Buy autos on 15-20% dips: Rajesh Jain
ET Now caught up with Rajesh Jain, director, Research & Sales, Mview: Marvadi Shares & Finance, to get his views on the outlook of the auto pack.
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| ET Now caught up with Rajesh Jain, director, Research & Sales, Mview: Marvadi Shares & Finance, to get his views on the outlook of the auto pack.
You have got a couple of ideas on the sell side and autos seem to form a fair part of that, now we have heard two stories, two sides of the stories as far as autos are concerned, some seem to back based on the domestic traction, others are saying stay away given the tax hikes which are on the anvil?
Sell auto is clearly a timing play for two reasons. Ever since the markets have recovered from the lows of March 2009, auto has been one of the key engines of the up move largely on the basis of the strong volume growth led by demand traction as well as input cost deceleration which led to margin expansion.
Now, this theme has helped to fatten the bottom lines of most of the automobile companies and in the process somewhere in the latter part of 2009, we saw commercial vehicles volumes pick up as a result of which Tata Motors and Ashok Leyland also joined the Maruti and the Hero Honda pack in terms of profit rejuvenation. All the good news is in the price and what you now have to grapple with is input cost increase compared with competitive pressure which will put a lid on your pricing power.
Now, add to that the expectation that there could be some stimulus rollback and if excise duty forces you to take some price hikes again, then the competitive picture particularly if you look at Maruti, the stiff competition in the entry level small car business even though Maruti is well in trench and has several huge positives, will completely kill the pricing power that Maruti has and we believe that Maruti could be in for margin contraction. So, the merchant excise duty changes could be the trigger for an avalanche of underweighting on stocks such as this but we think that this is a timing play.
The minute you get to 15 per cent to 20 per cent dips on these counters, you should buy them for a one-year horizon where again because of the sustained domestic demand push, you will see these stocks rewarding you yet again.
You have got a couple of ideas on the sell side and autos seem to form a fair part of that, now we have heard two stories, two sides of the stories as far as autos are concerned, some seem to back based on the domestic traction, others are saying stay away given the tax hikes which are on the anvil?
Sell auto is clearly a timing play for two reasons. Ever since the markets have recovered from the lows of March 2009, auto has been one of the key engines of the up move largely on the basis of the strong volume growth led by demand traction as well as input cost deceleration which led to margin expansion.
Now, this theme has helped to fatten the bottom lines of most of the automobile companies and in the process somewhere in the latter part of 2009, we saw commercial vehicles volumes pick up as a result of which Tata Motors and Ashok Leyland also joined the Maruti and the Hero Honda pack in terms of profit rejuvenation. All the good news is in the price and what you now have to grapple with is input cost increase compared with competitive pressure which will put a lid on your pricing power.
Now, add to that the expectation that there could be some stimulus rollback and if excise duty forces you to take some price hikes again, then the competitive picture particularly if you look at Maruti, the stiff competition in the entry level small car business even though Maruti is well in trench and has several huge positives, will completely kill the pricing power that Maruti has and we believe that Maruti could be in for margin contraction. So, the merchant excise duty changes could be the trigger for an avalanche of underweighting on stocks such as this but we think that this is a timing play.
The minute you get to 15 per cent to 20 per cent dips on these counters, you should buy them for a one-year horizon where again because of the sustained domestic demand push, you will see these stocks rewarding you yet again.
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