Auto stocks have outperformed the benchmarks in 2020 as well as in the last one month. Nifty Auto has fallen a little over 4 percent in 2020 as compared to an 8 percent decline in the benchmarks. Meanwhile, in the last 1 month, the auto index has shed 2 percent versus a 4 percent fall in Nifty and Sensex.
In a recent report focussed mainly on commercial vehicles (CV), brokerage house CLSA said that it believes the near-term outlook is on an improving trend, and the next few quarters could see the beginning of a cyclical, economic recovery in the space.
The brokerage noted that vehicular movement is now smooth except for a few localized lockdowns in containment zones and the freight rates are also stable.
Freight is back to 70-80 percent of the pre-COVID level for industrial goods while FMCG, e-commerce and agriculture are also higher, which is another positive for the CV space.
It further noted that the third quarter of FY21 is a key quarter to monitor demand as a good Kharif crop is expected due to higher than average rainfall, along with the festive season and some pent-up demand.
The brokerage also stated that due to the pandemic and decline in demand, lending institutions will resort to balloon repayment schedules for impacted customers rather than going for aggressive repossession of vehicles.
The brokerage recommends playing the CV cycle through Ashok Leyland and Shriram Transport Finance.
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