requirements.
"The industry has been in touch with a couple of semiconductor suppliers globally and manufacturing is expected to be ramped up... Some of these companies had faced disruptions in later part of 2020 and early 2021 due to natural calamities," he said.
Agarwal of Ambit Capital is positive that the shortage issue will ease in the coming months.
(Edited by : Aditi Gautam)