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Correction in auto stocks not enough to turn optimistic: CLSA

The brokerage maintains negative ratings on 70% of Indian auto stocks under coverage.

ET Bureau|
Sep 19, 2019, 08.21 AM IST
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Uncertainty around a GST rate cut as an additional factor is also resulting in customers postponing their buying decision, the brokerage said.
Mumbai: Foreign brokerage CLSA sees few reasons to turn optimistic on the auto space despite sharp corrections in the sector stocks given continued weak demand and big regulatory headwinds.

The brokerage has negative ratings on 70 per cent of Indian auto stocks under its coverage. A survey of 27 dealers across three key Indian states that see an early start to the festive season revealed that majority of the two-wheeler and passenger vehicle dealers continue to see weak demand and decline in sales volumes compared to year ago levels, said CLSA.

Several dealers have not seen even the usual seasonal uptick in demand, said the foreign brokerage.

Auto companies which have been battling slowdown in sales amid liquidity crisis, regulatory and policy changes were pinning hopes on the festival season for a pick-up in sales. Vehicle sales tumbled to a 22-year low in August. Data released by industry body Society of Indian Automobile Manufacturers (SIAM) earlier this month showed passenger vehicle sales decreased for the tenth straight month in August by 31.57 per cent to 1,96,524 units. This was the sharpest fall registered since SIAM started recording data in 1997-98. The BSE Auto index is down 24 per cent so far in 2019 while the BSE Sensex is up 1.4 per cent in the same period.

“The latter part of the festive season, mainly in October this year, is typically more important for auto sales, but a weak start is still a concern,” said CLSA. “Absence of a meaningful demand pick-up in the remaining festive season is likely to necessitate significant channel inventory destocking, especially for 2Ws,” said CLSA.

Uncertainty around a GST rate cut as an additional factor is also resulting in customers postponing their buying decision, the brokerage said.

Moreover, channel inventory remains high, particularly in two-wheelers, according to CLSA.

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