Home > Finance > Zero April sales add to the Motown gloom, but stocks may still look up

Zero April sales add to the Motown gloom, but stocks may still look up


NEW DELHI: As auto sales grinded to zero in April and the chorus for government support grew louder, Dalal Street analysts remained cautious in their outlook for the sector.

India’s top automakers Maruti Suzuki, Royal Enfield and M&M reported zero domestic sales for the month for the first time ever, after the nationwide lockdown halted output and shut the sales network. However, some of them exported a few units as ports opened during the month.

With the government easing the lockdown measures in some parts of the country, automobile dealers body FADA was looking towards to resuming business again, but expects demand to remain weak.

“We need to see how much of demand has got affected. It is expected to be significantly lower and the industry will require enormous government support immediately after the lockdown to get the demand back on track,” said Ashish Harsharaj Kale, President, Federation of Automobile Dealers Associations (FADA) said.

He said government support in the form of a reduction in GST rate on automobiles and interest rates through banks and NBFCs will help spur demand.

Anticipating resumption of businesses and a rise in factory operations to full efficiency, auto stocks rallied on Friday. Nifty Auto Index gained 6.45 per cent, led by up to 20 per cent gains in certain constituent stocks.

Despite the late rally, Nifty Auto Index is down over 28 per cent year to date. None of its constituents is trading in positive for the current year. Going by the sales forecast of analysts, a complete recovery in stock prices may take time.

“For passenger vehicles, we expect Q1 volumes to dip 70-80 per cent, but they will come back to the long period average growth of 8 per cent by Q4 in fiscal 2021. Same will be the case with two-wheelers,” said Prasad Koparkar, Senior Director, CRISIL Research.

The credit ratings agency expects auto and auto component makers to the among the worst hit by the lockdown, as they will see highest possible erosion in revenue and hence face the higher risks of credit defaults and downgrades.

“Within consumer discretionary, sales of big-ticket items like cars will recover last. There is a school of thought that two-wheelers may see some initial demand as people will be worried about public transport. So, sales of two-wheelers may recover faster than cars,” said Shyamsunder Bhat, CIO at Exide Life Insurance.

He said companies may also face a space crunch to store newly-produced vehicles as it will take some time to clear the existing inventory.

Aishvarya Dadheech, Fund Manager, Ambit Asset Management, echoed Bhat’s thoughts and said the auto sector will have a relatively moderate recovery time as the concept of shared mobility will probably change.

However, some experts think, despite a dismal outlook, some auto stocks may continue to gain. Kunj Bansal, Partner & CIO, Sarthi Group, said with the consistent rise in the market, high-beta stocks and names from those sectors which were not participating earlier will join in on every rise, and they will include auto stocks.

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