Positive on Ashok Leyland, M&M, says Nomura's Kapil Singh

“Some of the modifications including tradeable certificate where the old truck owner can use that certificate and sell it in the market, some of these things can result in scrappage policy starting to work. However, it will take time in my view because we need authorised scrap yards which are not present today. If the implementation is strict on those old trucks to get re-registered, then it will start working slowly,” he added.

Speaking about the stock impact on Ashok Leyland, he said, “On the valuation metrics it looks quite attractive to us given the fact that there is some visibility that the investment cycle will start to turn and that should lead to demand coming back. I do not think immediately in the next one or two months we will see that happening, but the current demand is running below even the replacement demand and usually, the replacement demand is somewhere around 50 percent of the total demand because we also have new truck demand. So, there is potential for truck demand to grow substantially once the investment cycle kicks in. We think it will take some time, but clearly the direction has changed.”

On two-wheelers, Singh said, “We have not been positive on the two-wheeler space. The simple reason is that cost will go up further next year when we have BS-VI coming in. Inventory levels are towards the higher end of the band where they usually operate; it is probably close to two months of inventory. So the festive season has to go strong for them to clear this out, otherwise heading into BS-VI there will be steeper discounts to clear this inventory.”

“We are positive on Mahindra and Mahindra (M&M) where the valuations are much cheaper. However, we need to keep in mind that these stocks have seen a big rally and earnings estimates changes are already factored into the stock prices,” he added.