Auto in a jam

GUEST COLUMN

The charts tell a course correction for auto stocks.

You know why we can never crash? It is because we are a rubber economy, which is destined to have a soft landing. Why are we so troubled then, if our cars are safe and our industries strong? There are two reasons.

One, we don't want to miss the bus, "what if Sensex moves up from 15000 to 20000". The find speculating and sitting on paper profits more exciting than taking a break and marking a profit or going 50 per cent in cash. Who wants to live a dull fence life anyway?

Second, cars are only what we drive home to. The auto sector has been bleeding or underperforming the Sensex from Mar 2006. Now if you drive a good car or bike and invest in Maruti, Hero Honda, Tata Motors or Mahindra the negative annual return (okay, marginally positive) on the stock is not a comfortable feeling. And if you were a more long term veteran with a better stock picking ability, you would have been definitely disenchanted by rubber and tyre stocks like MRF, which are still near 1994 levels.

The Indian summer, disappointing Infy which fell in love with 2000 (barely crossing September 2006 levels), ineffective Healthcare and FMCG has left us all pegging hopes on Auto, which again has not lived up to expectations. The wait is getting longer than expected and patience is running thin. It's like having a big Chevrolet stuck in a Lokhandwala jam.

So what are we left with? Reliance the conglomerate, Airtel cell phones, easy credit banking, Tata steel and Grasim cement? The rubber economy believe it or not can't help if the things continue like this, rubber and auto can only make the landing hard. And with just 5 per cent weight of Auto in Sensex, the new highs will remain a mirage.

So, if you are still looking for a trigger or news that will come and hit or save you, you rather take a break and pick up your stocks carefully, some which won't disappoint you like Auto did in 2007. Oh! Yes, we are optimists. This was H1, we have H2 to go. For us at Orpheus, there is no reprieve for Auto yet and we will be surprised if BSE Auto manages to eke out a high back to 5400 i.e. 5 per cent up from current levels. Above 5400 we review the rubber bounce.

The author is CEO, Orpheus CAPITALS, a Global Alternative Research Company