Yogesh Mehta on 3 auto stocks to bet on | Economic Times

Yogesh Mehta, Founder, Yield Maximisers, says Maruti Suzuki, Mahindra & Mahindra and Hero MotoCorp are the 3 stocks to bet into in the auto segment. Are markets showing resilience?The market is very choppy and a sectoral rotation is visible. Post the 14-month strong run up from March to May 2021, the market is showing some kind of resistance at 16,000. Probably sectoral rotation is showing up in some kind of action in the market and 16K is proving to be too difficult to cross that easily. Two months is a long time. There is no correlation between value and price. Participants are buying any stocks at any price and at any valuation and that is showing up in some kind of frenzy in the stocks. If we consider indices’ composition, then HDFC Bank and Reliance and IT majors, none of the indices’ contributors are moving in tandem and that is why we are seeing some kind of a resilience. But midcaps and smallcaps have really seen some kind of a good frenzy in the way they have run up. So there is still some momentum in the market and will remain there. While the mainframe indices may remain resilient, European markets are of course facing big trouble on the second and the third Covid waves. India is much better placed at this point in time. Let us keep the finger crossed that it remains under control here. What is happening within the auto sector? Where do you find comfort in buying afresh?For the auto pack, the comfort level will remain there for the next two to three years. EV is there but it is a long story and right now it is just a plain sketch and it will take some time to get the entire picture. There are so many moving parts in the auto industry and auto ancillaries. In the auto space, Maruti will remain the leader in the passenger vehicle segment with a 50-52% market share. And if someone wants to play on the agri side, then tractor is the answer and that is where Mahindra & Mahindra has done very well. They have done many positive things for their balance sheet to get reshuffled and are getting out of the non-performing businesses and focussing on the core business. So, tractor plus SUV play can be there in Mahindra & Mahindra. So these are the two names one can look into in auto. Of course, two-wheelers will remain a story for India where EV cannot create much disruption for the next three, four years because the price parity is very high. Hero MotoCorp is one stock one can look into in this segment. Look at the way Hindalco has gained, as have Tata Steel, JSW Steel. Can we thank China for this?To a major extent, yes. China keeps on changing policies on export front and on the duty front and that is what is proving to be a positive factor for the domestic market. That is why we have seen a good run up and Tata Steel, Jindal Steel Power and JSW Steel have benefited. Hindalco is a non-ferrous metal player and that is a driving factor right now and hence we have not seen any kind of a correction so far in metal names. They are down by may be 10% odd from the peak level and are again going back to their peak levels. The party is still on in metals and the demand is also showing good strength. Capacity expansion has taken place in all these companies and even Brownfield expansion is happening along with mergers and acquisitions. Demand is there for the next two quarters and then we may see some tapering off and the party may get over. Probably we are in the last phase of the metal rally. If any debt reduction is happening, then it is good for them otherwise how they are utilising their cash flows is much more important from here on. The EBITDA per tonne value price is also at the peak right now and we may see YoY comparison and a good uptick in the quarterly numbers. One has to watch out for Q2 results.