Bajaj Auto, Maruti Suzuki, Ashok Leyland, Tata Motors perfect candidates for buy on dips—Analyst explains why

In a falling market, auto stocks rose up to 5 per cent as sequential growth was seen in January even as numbers remained subdued for the month. Auto wholesale dispatches for January 2022 threw mixed bag, registering healthy MoM growth in passenger vehicle (PV) and commercial vehicles (CV) space amid improving macroeconomics and easing supply side issues. "Muted demand prospects weighed on the 2-W and 3-W space. Tractor growth continues to be hampered by a higher base," said ICICI Securities. 

The Indian markets were seen trading with weakness on Thursday after witnessing a bullish momentum in the last three trading sessions on Budget anticipation and announcements thereafter by Finance Minister Nirmala Sitharaman on February 1, 2022. Despite weakness across sectors, IT index was trading with over 1 per cent gain around 1.30 pm on Thursday.  

"The calendar year started on a subdued note as auto numbers saw a decline yoy on almost all the counters except the CV makers in January. TAMO grew on its PV business as well, while AL witnessed a growth purely on its CV business. Sequentially we witnessed a strong growth across the board on seasonally weak December," said LKP Securities in auto round up for January 2022.  

On Thursday, Hero MotoCorp, Bajaj Auto, Maruti, Eicher Motors surged up to 5 per cent in the afternoon trade.  

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The brokerage was of the view that the impact of Wave3 seems to have mitigated with a healthy double-digit growth in YTD FY22.  

Despite a soft January, we expect a decent fiscal FY 22 on a very low base of H1 FY21 except for tractors, which saw a phenomenal year FY 21 with a growth of 27%, it said.  

It was of the view that 2-wheelers and tractors may post a lower to mid-single digit growth in FY22, while PVs and CVs are expected to grow close to 10% and 20-25% respectively.  

"Therefore FY 22 is expected to be better than FY 21 provided as the impact of Omicron is not huge," he added.  

Expecting the auto sector to do better in FY22 as compared to FY 21, Ashwin Patil, Senior Research Analyst at LKP Securities, picked Bajaj Auto, Maruti Suzuki Indian, Mahindra & Mahindra, Ashok Leyland and Tata Motors as long-term bets. " Every dip in these stocks in the short term (driven by pandemic, supply chain issues etc), shall provide good opportunities for investors to enter into them from medium-to-long term perspective" he said.  

Here is why Ashwin Patil thinks these auto stocks are perfect buy on dips candidates in long-term. 

Bajaj Auto  

In 2-wheeler segment, we prefer Bajaj Auto (#1 in 2W exports markets) in the 2Ws as its growth is well driven by exports and 3Ws. 

Maruti Suzuki 

On the passenger's vehicle (PV)front, we believe MSIL is pricey as far as its valuations are concerned given its supply side conundrum and delay in EV plans.  

Mahindra & Mahindra 

We like M&M because of its thrust on rural markets through its leadership in tractors business, prudent capital allocation and a robust growth strategy in UVs, EVs and CVs.  

Ashok Leyland 

In commercial vehicle segment space, Patil picked Ashok Leyland. It has a diversified revenue base deriving from LCVs, defense, MHCVs and spares. Also, the recovery and growth in its monthly numbers is thick and fast, said the expert. 

Tata Motors  

It is because the auto manufacturer is seeing a strong PV business, along with a very healthy revival in MHCVs and improvement in JLR business.