Lok Sabha Elections 2019 - Profit in Poll Season: Buy these auto stocks now, say these experts

Lok Sabha Elections 2019 will be held in seven phases in the country, starting this month. As an investor, you would certainly be looking to profit from this poll season volatility. So, what should be your strategy or sector of choice? If you are looking to add some auto stocks in your current portfolio, as per Reliance Securities, the election results will not be impacting any of the auto companies in a big way. And yes, investors can think of buying some top auto companies in the present market scenario marked by low domestic volume, huge inventory, muted festival sales during Q3FY19. In fact, these have been the major reasons for the auto sector to post negative returns for a while. According to Reliance Securities, the domestic auto volume has declined by 14 per cent on YoY and 6 per cent on MoM basis to 19,07,946 units in March 2019 due to lower retail demand across segments. Only Consumer Vehicle (CV) segment reported flat growth, while all other segments reported YoY decline during the month. 

Stocks to Buy

Investors can buy Maruti Suzuki and Mahindra & Mahindra at current levels - that is the recommendation by experts. Both auto companies have been given a buy rating by Reliance Securities, while Motilal Oswal Securities have kept a buy call on Maruti Suzuki for next one year.  However, the experts are expecting a slowdown to continue further in the sector, as rural demand is not picking up due to a liquidity crisis in NBFC space and higher monsoon deficit in several parts of the country. After inventory destocking, the existing inventory continues to remain at a higher-than-normal level for most auto brands. Therefore, it would continue to impact the wholesale dispatches to a greater extent in 1QFY20, according to market analysts. 

Maruti Suzuki: Buy; Target Price Rs 7,750

Maruti Suzuki remains a top choice of brokerage reports and investors as the stock has seen a recovery despite near term issues related to demand, high inventory and discounting. All the new launches i.e. Baleno, Brezza, new Ertiga, new Swift, new Wagon-R etc have been successful with a strong response in the market. Also, the inventory correction efforts taken by the company, discounts on the cars can be offered sequentially. Also, BS-VI products would bring back pricing power for the company, resulting in healthy margins going forward.

Reliance Securities has kept a BUY rating on MSIL with a target price of Rs 7,750, valuing the stock at 21x FY21E EPS.  While, Motilal Oswal Securities has kept a BUY rating on MSIL with a target of Rs 7,600, valuing the stock at 25x FY21E EPS.  

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Mahindra & Mahindra: Buy; Target Price Rs 835 

Reliance Securities has also kept a BUY call on Mahindra and Mahindra with a target price of Rs 835. The stock is trading at Rs 668.10 as on 9th April 2019. Mahindra is already trading at a discounted price over a year's period. The company is expected to witness a rural uplift on the tables of cargo and heavy vehicles. 

Segment wise volume among auto sector of India:

Light Consumer Vehicle (LCV) segment recorded a 4 per cent volume growth on the back of better demand, while Medium & Heavy Consumer Vehicle (M&HCV) volume fell by 5 per cent YoY. Scooter segment, on the other hand, witnessed a sharp decline of 25 per cent YoY and motorcycles by 14 per cent YoY. While Passenger Vehicle (PV) segment witnessed the downfall of 3 per cent YoY. Poor demand and rising inventories are taking a toll on auto companies. However, the mood is in favour of Maruti given its strong franchisee base and usually being amongst the first gainers on-demand recovery.