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HomeMarket NewsAuto stocks may fall another 10-15% but that is an attractive long-term opportunity, CLSA says
Mahindra & Mahindra, Bajaj Auto, TVS Motor, Tata Motors Passenger Vehicles and Ashok Leyland are CLSA's preferred pick within the sector.
Brokerage firm CLSA has cut its price targets and earnings estimates for auto stocks, Ashok Leyland, Bajaj Auto, Eicher Motors, Escorts Kubota, Hero MotoCorp, Hyundai Motor India, M&M, Maruti Suzuki, Tata Motors CV, Tata Motors PV and TVS Motor in its latest note on Friday, March 20.
The Nifty Auto index has corrected by nearly 15% in the three weeks due to concerns around potential production disruptions arising from supply chain hurdles due to the West Asia crisis. Along with production disruptions, steep inflation in the commodity basket due to the same issues is an added headwind, CLSA's note said.
"We believe that if the current situation persists, resulting in continued supply chain disruptions and elevated commodity prices for the next two to three months, there is a possibility of 30% to 40% cuts to financial year 2027 earnings," CLSA wrote in its note.
CLSA went back to the first Covid-19 wave in 2020, when auto stocks had corrected in the range of 30% to 45% driven by fears of prolonged demand and production disruption. "Therefore, another 15% correction in the current environment cannot be ruled out," the brokerage warned.
Beyond such a correction, a margin recovery in financial year 2028 will be supported by a reversal in commodity prices or adequate price hikes through financial year 2027 and that should be reflected in the current valuations.
Even as the brokerage warns of another 10% to 15% cut in these stocks, it believes that such a correction would present an attractive opportunity for long-term investors.
Mahindra & Mahindra, Bajaj Auto, TVS Motor, Tata Motors Passenger Vehicles and Ashok Leyland are CLSA's preferred pick within the sector.
The Nifty Auto index is the second-worst performing index in the month of March, with Tata Motors PV having corrected 19% so far this year, followed by Bosch, Samvardhana Motherson, Eicher Motors and Maruti, which have corrected between 15% to 17% so far in March.
