Tata Motors: TaMo, M&M lead auto rally with price cuts seen driving demand

Mumbai: The rally in shares of automobile makers gathered steam on Monday, fuelled by expectations that the vehicle price cuts following the reduction in Goods and Services Tax (GST) last week would boost demand.

Tata Motors and Mahindra & Mahindra gained nearly 4%, emerging as the top Sensex gainers on Monday. Maruti Suzuki rose 2.4%.

The Nifty Auto index surged 3.3% on Monday, taking its upside rally to 5.5% since the GST rationalisation decision on September 3. The benchmark Nifty 50 ended 0.1% higher on Monday. The benchmark Nifty 50 ended 0.1% higher on Monday.

Analysts said the momentum is in favour of these shares, but warn against abrupt profit sales interrupting the run-up.

“Auto sector momentum remains strong, supported by recent price cuts in passenger vehicles and the earlier-than-expected GST implementation on September 22,” said Sagar Shetty, research analyst, StoxBox. “While this has driven gains in auto stocks and the index, some profit booking in the near term is likely given the recent rally.”

Shares of component manufacturer Bharat Forge were the top gainers of the day, up 5.8%, followed by Ashok Leyland, Samvardhana Motherson and Bajaj Auto, which moved up 4-5% each.Mahindra & Mahindra, Hyundai India and Tata Motors have already slashed prices of their vehicles by nearly ₹1-2 lakh, passing on the benefits of the reduction of GST from 28% to 18% to potential customers. With the domestic festive season round the corner, investors are betting that lower prices could drive demand.”We shall likely see an uptick in sales from the December quarter onwards, which should ideally last for the next six to eight quarters,” said Sham Chandak, head of institutional equities at Elios Financial Services. “The focus for most OEMs (Original Equipment Manufacturer) will now turn from ‘premiumisation’ to ‘penetration’, and we expect an uptick in smaller car category sales.”

Chandak said he expects double-digit growth across segments like small cars, midsize SUVs and two-wheelers.

In the past week, Mahindra & Mahindra shares have been the top gainer, up 11.6%, followed by Eicher Motors, Ashok Leyland, TVS Motor and Bharat Forge, which are up 6-8%.

The Nifty Auto index is up 6% while the Nifty 50 has gained 0.6%.

“August sales have improved, especially in two-wheelers and commercial vehicles, with growth expected to remain in the low to mid-teens. However, inventory build-up in passenger vehicles may weigh on future wholesale demand,” said Shetty.