A. K. Prab­hakar

Dalal Street Investment Journal - - SPECIAL REPORT -

GST Will Have A Pos­i­tive Im­pact On The Auto Sec­tor

For auto an­cil­lary, GST has been largely neu­tral. For the bat­tery seg­ment, GST has re­sulted in slight in­crease in taxes which like Ex­ide and Amara Raja have been passed on through price hikes. For tyre com­pa­nies, the rates are largely sim­i­lar to cur­rent tax slabs, while for auto com­po­nent com­pa­nies the state­wise levy would be dif­fer­ent, it would be largely neu­tral. Any ad­verse im­pact would be only on work­ing cap­i­tal, which we ex­pect to be only for the short term.

Which auto play­ers, in your view stand to gain/lose the most ow­ing to GST?

We be­lieve that four-wheel­ers would stand to ben­e­fit the most. We be­lieve that the price cuts done by them will only add to our pos­i­tive out­look on vol­ume growth.

In gen­eral, what is your out­look on the auto sec­tor? Can we ex­pect to see earn­ings up­grade in auto stocks?

We have a pos­i­tive out­look on the auto sec­tor, es­pe­cially on four-wheel­ers as we be­lieve that the long-term struc­tural growth re­mains in­tact. Our view is based on – 1) lower pen­e­tra­tion of four­wheel­ers, 2) favourable de­mo­graph­ics, 3) in­ter­est rates trend­ing down­wards and 4) ex­pec­ta­tion of good mon­soon for 2017. As re­gards stock pref­er­ence, within four-wheeler we like Mahin­dra and Mahin­dra and Maruti. While we are not pos­i­tive on the two-wheeler seg­ment, we pre­fer be­ing stock-spe­cific and pre­fer Eicher Mo­tors and TVS Mo­tor Com­pany.

In gen­eral, what is your out­look on eq­uity mar­kets?

We are very pos­i­tive on mar­ket with 12,000 as Nifty tar­get by March 2018 and by Di­wali we should be above 10,800. GST will be a ma­jor trig­ger which will lead to earn­ing up­grade to­wards sec­ond half of this fi­nan­cial year.

bench­mark indices scal­ing new highs. Even though the rally is broad-based, in­vestors need to place their bets on sec­tors show­ing high growth.

Au­to­mo­bile sec­tor is ripe for in­vest­ment and the GST regime prom­ises to place the sec­tor at an ad­van­tage and make it one of the ma­jor ben­e­fi­cia­ries of the new tax regime. In­vestors look­ing at buy­ing op­por­tu­ni­ties in the auto sec­tor need to also fo­cus on auto an­cil­lary space, as it seems to be one of the ma­jor ben­e­fi­cia­ries.

The ben­e­fits of GST have been well­doc­u­mented but mar­ket par­tic­i­pants need to be pa­tient and wait for at least cou­ple of quar­ters to fully un­der­stand the im­pact of GST on the earn­ings and sales growth in the au­to­mo­biles sec­tor in

India.

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