Brokerages and rating agencies seem divided over the outlook of the auto sector which though inched higher sharply after the lockdown as there is seen

1. Sharp rebound in recovery from rural sector
2. Inclination of individuals to opt for personal mobility in comparison to common transportation means
3. Low interest rate regime

BSE Auto Index gains 82% Since March Lows

From the highs of 19056, the BSE auto index too met the blow of the sharp route faced by the stock markets and hit a low of 10141.45 was last trading at 18444.96, which is gains of over 80%.

Research firm Emkay Global bets on 3 auto stocks:

As people amid the pandemic have turned cautious and now opt for personal mobility in comparison to shared mobility or public transport, there is still seen demand in the segment even when there is all across recession.

While the risk the sector even now faces is threat of slower economic rebound with GDP for the June ended quarter 2020 slumping to over 20%, higher competition and unfavorable currency or commodity rates

1. Hero MotoCorp; Upside of 21% Seen

On strong demand from the rural sector as well as high presence, the brokerage firm Emkay Global expects the company to gain 50 bps market share during FY20-22E. The company sees a 21.2% upside for the counter and sees a target at Rs 3,701 apiece

2. Bajaj-Auto

: Emkay Global in the two-wheeler auto space volume growth of 26% for FY22 and 8% in FY23. The brokerage for Bajaj Auto sees a 21.15 percent upside with a target price pegged at Rs 3,691. The near-term volume performance is likely to remain under pressure in both domestic and export markets. “We expect a pick-up by FY21-end, led by replacement demand and a gradual improvement in business and economic activity,” it added

3. Eicher Motors:

Over the period FY20-23E, there is seen gain in market share by 80 bps considering launch of new products that also takes into account re-launch of Thunderbird in October 2020. Also, there is planned doubling of distribution within 2 years. The company sees an upside of 27.28% in Eicher Motors scrip.

Divided view on the auto sector:

Nonetheless, one cannot even sideways the outlook on the overall estimated sales figures being arrived at by rating agencies. On a more recent basis, Care ratings for the FY21 expect sales of autos barring tractors to just grow by 5-7%. This is considering stricter lending regime, higher vehicle prices and insurance cost among other factors being cited by the agency.

Notably, when India remained under strict lockdown from April to August, sales tumbled by 13.3%, which in the year ago period was at 14.5%.

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