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Auto Stocks in Bullish Mode; Slowly Getting Back To Pre-Lockdown Levels

A clear trend indicates the Auto companies' stocks are now faring better at the markets after hitting record lows during the initial phase of the Coronavirus lockdown.

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At most places the vendor base is now well in place to take care of any supply chain disruptions.

Highlights

  • Many factors contibuting to positive movement of auto stocks
  • Auto sector is betting big on a good harvest and a favourable monsoon
  • The Auto sector contributes around 15% of total GST every year

The Indian automobile sector is taking baby steps towards restoring normalcy in its operations in the last few weeks. As manufacturing resumes and demand goes up, the share prices too are rising, albeit at a slow pace. A look at the stock prices at the Bombay Stock exchange of major listed companies from the Automobile sector indicates that values are crawling back to pre-Covid levels. In fact, some manufacturers like Bajaj Auto, Mahindra & Mahindra and Eicher motors have breached the prices that were recorded in the early part of March this year.

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Auto companies' shares hit unexpectedly low levels during the first phase of nationwide lockdown.

Analysts believe this is a good sign for the economy. "This indicates expectations of better rural demand, thanks to a good harvest and expectations of a favourable monsoon season going forward." said Shamsher Dewan, Vice President and Sector head, Corporate sector ratings, ICRA. He added "As there is gradual opening up of the economy, manufacturing activity levels are gradually improving at various companies."

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Analysts believe this timely recovery of stocks is a good sign for the economy.

Auto stock prices were at their worst in the March to June period during the first phase of the nationwide lockdown owing to the Coronovirus pandemic. But post that price levels are indicating to increased positivity. On March 1, 2020 a share of Maruti Suzuki was listed at ₹ 6,284 which on June 12 closed at ₹ 5,540. This after seeing a low of ₹ 4,011 on April 3. Tata Motors had reached ₹ 105 on June 12 in comparison to ₹ 125 on March 1 and Mahindra was even better where the June 12 price stood at ₹ 508, a lot better than ₹ 458 seen in March first week. TVS Motor company too closed at Rs 342 on June 12 in comparison to ₹ 420 on March 1. This after hitting a low of ₹ 252 per share on April 3, 2020.

Also read: India's Vehicle Scrappage Policy To Be Finalised Soon

Companies like Mahindra & Mahindra are focusing on tightening capital allocation and conserving cash. Dr. Anish Shah, Deputy Managing Director and Chief Financial Officer at the company sounded optimistic on the current situation. Announcing the company's Financial results for the FY 19-20 he said,"As of today we have a total of ₹ 12,000 cr of cash. There is plenty on our plate in terms of growth potential but we're going to be very cautious."

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All major Automobile manufacturers have resumed manufacturing operations in the month of May 

Share prices of companies such as JK Tyre, Bharat Forge and Motherson Sumi one of the largest suppliers to Maruti Suzuki too have risen by more than 50 per cent in the last 2 months. About this rebound, Sridhar V, Partner at Grant Thornton India LLP had a more cautious view to share. He said, "The market has started giving the sector a thumbs up with most of the players slowly getting back into operations from a virtual stand still about 2 months ago. The momentum is yet to pick up but the expectations of a normal rain and the demand for private commute picking up in the near term is reflected in the uptick".

Also read: Coronavirus Lockdown: Vehicles Registrations Decline By 89 Per Cent In May 2020

At most places the vendor base is now well in place to take care of any supply chain disruptions. As the number of factors which are contributing to the positive movement of auto stocks keep piling up, it only means that the sector, which contributes around 15 per cent of total GST collections every year, might have seen its worst this year already. This surely has added to the confidence of investors at the stock markets.

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