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Home / Markets / Stock Markets /  These auto stocks are Motilal Oswal's top picks in the sector

Passenger Vehicles (PV) demand has sustained, while 2W demand has shown some signs of recovery, though there is a healthy level of inquiries for e-scooters, said domestic brokerage firm Motilal Oswal in a recent note on automobiles. It added that agricultural demand in the Tractor segment has slowed due to seasonality, while commercial demand is picking up slowly.

Current valuations largely factor in sustained recovery, leaving a limited margin for safety from any negative surprises. “We prefer 4W over 2W – as PV is the least impacted segment currently and offers a stable competitive environment. We expect the CV cycle to recover and gain momentum towards 2HFY22," the brokerage said.

Motilal Oswal prefers companies with higher visibility in terms of demand recovery, a strong competitive positioning, margin drivers, balance sheet strength. MSIL (Maruti Suzuki) and MM (Mahindra & Mahindra) are its top original equipment manufacturer (OEM) picks. Among the auto component stocks, Motilal Oswal prefers BHFC (Bharat Forge and APTY (Apollo Tyres). It prefers TTMT (Tata Motors) as a play on global PVs.

PV has continued its strong demand momentum post the lifting of the lockdown. However, supplies were impacted by a semiconductor shortage, with supplies expected to get tighter in September. Meanwhile, demand for commercial vehicles (CVs) has started showing initial signs of recovery with increasing freight availability, it added. 

August felt the heat of the semiconductor shortage, which it said, is expected to worsen next month. However, “our interaction with leading industry channel partners reflects optimism around the upcoming festive season," the brokerage said.

Tractor agricultural demand has slowed MoM due to the seasonality effect. However, commercial demand is picking up slowly. Motilal expects Tractor volumes for MM/ESC (escorts) to decline 5%/14%YoY as inventory has been higher as compared to last year.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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