All 15 Nifty Auto stocks above 200-DMA. Will Q2 results, festive demand give a fillip?

In a clear sign of strong bullish momentum in the sector, all 15 Nifty Auto stocks are trading above their 200-day moving average (DMA), a key technical indicator used to gauge long-term trends in the market. With about 27% return in the last 6 months, the index is among the best performers and is led by strong upside in Tata Motors, Maruti Suzuki, M&M and Hero MotoCorp.

In the September quarter, volume growth momentum remained steady for passenger vehicles (PVs) and commercial vehicles (CVs), but weak for two-wheelers (2Ws) and tractors. Analysts expect the automobile sector to register decent performance in Q2, largely driven by deliveries in the domestic market as OEMs have built up inventories ahead of the festive season.

"New model launches, positive sentiments, opening up of economy, easing of chip shortage issue, higher accumulation of inventory, better availability of vehicles etc, should all lead to a strong festive season," Ashwin Patil, senior research analyst at LKP Securities, said.

Given auto sector has witnessed a healthy retail uptick during Onam and Ganesh Chaturthi, it is expected that retail sales during the upcoming festive season (Diwali, Dusherra) would be strong compared to the previous year as the festive sales then were impacted by unseasonal rains and supply issues (chip shortage).

A resurgence in rural sentiment may improve the trajectory for 2Ws. "Margins will be a critical focus for 2W companies, and we expect a boost in revenue and margins due to the ongoing premiumization trend. This shift towards higher-end offerings in the 2W space aligns well with the evolving consumer preferences. Moreover, the recovery in rural areas is poised to contribute to the positive momentum in the 2W segment significantly," Abhishek Jain, Head of Research, Arihant Capital, pointed out.

Last month, OEMs reported a divergence in their wholesale numbers. While September wholesales rose 5-9% YoY for M&M, TVSL & Ashok Leyland and grew 2-3% YoY for Tata Motors, Maruti Suzuki & Hero Moto, they declined 1-4% YoY for Eicher Motors and Bajaj Auto.

"There is strong demand for utility vehicles (UVs), which is benefiting OEMs of favourable product mix by expanded profit margins despite average sales during the year," Geojit's Saji John said.

Over the past six months, the sector has outperformed the broader market, and is likely to consolidate in the near term, he said, adding that companies with strong product pipelines and distinctive offerings are expected to excel and benefit from a softening commodity cycle.

Geojit's top sector picks include M&M, Maruti Suzuki, and Ashok Leyland. For auto ancillaries, the brokerage recommends Samvardhana Motherson Sumi and CIE Automotive.

Sharekhan has picked Tata Motors, Hero Motocorp, M&M, Maruti and Escorts among OEMs while Nomura has a preference for M&M, Bajaj Auto, Tata Motors and Ashok Leyland.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)