BSE Auto hits 7-month high; Maruti, Hero Moto rally up to 13% in one week

Hero MotoCorp, Maruti Suzuki, M&M, Bosch and TVS Motor gain up to 13% in a week

Shares of automobile companies continued their northward movement as the S&P BSE Auto index hit seven month high on hopes of positive sales momentum in June. Meanwhile, stable commodity prices are benefitting the domestic automobile space.

At 3:07 PM, the S&P BSE Auto index was up 1.07 per cent at 26,707.86 points, as compared to 0.78 per cent rise in the S&P BSE Sensex at 53,141.09 points. The auto index hit a seven month high of 26,903.54 in intra-day trade. It traded at its highest level since November 18, 2021. With this, it has recovered 28 per cent from its 52-week low level of 21,083 that it had touched on March 8, 2022.

In the past one week, the S&P BSE Auto index rallied 10 per cent, as against 3.3 per cent rise in the S&P BSE Sensex. Among individual stocks, Hero MotoCorp, Maruti Suzuki India, Mahindra & Mahindra, Bosch and TVS Motor Company have gained in the range of 10 per cent to 13 per cent during the week. Besides that, Eicher Motors, Tata Motors, MRF, Ashok Leyland, Minda Corporation, Bajaj Auto and Cummins India gained between 6 per cent and 9 per cent.

However, the profitability of auto sector has been adversely impacted due to disruptions in supply chain (chip availability) and increase in key commodity prices namely crude and metals amid ongoing geo-political tensions.

Analysts believe that the positive management commentary on stable commodity prices coupled with improvement in chip availability suggests a step towards resolution of supply chain disruptions. 

That apart, the pick-up in monsoon season with cumulative rainfall pegged at -7 per cent of LPA and excise duty cut on fuel (Rs 8/litre on petrol, Rs 6/litre on diesel) in May 2022 will be beneficial for the auto sector. "The excise duty cut on fuel would lower running costs of vehicles and give impetus for new vehicle sales. Besides that, the decline in global crude prices (down around 10 per cent plus from recent highs) is a positive in terms of RM costs (crude derivatives- plastics)," the brokerage firm said.

Meanwhile, analysts at Emkay Global Financial Services’s channel checks indicate that CVs maintain a positive growth momentum on a sequential basis in June 2022. "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," the brokerage firm added.

Among OEMs, Emkay Global is positive on Tata Motors, Maruti Suzuki and Escorts. In the ancillaries segment, they prefer Motherson Sumi and Minda Industries.