Rains, wage rise lift auto index to 52-week high

The Index has recovered almost 30% since February 12 this year when it hit a 52-week low

It’s a bull run for automobile makers in the equity market. Two major recent positive events — forecast of a good monsoon (after two years of rain deficit) and announcement of pay commission increases — lifted the Auto Index at the BSE exchange to a yearly high on Monday.

The Index has recovered almost 30 per cent since February 12, when it hit a 52-week low. Most automobile stocks had also hit a 52-week low in February.

The BSE Auto Index (19,904 points, as of Monday) is only marginally behind an all-time high of 20,386, seen in January 2015. Stocks at the forefront of this rally are of two-wheeler companies and tractor makers. Hero MotorCorp, the country’s largest two-wheeler maker, had a 52-week high on Monday; it is up 20 per cent since January. Its competitor, Bajaj Auto reached a 52-week high on Friday.  

Utility vehicles and tractor major Mahindra & Mahindra has also seen its stock surge to a 52-week high on Monday. It was at a 52-week low in February, a little more than a month after the Supreme Court imposed a ban on diesel vehicles with an engine capacity of 2,000cc or more in the National Capital Region.

It has rallied 35 per cent since then. The largest tractor maker, it will benefit from a good monsoon; a revival of sentiment in rural markets will also drive sales of its utility vehicles.

The projected pick-up in tractor demand will also benefit Escorts. The company has seen its stock price double in the past five months.

In its monsoon outlook report, issued on Monday, rating agency ICRA said it expected demand for two-wheelers and tractors to grow at four to six per cent and six to seven per cent, respectively, in 2016-17.

“Demand recovery from rural households for two-wheelers, as well as tractor sales, is expected to improve gradually during the year, if the forecasts of a healthy southwest monsoon, with adequate geographic and temporal distribution, materialise. Additionally, implementation of the pay commission recommendations and expectations of softer interest rates would support demand for two-wheelers from urban households,” it said.

Tata Motors’ stock price has risen 76 per cent since February, when it also hit a 52 week low. Its improved outlook is on the back of rising sales of Jaguar Land Rover (the foreign business) and growth in the domestic commercial vehicle business. The scrip of the country’s largest car maker, Maruti Suzuki, has also appreciated 30 per cent after hitting a 52-week low in February. It also stands to benefit from a good monsoon and the increased salaries of government employees.