The markets have turned exceedingly volatile in the last few trading sessions. It maybe a good time to buy stocks ahead of the festive season, as some from the auto sector could benefit. Sharekhan has recommended buying select auto stocks from the OEM space in its latest report on the automobile sector.
Sharekhan's preferred stock picks from the auto space
Sharekhan has suggested buying the stocks of Hero MotoCorp, Eicher Motors, TVS Motor, M&M, Maruti Suzuki and Escorts Kubota.
"We remain quite positive on the demand outlook for the automobile industry, with two-wheelers expected to lead the pack, followed by passenger vehicles (PV), tractors, and commercial vehicles (CV). Our interaction with dealers suggests a massive increase in enquiries and customer footfalls at the showrooms, especially in the rural and semi-rural locations, likely to result in higher retail purchases across the segments. In respect of 2Ws and PVs, the order books continue to prosper, led by exciting new launches and improving production capacities by the OEM players," the brokerage has said.
Rural demand to drive 2-wheeler retail sales, says Sharekhan
According to the brokerage firm, driven by positive rural sentiments, new launches and attractive sales schemes ahead of the festive season, it expects two-wheeler volumes to recover, especially in the entry and executive motorcycle segment, which has been sluggish lately. Premium segment bikes are also expected to do well.
Pending orders for Passenger vehicles on a rise
According to Sharekhan, easing the chips shortage situation would help production to improve for passenger vehicles and premium 2-wheelers. Pending orders witnessed a strong increase, led by both demand and supply shortages. EV and CNG models continue to gain traction. However, according to the brokerage exports are witnessing slowdown.
Commercial vehicles segment continues to remain buoyant
Sharekhan, expects a robust recovery in commercial vehicle sales, led by increasing economic activities and improving sentiments of fleet owners at a lower cost of ownership under BS-VI vehicles and a low base. "Buses and 3Ws are also expected to see recovery. Tata Motors, Ashok Leyland, and Eicher Motors are expected to dispatch 33,300 units (up 5.7% m-o-m), 14,850 units (up 5.2% on m-o-m), and 6,250 units (up 3% m-o-m), respectively, in September 2022," the brokerage has said.
Shares to buy according to Sharekhan
In the OEM space, Sharekhan prefers rural-centric companies with a strong balance sheet. "In the 2W space, we like Hero MotoCorp, TVS Motor, and Eicher Motor led by successful new launches, positive sentiments in rural and semi-urban areas, and comfortable valuations. In the tractor segment, we like M&M, given its leadership position in the tractor segment and its continued strong performance in other segments such as LCVs and utility vehicles (UV). We also like Escorts Kubota, aided by a strong balance sheet with high cash and its synergies with Kubota Corporation," the brokerage has said.