Going gets good for auto stocks

Automobile manufacturers are going to benefit the most from the fall in commodity prices, primarily of crude oil and industrial metals.

As global commodity prices corrected and supply chain bottlenecks started improving the BSE Auto Index gained 8.74 per cent in the last five sessions against the 3.03 per cent rise in the Sensex.

On Monday too BSE Auto Index gained 0.96 per cent outperforming the Sensex gain of 0.82 per cent.

The resurgence of monsoon after a weak start also augurs well for the auto sector from rural demand perspective.

"The near-term fall in commodity prices is beneficial for commodity users like autos whose prospects are looking up," said V. K. Vijayakumar, chief investment strategist, Geojit Financial Services.

A recent report on market leader Maruti Suzuki by Motilal Oswal said,"the recent decline in commodity prices and favourable Japanese yen Indian rupee movement can add around 180 basis points to margins and 17 per cent EPS upgrade for FY24"

"Maruti Suzuki's profitability has been adversely impacted in the last three years with unprecedented commodity cost inflation in base commodities and precious metals along with a weak product lifecycle," the report said.

Also, "The semiconductor shortage has been gradually improving, though it crops up intermittently like in Mar-apr 2022 before production recovering in May," Motilal Oswal said.

Analysts also see better monthly sales figures for auto companies in June month and retain a positive view on the sector.

"In June 2022, commercial vehicles are expected to maintain positive growth momentum on a sequential basis. Tractor volumes are also likely to trend higher in a seasonally strong month. Further, two-wheeler volumes would be better for most manufacturers thanks to a ramp-up in production. In comparison, passenger vehicle volumes should be a mixed bag for listed manufacturers," said Raghunandhan N. L., senior research analyst, Emkay Global Financial Services.