The auto sector’s sales momentum is expected to be good for the month of June on the back of an improvement in semiconductor chip supply and recovery in demand. CV (commercial vehicle), and Tractor segments are also likely to trend higher in a seasonally strong month, said analysts. Further, 2-wheelers volumes would also
be better for most OEMs (original equipment manufacturers) thanks to a ramp-up in production, they added.
This can be seen in the performance of the auto index in June. The Nifty Auto outperformed benchmarks in June in an otherwise weak market, rising around 2.5 percent as against a 6 percent decline in Nifty50.
In the past 1 month, the performance of auto stocks has been a mixed bag. Seven of 15 constituents from the Nifty Auto index have delivered positive returns while the remaining 8 fell during the month. Tive Invest India and TVS Motor rose the most, up 13 percent and 12 percent, respectively during the month. Meanwhile, Maruti Suzuki, M&M, Ashok Leyland and Bosch added over 5 percent each in this period. Eicher Motors was also in the green, up 2 percent for the month.
However, among losers, MRF and Amara Raja lost the most, over 8 percent each whereas Bharat Forge, Balkrishna Industries, Tata Motors and Exide Industries declined over 5 percent each. Hero Moto and Bajaj Auto were also in the red during the month.
However, the rising prices and monsoon deficit remains a concern.
"In June 2022, CVs 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, 2-wheelers volumes would be better for most OEMs thanks to a ramp-up in production. In comparison, PV volumes should be a mixed bag for listed OEMs," domestic brokerage house Emkar Research said in its auto sales preview notes.
It retained a positive view of the auto sector. "Among OEMs, we prefer Tata Motors, Maruti Suzuki, and Escorts. Among ancillaries, we prefer Motherson Sumi and Minda Industries," said Emkay.
According to the brokerage, CVs should remain in an uptrend. It is important to note that the comparison of YoY growth is not meaningful due to the low-base effect owing to the second COVID wave impact.
On a sequential basis, it expects positive growth for Ashok Leyland at 9 percent, Tata Motors at 8 percent and Eicher Motors at 1 percent, however, it sees a slight decline for M&M at 5 percent for the month of June.
Commenting on tractor sales, the brokerage noted that the tractor volumes are also likely to improve MoM, with a growth of 11 percent for Escorts and 10 percent for M&M in the domestic market in June. Growth has been restricted as farmer sentiments have been hit by lower crop realizations in recent months, it added.
However, PVs are likely to be a mixed bag for listed players, predicted Emkay. Among OEMs, it estimates domestic volumes to grow by 2 percent MoM for Tata Motors, while it sees a decline of 1 percent and 3 percent for Maruti Suzuki and M&M, respectively.
"For the industry, we expect a sequential improvement due to better production/dispatches. Vehicle discounts have decreased MoM and remain significantly lower than the elevated levels seen in the past," the brokerage pointed out.
Finally, regarding 2-wheelers, the brokerage forecasted that the volumes are likely to improve MoM in June by 4 percent for Bajaj Auto, 3 percent for Eicher Motors (Royal Enfield) and 2 percent for TVS Motors due to a ramp-up in production and better demand in salaried/student segments as per checks. However, it expects an 8 percent decline for Hero MotoCorp. Last month was better for Hero due to strong marriage season demand, added Emkay.