M&M jumps 6%, auto stocks lead Sensex gainers on festive demand, preference for personal vehicle

Automobile companies shares were leading the gainers on BSE Sensex, rallying up to 6 per cent on Wednesday. BSE Auto index gained 2.25 per cent in today’s trade led by Mahindra & Mahindra shares which soared 5.8 per cent to Rs 649.45 apiece. It was followed by Bajaj-Auto which rose 3.36 per cent to day’s high of Rs 3,039.85. Similarly, Tata Motors shares jumped over 4 per cent to Rs 154.25 apiece. The gainers on the BSE Auto index were Ashok Leyland, TVS Motors, Exide Industries, MRF, Motherson Sumi Systems, Eicher Motors, Hero MotoCorp and Maruti Suzuki, up in the range of 0.50-3 per cent. Analysts believe that vehicle registrations have improved due to unlock phase, festive demand and preference for personal vehicles. “Vehicle registrations for August’20 showed sequential improvement on account of increase in mobility needs due to continued unlocking of India and higher festive demand,” said the research firm Nirmal Bang.

Higher demand for entry-level passenger vehicles has been witnessed last month due to a shift in preference for personal mobility. Tractors, small commercial vehicles (SCVs) and entry-level passenger car registrations have continued to remain strong amid rural revival on the back of higher government spends, good monsoon and healthy Kharif sowing season, the brokerage firm noted. 

Research and brokerage firm HDFC Securities believe that the scrapping scheme would benefit the auto sector where CV sales have been impacted by the increase in axle load norms, the introduction of BSVI vehicles and the COVID-related downturn. The brokerage firm has given an ‘add’ rating on Tata Motors and a ‘reduce’ on Ashok Leyland.

Currently, automotive demand is driven by the need for commuting as public transport is either shut or risky, says JM Financial Institutional Securities. It further added that enquiries and footfalls in rural India remained buoyant. In rural areas, demand for UVs (Brezza, Ertiga, Scorpio, etc.) and pick-ups (Bolero) is strong. Financing remains tight and the share of cash sales has increased by 5-10 per cent. 

Macquarie Research has a positive bias towards the auto sector based on the expectation of strong volume growth and margin expansion in the initial phase of recovery. The top picks of this brokerage are Bajaj Auto, Escorts and M&M based on a combination of growth outperformance, margin expansion and reasonable valuation. While it has an ‘outperform’ rating on Maruti Suzuki, TVS Motors, and Ashok Leyland among OEMs and Endurance, Motherson Sumi Systems, Mahindra CIE and Sandhar among auto ancillaries.