Avoid Auto Stocks
July 20, 2011 | In: Stocks Analysis
My advice is to avoid Auto stocks for now because if you notice, most of these companies are reporting very low sales numbers for the quarter and thus results are also expected to be not so good. The issue is that the results for most companies would come below expectation and thus stocks will remain under pressure. The problem with most of these auto companies is low number of sales and thus lower profits. Last year auto companies had seen exceptional growth and this year the demand could not kept in pace due to high interest rates. If not inflation, RBI has definitely been successful in cutting the demand, atleast for the auto companies, seeing the kind of dampened growth in sales, auto companies are going to slack for now.
A lot of people might be looking for an opportunity to enter some of the good auto companies at lows but I’d advice to avoid buying right now as there is really no hurry here. The stocks would keep facing the pressure atleast till a couple of more months. If one wants to invest into auto stocks from a long term view, then I’d suggest after 2-3 months because that would be around the time when these companies trade lowest. The demand in autos would pick up when we peak out in terms of interest rates and around the festivals when sales of auto companies go up. I expect things to turn little positive around the end of year and thus a good purchasing time in autos would be around September or later, of course keeping market conditions then in mind.
My views are only for the core auto sectors, for some reasons the demand in the auto ancillary sector remains quite interesting. Im expecting auto ancillary companies to continue to post good growth moving forward. To my surprise, Steel Strips Wheels posted a strong growth in profits and if I remember, Sona Koyo had also guided for a good growth. Rane Madras also posted a good upside, which clearly shows they’re outperforming the core sectors in terms of growth. As you can see Ashok Leyland posted big downtake on profits, Bajaj Auto also disappointed the street etc.
For me, Tata Motors from four wheeler space and Bajaj Auto from two wheeler space would be two picks in the Auto Sector but only when they bottom out and are available at a low valuation.
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