Tyre stocks are capital efficient in nature: Dhiraj Sachdev

In a chat with ET Now, Dhiraj Sachdev, Sr VP & Fund Manager-Equities, HSBC AM India, shares his views on Tyre sector.

ET Now: A month back or so tyre stocks were really the flavour of the fortnight so to speak, do you still like them?

Dhiraj Sachdev: We like the space and continue to retain our positions in many of them. The fact is that when you look at it, there still valuations are attractive compared to many of the auto ancillary businesses. Second is there is a huge replacement demand which means that the growth momentum should continue.

Some of them are global players talking about economic recovery in Europe, some of them stand to benefit out of it and the other thing that is favourably happening for the sector as such is the correction in rubber prices.

So you already say multiyear kind of lower levels of rubber prices. So the fact is that valuations are attractive, these are large size businesses, large size companies, entry barrier is there because the business is highly capital intensive in nature. Most of them earn almost 18% to 20% in terms of return on equity.

So they are capital efficient in nature and plus the replacement demand. So we like the space as such.