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SBICAP's Chirag Jain is bullish on Maruti Suzuki, Mahindra despite tepid November sales

Updated : December 02, 2019 03:29 PM IST

Auto sales in the country declined in November after a brief reprieve in October owing to the festive season. Chirag Jain of SBICAP Securities shared his views on the auto sector in an interview with CNBC-TV18.

“It has been a weak set of numbers particularly in the two-wheeler space; the domestic two-wheeler space by and large seems to have declined by about 15-18 percent range even though exports have been quite strong,” said Jain.

On sales numbers, he said: “Commercial vehicles (CVs) continue to be weak, passenger vehicle has been more or less flattish compared to last year. Therefore, the strong performance that we saw in the month of October, more on the retail front, it seems that it was pre-buying also because of very high discounting that were available in the festive season along with very high or aggressive finance schemes. So definitely, November retail sales has been weaker and to a large extent has been also reflected in the wholesale numbers which have been poor by and large across the board.

“Things are bottoming out on the passenger vehicle front. Retail picked up in the month of October. November is seasonally a weak month as far as retails is concerned because December would be a very high month in terms of retail because of year-end discounts.

“Once the economic environment improves, consumer sentiment improves, there is a possibility of volume growth coming back strongly and at the same time discounts also narrowing. Therefore, in case of passenger vehicles things are bottoming and in case of two-wheelers things are still looking quite weak."

On auto stocks, Jain said: “Maruti would be a preferred pick followed by M&M [Mahindra & Mahindra] because of favourable valuation and tractor cycle should improve with good monsoon that we have seen. So tractor cycle over next 6-12 months should look strong.

“In two-wheelers we remain cautious mainly because of the near-term headwinds with respect to BS-VI where the cost hike would be significant to digest and therefore, in next financial year also two-wheelers could be under stress,” Jain added.
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