Auto stocks in focus: Domestic PV volumes improve with easing chip supplies in July; CV stable, 2W improving – brokerages recommend this

Auto stocks to buy: The overall automobile segment reported healthy numbers in July month. The passenger vehicle (PV) segment witnessed a strong growth amid the easing semiconductor chip shortage issue, while the commercial vehicle (CV) demand was seen as stable by brokerage houses. 

Improvement in wholesales for PVs sequentially reflected the easing of chip shortages. New model launches by OEMs will help sustain PV demand, domestic brokerage firm Motilal Oswal said. 

Similarly, Kotak Institutional Equities also noted that the PV segment witnessed sequential improvement in volumes on the back of easing supply-chain constraints in July 2022.  

While the CV segment saw a marginal decline in volumes on a month-on-month (MoM) basis in July 2022, Kotak Institutional further stated. While Motilal Oswal said, both M&HCV and LCV volumes were in line with estimates. M&HCV/LCV volumes grew 61/31 per cent YoY, respectively.

According to Kotak, the domestic two-wheeler (2W) volumes remained muted whereas export 2W volumes witnessed a decline in volumes on a year-on-year (YoY) basis in July.  

While Motilal Oswal said, retail domestic demand for 2Ws showing signs of improvement and inventory buildup for the festive season is anticipated from the next month while 2W exports are seeing stress due to multiple factors.  

With respect to Tractor’s July sales, the segment reported a double-digit decline on a YoY basis, Kotak said. Whereas Motilal Oswal believes tractor sales are likely to improve with the monsoons covering most parts of the country, barring a few states. 

While easing semiconductor supplies boosted PV retails and CVs continue to grow on improving economic activities and high-capacity utilization; the 2Ws segment is yet to recover amid the high cost of ownership, according to Motilal Oswal. 

The brokerage prefers four-wheelers over 2Ws backed by strong demand and a stable competitive environment and expects the CV cycle to maintain its momentum.  

“We prefer companies with higher visibility in terms of a demand recovery, a strong competitive positioning, margin drivers, and balance sheet strength,” Motilal Oswal said in its auto sales review.  

Maruti Suzuki and Ashok Leyland are top OEM picks, while among auto component stocks, it prefers Bharat Forge and also like Tata Motors as a play on the global PV cycle, the domestic brokerage said.