Bullish on auto components and CV space: Ajay Bagga

In a chat with ET Now, Ajay Bagga, Market Expert, shares his views on auto space. Excerpts:

ET Now: Auto components at large are to be suppliers to the CV market or to the private market, they had a fabulous 2014, can 2015 be a re-enactment of sorts of 2014 because these are not exactly very expensive stocks, capacity utilisation still not at the peak and the market seems to be only opening up?

Ajay Bagga: Market is opening up and exports should pick up even more. Quite a few of them are very interesting and multiyear performers. Managements have really rewarded minority shareholders that gives you the key and few of them are also defence plays so they will get defence orders. They are putting in new capacities. Some of them are announcing capex plans for the next two years. That gives a lot of confidence. So, auto ancillaries are definitely a buy and they will give good returns both in the short term as well as in the intermediate term.

ET Now: What about CV space?

Ajay Bagga: CV financials will turnaround quite strongly. Replacement cycle is starting definitely. It is not a bank, it is still a very small crawling that we are coming. We are seeing 5% growth year on year in January but November and December are also positive.

So a large part of the fleets are more than six years old instead of a four year replacement cycle. We have seen the replacement cycle getting pushed out. The other thing to note is that despite diesel prices being cut by the government by about 30% from last June, freight rates have only gone down about 5%. It shows that there is not excess capacity, the pricing power is there with these fleet operators so they will be able to translate that into fresh CV orders.

So, I would say all three plays are good either the CV manufacturer, the auto part suppliers into them and third the financials into these who will really finance the CV replacement cycle. This is a leading indicator.