Will the festive season have an impact on Auto stocks?
Namaskar dosto, Angel One ke iss podcast mein aapka swagat hai. Agar aap pehle baar sun rahe ho toh welcome aboard - get comfortable because this is where we break down stock market concepts, ideas, jargon and hot topics like today's.
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Dosto, aaj ke podcast ka focus hai auto sector, that is the automobile sector aur majorly yeh discuss karenge ki festive season ka auto sector pe kya asar hoga.
India ka sabse long festive season hai jo already shuru ho gaya hai with Ganpati - aur aage we have Diwali, Navratri, Dussehra, Christmas and New Year. Maximum shaadi ke time bhi issi season me hota hai. Toh overall spending, including big ticket ones … on expensive items such as cars… in dino zyada kiya jaata hain.
Toh chaliye let's dive right in to find out how this period of high spending is likely to impact the auto sector. Lekin isko samjhne ke liye, auto sector ki current situation jaanna zaroori hai, right?
Let's structure today's discussion like this:
Pehle hum janenge auto sector ka current scenario briefly
Phir we'll look at why people are optimistic about the festive season and auto stocks?
Thirdly, discuss karenge what one can realistically expect?
Summary of current scenario in the auto sector
Automobile companies are witnessing lower demand due to the period of the pandemic. There are some momentary, short-lived bursts of growth, jaise ki:
Ek do hafte pehle when the PLI scheme was introduced, thoda bahut auto stock prices mein hume growth dekhne ko mila tha.
Kai din pehle when Tesla was supposedly in talks with Sona Comstar
, Sandhar Technologies and Bharat Forge
to source parts, in companies ke stocks mein kafi increase dikhai diya tha.)
Lekin mostly auto stocks mein kam growth dekha gaya hai during 2021.
Aise nahi hai ki auto stocks have seen no growth, lekin growth has been painfully minimal. Nifty auto mein kareeb 6% growth hua hai during 2021 jo kaafi disappointing hai kyunki Nifty50 mein about 18% growth has been seen.
Baat yeh hai ki low demand is not the only reason why auto companies are struggling right now. Components milne mein bhi problem hai toh production and supply are also hit.
Why the sudden optimism? Is the festive season to be credited or some other factors are at play as well?
Pichle saal in the festive season, the pandemic was already in full swing lekin phir bhi, festive season witnessed a substantial growth in demand for new cars.
Abhi bhi, the festive season is coming at a time jab lockdown khatam ho chuka hai. (Fingers cross karna that it stays this way). Toh possibility ye hai ki log khush rahenge aur spend karne ke liye enthu rahenge.
Third reason for optimism is that jab lockdown ease ho jata hai toh log bahar jaana chahte hai aur office mein bhi jana padta hai… lekin public transport in sab travelling ke liye risky lagta hain, specially in the covid situation. To the people who can afford, wo private vehicle lene ke liye taiyaar reh sakte hai. Yeh kaafi strong reason hai and it is more end of lockdown related rather than start of festive season related.
Fourth reason for optimism is that salaries in several sectors have seen a hike. Jab logon ko paise mil jate hai, especially in India, nayi gaadi is one of the popular ways to upgrade one's lifestyle. Yeh reason ka bhi festive season se koi relation nahi hai, but is a valid reason to be optimistic about a potential rise in auto stock prices linked to better earnings for auto companies.
Rationalising auto stock expectations
Saare ke saare reasons for optimism are linked to demand, lekin supply side mein bhi problem hai as mentioned in part 1. Pure duniya mein there is a chip shortage aur iss ke karan production thoda stuck ho gaya hai.
Sirf yehi nahi… aur bhi problems hai in the auto sector jaise Raw materials ka cost kaafi badh gaya hai - this obviously interferes with profitability and as a stock market investor, aapko company ke profitability se matlab hai so that long term mein aapko earnings mil sake.
Auto sector mein covid-19 vaccination costs aur salary revisions ke vajah se bhi, the companies are seeing less than desirable profit margins.
Lekin there have been individual winners. For example in the month of August, Bharat Forge stock price mein over 50% increase dikhayi diya hai. Feel like you've heard that name somewhere before? Bharat Forge was one of the companies that was in the news for being in talks with Tesla
for components sourcing. In part 1 , iss company ko mention kiya tha, if you remember.
Some experts have categorically advised investors to stay away from auto stocks until the supply bottlenecks have been resolved.
Agar aapko auto sector mein invest karna hai aapko individual companies pe dhyan de ke invest karna chahiye. Have a look at the historical stock price graph alongside the earnings of a company. P/E ratio zaroor nikaal ke dekh lo. Ho sakta hai ki you get to buy in at a low price that will give you good earnings in the long term, due to the negative sentiment and overall low prices? Lekin haan… be sure to do thorough research before investing.
Dosto, this brings us to the end of today's discussion lekin closing mein, I always like to throw in some words of caution:
Chahe auto sector ho ya koi dusra sector, stocks ho ya bonds ya F&O, stock market mein risk rehta hi hai. Consider your risk appetite before investing. Apna daily living aur lifestyle expenses ka khayal rakh ke baaki paise se hi invest karna advisable hai. Jaane se pehle, ek baat yaad rakhiyega ke stock market investing mein risk hamesha rahega. This podcast has been made for educational purposes only and the investor must do his own research as well.
Jo bhi choose karoge, never put all your eggs in one basket. Diversify your investment in different companies and different sectors so that koi bhi losses dusre companies ya sectors ke earnings se offset ho sakta hai.
Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing.