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October 2, 2022

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Auto stocks: Softening commodity prices lift auto stocks


Mumbai: shares Automobile makers rose in numbers on Thursday as a recent fall in global commodities, including metals, prompted investors to embrace some of the battered names. BSE Auto Index Jumped 4.4% to emerge as the top sector gainer on Thursday Maruti Suzuki Indiashares rose 6.3% to 8,274.60.

Eicher Motors,

Mahindra & Mahindra, and grew between 3.6% and 6%. The Sensex closed at 52,265,72 with a gain of 0.86%.

Kunj Bansal, CIO, said, “Investors are seeing opportunities in auto due to the fall in metal prices, while there are signs of strong demand in the passenger vehicle segment.

Many value investors are already removing beaten-down automobile stocks in recent months to help them outperform the market. The BSE Auto index is up 2.9% so far in 2022, while the benchmark Sensex is down 11.7 per cent during the period.

Auto stocks rise on softening commodity prices

Analysts said that despite recent performance, there’s still some more steam left auto stock,

“The cycle in auto stock rallies usually lasts for 24-30 months. Now that they have increased in the last six months, there may be a better performance for two more years,” Bansal said.

Auto stocks have been under pressure in recent years due to margin pressure due to supply-side problems, lower offtake in consumer demand and higher raw material costs.

“There has been hardly any growth in the last two years and the low base expects us to see growth in the auto sector. It is expected that the passenger vehicles will also register a growth in the next few months,” said Pankaj Pandey, head of research at ICICIDirect. Pandey pointed out that in the last few quarters, margin profiles of some companies had declined due to poor sales and steel prices, but steel prices have improved in the last two months which augurs well for auto companies.

“While crude oil prices have remained high, domestic prices of petrol and diesel have not increased. Domestic prices are lower after the tax cut,” said Pandey, who expects double-digit returns over Tata Motors, Ashok Leyland and Mahindra & Mahindra.

The sentiment in auto stocks has improved on the government’s decision to hike duty on steel exports due to softening of prices. The resultant fall in steel prices will be positive for the automakers who have been facing high cost cost pressure for the past one year.

Gaurav Dua, Senior VP and Head of Capital Markets Strategy at Sharekhan

It is bullish on Mahindra & Mahindra, Maruti Suzuki and Hero MotoCorp.

Dua said, “We will start seeing better monthly volume growth and after the uptrend, auto stocks will also be priced appropriately.


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