Auto shares riding high on healthy demand outlook

Shares of automobiles companies were in focus with Nifty Auto and the S&P BSE Auto index gaining nearly 2% on expectations of healthy demand during the current financial year 2018-19 (FY19).

At 1:20 PM; the S&P BSE Auto index (up 1.8% or 439 points) and Nifty Auto index (up 1.7% or 184 points) were up almost 2%, as compared to 0.5% rise in the benchmark indices.

Ashok Leyland, Hero MotoCorp, Tata Motors, Bajaj Auto and TVS Motor Company were up in the range of 2% to 6%, while Balkrishna Industries, Apollo Tyres, Motherson Sumi Systems and Bharat Forge from auto related stocks up between 2% and 3%.

Indian auto companies have delivered a healthy volume performance across segments in June’18 on lower year on year (YoY) base led by pre goods and service tax (GST)-led disruptions. The two-wheelers (2Ws) grew 15% YoY, three-wheelers (3Ws) grew 67% YoY, utility vehicles (UVs) grew 21% YoY, and commercial vehicles (CVs) grew 50% YoY.

According to Motilal Oswal Securities, the demand outlook for FY19 is positive across segments, driven by healthy rural sales momentum, expectation of normal monsoon for the third year in a row, and a pickup in economic activity.

The brokerage firm estimate 10-12% growth for 2Ws, 8-10% for 4Ws, 8-10% for CVs and 9-10% for tractors. Key threats to demand are posed by inflationary fuel prices and higher interest rates. While we expect margins to improve, competitive intensity and commodity inflation could have an impact, it added.

Meanwhile, Tata Motors was up 4% to Rs 271, erasing its Thursday’s 2% decline, after the company said Jaguar Land Rover (JLR) will continue to work with the United Kingdom government to secure the right free trade deal for the country, economy and industry.

"Jaguar Land Rover and Tata Motors have always maintained that the uncertainties from Brexit are avoidable and the business seeks clarity to ensure that industry takes timely and right decisions to manage the transition. Additionally, Jaguar Land Rover needs free and full access to the single market beyond transition to remain competitive which we also firmly believe is in the best long term interests of the United Kingdom,” Tata Motors said in media statement.

The recent statement from JLR only reaffirms this position that a Brexit which increases bureaucracy reduces productivity and competitiveness of the UK Industry is in no-one's interest, it added.