Nifty Auto index at over 2-year high on hopes of strong Q3 earnings growth

Shares of vehicle and associated corporations had been in demand in Monday’s session with Nifty Auto index hitting an over two-year high, up greater than 2 per cent, on expectation of double-digit earnings growth within the October-December quarter (Q3FY21), aided by sturdy volumes.

At 02:20 pm, Nifty Auto index was up 2.14 per cent at 9,950 as in comparison with a 0.79-per cent rise within the Nifty50 index. The auto index hit an intra-day high of 9,970, its highest degree since September 27, 2018.

Thus far within the month of January 2021, the Nifty Auto index has outperformed the market by surging 8 per cent as in comparison with a 3.4-per cent rise within the Nifty50 index.

Among particular person shares, Tata Motors rallied 6 per cent to Rs 211 on the National Stock Exchange (NSE). Ashok Leyland, Maruti Suzuki India, TVS Motor Company, Mahindra & Mahindra, Bharat Forge, MRF and Bajaj Auto from the auto index had been up 2 per cent to 4 per cent.

GNA Axles, Jtekt India, JK Tyre, TVS Srichakra, Jamna Auto Industries, Steel Strips Wheels and Munjal Auto Industries, among the many non-index shares, gained between 4 per cent and 10 per cent.

A wholesome festive interval, components of pent-up demand and channel restocking helped the auto trade stay firmly on the recovery path in Q3FY21. Sales of passenger automobiles (PV), bikes and tractors continued to be buoyant, with a pick-up in truck and scooter gross sales a welcome growth.

OEM revenues are anticipated to rise on the again of constant quantity enchancment and higher realizations. Ancillaries with high alternative publicity (battery and tyre corporations) must also report strong growth. The vehicle sector stays a key beneficiary of financial recovery and low-interest charges.

“While topline performance is consequently expected to be strong across our coverage universe, margins are seen contracting sequentially on the back of a sharp rise in key raw materials like metals, rubber & other crude derivatives,” ICICI Securities mentioned in auto sector replace.

“In ancillaries, companies with high exposure to replacement channel (tyre and battery makers) are thought to have outperformed on the topline front. Companies with global exposure (Bharat Forge, Motherson Sumi) are expected to deliver relatively muted performance. Minda Industries and Balkrishna Industries are seen having done well courtesy a pick-up in demand from base industries (domestic 2-W, 4-W & global agri respectively), accompanied by comparatively healthy margin prints,” the brokerage agency mentioned.

Aggregate OPM (ex-Tata Motors) ought to broaden 40 foundation factors (bps) year-on-year (YoY), regardless of a surge in commodity costs, owing to higher scale, worth will increase and cost-cutting efforts, analysts at Emkay Global Financial Services mentioned. Cost-control efforts embody a discount in reductions, advertising and marketing spends, travelling prices and different variable and stuck bills.

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