Auto stocks, which had come under heavy selling pressure amid Coronvirus-induced lockdown, have seen sharp recovery with the auto index gaining over 70 per cent since March market lows. The frontline market index Nifty has recovered 49 per cent since the March 23 lows.
Auto ancillary stocks and commercial vehicle players have been among the major gainers. Motherson Sumi (120 per cent), Mahindra & Mahindra (107.7 per cent), Balkrishna Industries (95.3 per cent), Ashok Leyland (92.6 per cent), Amar Raja Batteries (90.2 per cent), have seen among the highest gainers within the BSE auto index, since March 23.
Experts say auto sector is seeing green-shoots, as against the worst-expectations that the Street was building-up.
“We are seeing several encouraging signs. In July and August, the demand has sustained, which can be seen from the secondary sales,” said Kunj Bansal, partner and chief investment officer at Sarthi group.
Analysts have started to upgrade volume estimates for FY21 and FY20, following June quarter numbers. "The demand recovery surprised origninal equipment manufacturers (OEMs) and dealers," analysts at Motilal Oswal Financial Services, pointed out in a note.
Domestic institutional investors (DIIs) have been increasing their allocations to auto sector. In June quarter, DIIs raised their weightages towards auto sector by 100 basis points (bps) on a Q-o-Q basis. Auto was the sector to see the second largest-jump in weights by DIIs, showed a report by Motilal Oswal Financial Services.
Among two-wheelers and passenger car segment, Hero Motocorp (87.8 per cent), Tata Motors (73.5 per cent), Maruti Suzuki (65.6 per cent), Bajaj Auto (57.6 per cent), Eicher Motors (57.4 per cent), have been the top-gainers since March 23.
“The auto sector had got de-rated as the expectations were that the pre-Covid slowdown in sales would continue to remain aggravated in light of the pandemic. However, we are seeing green-shoots, which is driving the positive sentiments,” Bansal said.
Bansal pointed out that the management commentaries coming from the auto ancillary players suggest that their orderbooks are full for both August and September. “This means that auto OEMs are seeing that kind of demand visibility, which is why they are placing orders with the ancillary players,” he said.