BSE Auto reaches its highest level in 7 months; Maruti and Hero Moto recover up to 13% in one week

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Automaker stocks continued to move north as the S&P BSE Auto Index hit a seven-month high on hopes of positive sales momentum in June. Meanwhile, stable commodity prices benefit the domestic auto space.

As of 3:07 p.m., the S&P BSE Auto Index was up 1.07% at 26,707.86 points, compared to a 0.78% rise for the S&P BSE Sensex Index at 53,141.09 points. The auto index hit a seven-month high of 26,903.54 in intraday trading. It traded at its highest level since November 18, 2021. With that, it recovered 28% from its 52-week low of 21,083 that it hit on March 8, 2022.

Over the past week, the S&P BSE Auto Index is up 10%, compared to a 3.3% rise for the S&P BSE Sensex Index. Among individual stocks, Hero MotoCorp, Maruti Suzuki India, Mahindra & Mahindra, Bosch and TVS Motor Company gained between 10% and 13% during the week. Additionally, Eicher Motors, Tata Motors, MRF, Ashok Leyland, Minda Corporation, Bajaj Auto and Cummins India gained between 6-9%.

However, the profitability of the automotive sector has been affected due to supply chain disruptions (availability of chips) and the increase in prices of key raw materials, namely crude and metals, amid tensions persistent geopolitics.

Analysts believe management’s positive comments on commodity price stability, coupled with improved chip availability, suggest a step toward resolving supply chain disruptions.

That aside, the resumption of the monsoon season with cumulative rainfall set at -7% LPA and a reduction in fuel excise duty (Rs 8/litre petrol, Rs 6/litre diesel ) in May 2022 will be beneficial for the automotive sector. “Reducing fuel excise duties would reduce vehicle operating costs and boost new vehicle sales. In addition, lower global crude prices (down about 10% from recent peaks) is a positive factor in terms of RM (raw-plastic derivatives) costs,” the brokerage said.

Meanwhile, Emkay Global Financial Services Channel Verification analysts report that CVs maintain positive growth momentum on a sequential basis in June 2022. “Tractor volumes are also expected to increase in a strong seasonal month. . for most equipment manufacturers thanks to a ramp-up in production. By comparison, PV volumes are expected to be mixed for listed OEMs,” the brokerage firm added.

Among OEMs, Emkay Global is positive on Tata Motors, Maruti Suzuki and Escorts. In the accessories segment, they prefer Motherson Sumi and Minda Industries.

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