Maruti, M&M among top auto stocks to buy; demand for cars, tractors may boost March sales

Indian automobile sector is set to witness strong recovery in the last month of the financial year 2021 following steady demand momentum in passenger vehicles (PVs) and tractors. Analysts also expect a strong rebound in FY2022E, driven by increasing economic activities, improving sentiments of fleet owners, and lower cost of ownership under BS-VI vehicles. Research and brokerage firm Emkay Global Financial Services expects better domestic 2W volume performance on a sequential basis. Analysts said that even as demand is improving from salaried and business community customers, demand remains weak from the student segment. Moreover, dealer inventory build-up continues in anticipation of the festive season in April 2021.

The S&P BSE Auto index has rallied 145 per cent from the 52-week low of 10,256 to 25,073 levels in February this year. Since February this year, the BSE Auto index has corrected over 11 per cent. On Wednesday, the BSE Auto index was up 0.26 per cent led by gains in Tata Motors, Balkrishna Industries, TVS Motor Company, Escorts and Maruti Suzuki India. While benchmark BSE Sensex was trading nearly one per cent down in noon deals on Wednesday.

Emkay Global Financial Services holds a positive view on the automobile sector on expectations of strong cyclical upturn, which is expected to last for at least three years. It’s top picks among OEMs include Tata Motors ( target price: Rs 375), Ashok Leyland (TP: Rs 155), Maruti Suzuki India (TP: Rs 9,000) and Eicher Motors (TP: Rs 306).

Those at Prabhudas Lilladher believe that there will be no impact of the recent price increase announcement in PVs while for 2Ws it will further dent buying sentiments in price-sensitive sub-segments. The brokerage firm favors Ashok Leyland as it believes that MHCV volumes will recover by H1FY22 based on economic recovery benefitting demand from segments like Infra, Mining and E-commerce. It also sees Mahindra & Mahindra as well placed to grow in FY22 due to a healthy outlook for the FES segment led by healthy farm sentiments and strong rural presence benefitting UV sales.

Current valuations largely factor in sustained recovery, leaving a limited margin of safety for any negative surprises, said Motilal Oswal Financial Services. It prefers companies with higher visibility in terms of demand recovery, strong competitive positioning, margin drivers, and balance sheet strength. Its top picks are Maruti Suzuki India and Mahindra & Mahindra among OEMs. While among auto component stocks, It prefers Endurance Technologies.

Research and brokerage firm Nirmal Bang expects March 2021 sales performance to show strong growth across segments on the back of the low base, channel filling, steady demand momentum, especially in passenger vehicles (PVs) and tractors. It believes Commercial Vehicles (CVs) will recover sequentially, led by a gradual pick-up in economic activities.

Among index heavyweights from the auto sector, brokerage firm expects Maruti to witness uptick in domestic volumes to sustain led by strong demand for entry segment vehicles. For Mahindra and Mahindra (M&M), the brokerage firm expects tractor sales to see 76 per cent on-year growth, as demand continues to remain healthy on good rabi sowing and better farm incomes.

(The stock recommendations in this story are by the respective research and brokerage firm. The Outlooker Online does not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)