Auto sector skirts demonetisation's deepest fears
An investor, for instance, is first likely to go for passenger car company stocks, followed by tractors and two-wheeler stocks, and in the end, trucks.
But clearly investors aren't going to rush back to buy these stocks. An investor, for instance, is first likely to go for passenger car company stocks, followed by tractors and twowheeler stocks, and in the end, trucks.
Currently, the top picks in auto space are Maruti Suzuki and Eicher Motors. The passenger car segment looks least impacted by the cash crunch given that the two biggest car makers Maruti and Hyundai have seen a volume decline of only 4% year-on-year in December 2016. The two account for nearly 70% of the total market.
What restored confidence among investors was the fact that the drop in retail sales -when dealer sells vehicles to a customer -was restricted to only 5% against an anticipated 15% post demonetisation.
India's largest car maker Maruti, which had recorded a drop of 4% in December, is picking up the pieces; even in the rural segment, Maruti grew more in December than what it did between April and November.
Even tractors are doing well and are reversing their fortunes they grew 10% in in December. M&M's tractor volumes increased 9% yoy against an expectation of a flat volume growth. Escorts, a leading tractor company in North India, has seen its tractor business record a 16% growth in December.
On the commercial vehicle front, truck makers had indicated that normalcy would return from mid-December. This has restricted the fall of truck makers such as Tata Motors and Ashok Leyland to 10% yoy against an expectation of 30%.
The volumes of CVs will continue to improve as OEMs start preparing for the emission norm change from April -both February and March are likely to witness strong growth this year due to pre-buying.
Two-wheelers is the only segment where volume has slowed down further from the November levels, with the industry slipping nearly 20% in December against 6% in November.Volumes for the largest player Hero MotoCorp declined 34% yoy, while Bajaj and TVS volumes slipped by about 10%.