Auto stocks slipped after the companies released their August sales data as companies grapple with multiple headwinds that include semiconductor shortage, rising input costs, and competition from the electric vehicle (EV) segment. So, is it a good idea to buy the dips? Here's what experts suggest
Deepak Shenoy, Founder, Capitalmind: Going forward we are going to have lousy sales on passenger vehicles (PV) because of the semiconductor issue but much better on commercial vehicles (CV). So I would focus on CVs.
Deven Choksey, KRChoksey: If the correction of a sharper degree happens, it would demand a buy in this particular counter. From various sources, we understand the semiconductor shortage is likely to ease out from October onwards. If that happens, there is definitely demand in the system, which should possibly help some of the auto companies to once again prevail the market activity of other market shares also at the same time for companies like Maruti. It is going to be an opportunity for market investors. September ended results may not be very exciting, given that situation the market may remain soft as far as the price is concerned. A fall in the price could become an opportunity. The second half of the financial year largely remains good for the auto sector. We like commercial vehicles (CV) most out of the auto sector.
Aditya Makharia, Senior Automobiles Analyst, HDFC Securities: The auto sector is going through a perfect storm. You are seeing both demand and supply constraints, perhaps at the same time. From the CV space, I like Bharat Forge, Tata Motors. There is going to be a sluggish outlook on Hero Motocorp. The stock has corrected quite a bit from the peak levels. And maybe some of the valuations now are fairly reasonable. While the demand outlook is unclear, the only thing to notice here is Hero will also be launching its electric vehicle (EV) hopefully in the fourth quarter, which is by March of this year. And Maruti Suzuki India is an interesting opportunity to buy but one should have a longer-term horizon. It is going to be well-positioned in the medium-term horizon to cater to the emission challenges. In the medium term, Maruti is going to do a couple of things that hopefully should play out in its favour – SUV product launches expected from the company should come through in 2022. He has an add rating on Escorts.
Taher Badshah, CIO–Equities, Invesco Mutual Fund: Auto is a bit of a difficult space. As part of the overall consumer discretionary space, maybe there is a little more challenge at this stage, but within the auto ecosystem we have more inclination towards some of the ancillaries; particularly ancillaries that are relatively less likely to get disrupted.
Bharat Madan, Group CFO, Escorts: Overall the inventory level is close to a four-four-and-a-half week, which is not very high looking at the festive season which is coming. However, if something goes wrong in those months then it will be a cause of concern for the industry, but as of now, things are looking positive.
Rakesh Sharma, ED, Bajaj Auto: Indian demographic and innate requirement for independent mobility is strong. Therefore, as the economy recovers and pandemic recedes; the vaccination program brings confidence to the consumer, the retail finance comes back, all these things get mitigated and start to drive demand. So compared to last year, certainly, we would expect growth in the coming few months. According to him, electric 2-wheeler sales are minimal and they are not impacting the current sales. The electric vehicles (EVs) and two-wheelers, at this point in time, are still very minimal; so it’s not as if the current sales are getting impacted by the progression of the EVs, at least for the moment.
Jinesh Gandhi, Research Analysts, Motilal Oswal: Aug’21 felt the heat of semiconductor shortage, which is expected to worsen next month. Current valuations largely factor in sustained recovery (our base case), leaving a limited margin for safety from any negative developments. We prefer 4Ws over 2Ws, as PVs are the least impacted segment currently and offer a stable competitive environment. We expect the CV cycle to recover and gain momentum towards 2HFY22. We prefer companies with: a) higher visibility in terms of demand recovery, b) a strong competitive positioning, c) margin drivers, and d) balance sheet strength. Maruti Suzuki and M&M are our top OEM picks. Among the auto component stocks, we prefer Bharat Forge and Apollo Tyres. We prefer Tata Motors as a play on global PVs.