Sunday, January 05

Strong sales, bright outlook ignite a rally in auto stocks

Mumbai: Automobile shares emerged as the top gainers in Thursday's trading as stronger-than-expected auto sales in December reported by three companies eased concerns over demand slowdown. Nifty's Auto index soared 3.8% on Thursday, its best single-day performance since June, after gaining as much as 1.2% the previous day.Eicher Motors jumped 8.6%, Ashok Leyland soared 6.2%, Maruti Suzuki advanced 5.6% and Mahindra and Mahindra gained 4.2%."We have seen strong December sales numbers reported by Eicher Motors, Maruti and Mahindra & Mahindra, which have lifted the stocks on Thursday," said Arun Agarwal, vice president, fundamental research, Kotak Securities.Auto shares have been under pressure in the October-December period as worries about falling demand for vehicle sales prompted investors to cut their bets on the sector. The auto index fell almost 17% in this period."The Nifty Auto Index has witnessed a time and price wise correction and is now poised to move higher towards 24,700 to 25,500 in the near term," said Nilesh Jain, head of derivatives and technical research at Centrum Broking. The index closed around 24,000 levels on Thursday.While Maruti's bullish outlook also lifted the sentiment in the sector, analysts said growth in the sector will be restricted to fewer segments.116898193"While Maruti's numbers come as a surprise, our overall growth expectations for FY25 remain in favour of two-wheelers," said Agarwal.He said in FY25 passenger vehicle(PV) growth may be flat, while tractor companies are expected to perform better in the second half of the financial year given the good monsoon, high reservoir levels and expectations of a good Rabi crop.Emkay Global said the recent decline in two-wheeler stocks of 24-33% was unwarranted notwithstanding the slowing growth momentum in the segment.Analysts expect the pick up in car sales to continue in the earlier part of 2025."We saw the momentum in car sales go up in October and then in December, which is seasonally a lean month for wholesales," said Mumuksh Mandlesha, research analyst, Anand Rathi Institutional Equities. "This change in momentum can sustain for the next 3-6 months."STOCK PICKSMandlesha said he is bullish on M&M, Maruti and Eicher."We see that Maruti and Eicher are much below their historical average multiples and can give investors a chance to make gains," he said.Emkay upgraded its ratings on TVS and Bajaj Auto, while retaining its buy on Hero Motocorp. Agarwal prefers M&M, Hyundai and Tata Motors in this space. Jain is bullish on Mahindra & Mahindra, Maruti Suzuki and TVS Motor Company.
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