Analysts warn investors against small auto and auto ancillary firms

MUMBAI: Small auto and auto ancillary companies are witnessing a dream run on Dalal Street, riding on the broader optimism in mid- and small-cap stocks in the last couple of years. Fund managers are, however, wary about the prospects of these stocks as many of them have risen despite hazy earnings outlook.

Mid and small cap players like Force Motors and SML Isuzu have seen a three-fold rise in less than a year, while lesser known auto part makers such as JMT Auto, Brakes Auto, ZF Steering Gear, Rasandik Engineering and Castex Technologies, among others have at least doubled in the period.

“Those buying into many small and mid cap counters have lost all sense of valuation,” said Samir Arora, fund manager, Helios Capital. “Many small and mid cap stocks are rising like there is no tomorrow but investors must remember that looking at valuations is important.”

From a 52-week low of Rs 20 in January this year, JMT Auto shares gained to touch a high of Rs 133 on Wednesday. ZF Steering’s market cap touched Rs 1,700 crore on Wednesday compared to Rs 400 crore in August last year. The stock price of the company touched a 52-week high of Rs 2,118 on Wednesday.

A couple of influential stock market operators, who are currently based in Dubai and London, are active in many of these stocks. Brokers said traders are pushing these stocks on the grounds that the market capitalisation of Eicher Motors has risen from Rs 20,000 to Rs 55,000 crore in just a year. Also, the market has been agog with speculation about the companies’ proposed exclusive tie-ups with foreign auto makers.