Home Autos Near-term challenges stay for autos but outlook positive; top picks by Sharekhan

Near-term challenges stay for autos but outlook positive; top picks by Sharekhan

Near-term challenges stay for autos but outlook positive; top picks by Sharekhan

The outlook for auto companies going ahead looks promising despite the near-term challenges, rising inflation and chip shortage. There is expectation of healthy demand in passenger vehicle (PVs) and two-wheeler (2W) segment led by new and refreshed launches, increase in discounts and attractive financing schemes.

Monthly dispatches of the overall automobile sector are expected to grow YoY in December 2022, while declining MoM led by seasonality and production constraints, according to a recent report of Sharekhan by BNP Paribas.

The brokerage house prefers Maruti Suzuki, Eicher Motors, TVS Motor, M&M, Hero MotoCorp, and Escorts Kubota, among Original equipment manufacturers (OEMs). And from the auto ancillaries, Sharekhan finds Bosch, Sundram Fasteners, Ramkrishna Forgings, Mahindra CIE, Suprajit Engineering, Greaves Cotton, Gabriel India and Apollo Tyres attractive.

“We remain positive on demand outlook for the automobile industry with PV segment leading, followed by 2Ws, commercial vehicles (CVs), three-wheelers (3Ws) and tractors in December 2022,” said the report.

Also read: Monthly auto sales is the first big thing to watch in 2023. What to expect?

While the chip shortage issue is expected to continue to hurt in short-term, but it should gradually normalise over the next 1-2 years. OEMs are investing in capacity additions, which would help in reducing the demand-supply mismatch, going ahead.

“Customer behaviour continues to support premiumisation trend, with increasing traction of top variants in PVs and 2Ws, while EVs and CNG variants responding positive to launches.”

The brokerage has listed semiconductor chips shortage and worsening of geopolitical situation as two risks to their forecast for the auto sector.

Sharekhan recommendations for auto stocks

View Full Image

Sharekhan recommendations for auto stocks (Sharekhan by BNP Paribas)

Renewed Rural demand

Driven by positive rural sentiment, new launches, and attractive sales schemes, we expect 2W volumes to recover, especially in the entry and executive motorcycle segments, led by returning of entry-level customers. Premium segment bikes are also expected to do well, the report said.

The healthy rural demand will help tractor sales of M&M and Escorts.

“We expect a sequential improvement in M&HCV sales to continue, driven by an expected rise in e-commerce, agriculture, infrastructure, and mining activities. We expect recovery in the CV segment to continue over the next few years, driven by improved economic activities, an affordable interest rate regime, and better financing availability. The bus and 3W segments are expected to improve gradually, as corporate offices and educational institutions open. Robust demand, easing supply constraints, and dropping commodity prices are likely to provide relief to auto OEMs and ancillary companies going forward. We stay Positive on the sector.”

Know your inner investor
Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.

Take the test

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
Download The Mint News App to get Daily Market Updates.


Source link