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Potholes ahead for automobile shares
India’s automobile segment will probably have a lot of pot-holes to drive over and shares in the sector may get punched in the face. With sales sinking to worst levels in more than a decade and overall macroeconomic conditions unkind, investors have to be careful in handling this sector, say experts.
India’s automobile segment will probably have a lot of pot-holes to drive over and shares in the sector may get punched in the face. With sales sinking to worst levels in more than a decade and overall macroeconomic conditions unkind, investors have to be careful in handling this sector, say experts.
“Domestic automakers continued with their poor run in May 2013, broadly on the expected lines, due to slowdown in economic activity and negative consumer sentiments,” said Yaresh Kothari, Angel Broking. The slowdown is broad-based and continues to be prominent in the medium and heavy commercial vehicle (MHCV), passenger car and two-wheeler segments.
“Overall we expect the volume growth across the automotive segments to remain under pressure in FY’14 (estimate),” said Ajay Shethiya, analyst, auto and auto ancillaries, Centrum Broking Limited. A lack of pick up in the investment cycle and weakening consumer sentiments is expected to impact overall demand. The continued pressure on the rupee is also expected to be a spoilsport as also discount pressure on commercial vehicles is expected to continue.
So what does the retail investor do with his auto stocks? Buy or sell.
Gaurang Shah, assistant vice-president, Geojit BNP Paribas Financial Services, believes that analyzing a company’s strategy works well. He says like Mahindra and Mahindra (M&M) has a diversified profile and is positive for investors. On the flip side, Tata Motors has a decreasing local product profile, though JLR gives little comfort. “If there is competition in this segment then Tata Motors will be under pressure,” Shah continues. Similarly, Maruti has only passenger cars so there is a little overhang for now. “I would use a rally to exit from Tata Motors. I prefer M&M and Bajaj Auto and I would look at a 10-15% target upside from here,” he said.
Meanwhile, some believe that demand is expected to improve.
“A retail investor should try to buy in dips as demand is expected to improve from the second half of FY14,” said Savitree Singh, senior equity research analyst, Tathastu advisory Pvt Ltd.
“The retail investor must have a selective approach in auto stocks,” said Shethiya. Shethiya recommends Maruti Suzuki (Buy, TP – R2055) and Tata Motors ( Buy – TP R875)
