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Informist, Friday, Feb. 07, 2024

MUMBAI – Shares of automobile companies are expected to trade in a range next week amid weak sentiment in overall equity markets owing to weaker-than-anticipated December quarter earnings and outflows by foreign investors. While the 25-basis-point cut in the repo rate by the Reserve Bank of India is positive for the sector, it needs more rate cuts for the economy to see significant growth, analysts said.

Analysts said income tax relief announced in the Union Budget on Saturday would leave higher disposable income in the hands of the middle-class, which is likely to increase demand. However, companies will not see their impact in next financial year, when the new income tax rules come into force. Investors would also focus on some automobile companies that are scheduled to announce their earnings next week, including the Nifty 50 constituent, Eicher Motors. Among others, Ashok Leyland will detail its Oct-Dec results on Wednesday.

"The interest rate cut by the RBI coupled with the government measures should boost overall consumer demand," said an analyst tracking the automobile sector at a domestic brokerage firm. Once the market stabilises and the sentiment improves, the consumer-facing sectors, especially the stocks of automakers, will see strong upside, he said. Better demand due to rate cut and income tax relief is likely to aid demand for two-wheelers and entry-level cars, he said.

This week, the Nifty Auto index closed at 23459.95 points, up 0.7%. Of the 15 constituents in the index, five gained over the last week. Mahindra & Mahindra and Ashok Leyland were among the top gainers. This week, Hero MotoCorp and M&M reported their earnings for the December quarter. The net profit came in better-than-expected for the two-wheeler manufacturer, while M&M missed the estimates by a wide margin. 

Most companies in their conference call with analysts said that the demand in rural areas is growing at a higher pace than that in urban areas. However, the urban demand is expected to improve in the coming quarters on the income tax relief announced in the Budget. The demand for two-wheelers manufactured by Hero MotoCorp saw a big spike in rural areas during the December quarter, with its contribution to overall sales increasing 3%, supported by the festival season, the company's management told analysts in a post-earnings conference call Friday. It expects the momentum to continue going forward in the next financial year as well, thanks to a host of government measures that may further improve rural sentiment, the company said. 

The Nifty Auto gained 0.7% this week, while the Nifty 50 and the BSE Sensex fell 0.3% and 0.5%, respectively. The Nifty Auto is expected to find support at 21950 points and face resistance at 24016 points, said Saral Seth, vice president-institutional equities at IndSec Securities & Finance.

TOP HEADLINES

* Earnings Review: M&M PAT, revenue grow in double digit Oct-Dec but miss view
* Analyst Concall: Saw big spike in rural demand Oct-Dec, Hero MotoCorp says
* Earnings Outlook: Better sales mix may lift Ashok Leyland PAT, sales to fall
* ZF Commercial Oct-Dec PAT rises 25.4% on year to INR 1.25 billion
* Earnings Review: Hero MotoCorp Oct-Dec on-yr PAT growth weakest in two years
* Motherson Sumi Oct-Dec PAT falls over 16% YoY to INR 1.4 billion
* Minda Corp Oct-Dec consol PAT rises 23.5% YoY to INR 648 million
* Uno Minda Oct-Dec consol PAT rises 20.2% on yr to INR 2.33 billion
* Jan auto retail sales up nearly 7% on yr, all segments report growth - FADA
* PRESS: Nissan board may scrap $60-bln merger plan with Honda, sources say
* M&M to open bookings for electric origin SUVs XEV 9e, BE 6 on Feb 14
* Ola Electric enters electric motorcycle segment with launch of Roadster X
* Hero MotoCorp gets INR 9.29-bln tax notices on dispute over rates on parts
* IPO Alert: Viney Corp withdraws draft papers for fresh issue, OFS
* TVS Motor's arm pays 1.6 mln euros to Killwatt;  400,000 euros due later
* Bosch gets INR-1.55-bln tax order from Bengaluru South Commissionerate
* Bajaj Auto Jan total sales up 7% on year; exports outperform domestic sales
* Hero Motocorp Jan exports spike 141%; total sales tad up at 442,873 units
* Emkay Global endorses shift from capex-led to consumption-led stocks
* Honda Cars India Jan total sales 12,304 units
* Maruti Suzuki Jan total output 206,851 units vs 204,876 units year ago
* Eicher Motors' Royal Enfield Jan sales at 3-month high of 91,132 units
* TVS Motor's January 2-wheeler despatches hit four-month high
* Samvardhana Motherson arms to form JVs with Japan-based Sanko

Following are the resistance and support levels for the stocks for next week as per calculations by Informist based on their prices on the National Stock Exchange:

End

US$1 = INR 83.43

Reported by Gopika Balasubramanium

Edited by Akul Nishant Akhoury

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