December could see improvement in passenger vehicle (PV) sales, while the commercial vehicle, two-wheeler and tractor segments may continue to suffer, brokerages suggested.
"Volume performance likely to be better for most original equipment manufacturers (OEMs) than earlier months due to better rural sentiment, higher discounts, new products and a low base. We expect marginal growth in PVs and single-digit decline in tractors and 2Ws. In comparison, medium and heavy commercial vehicle (MHCV) volumes are anticipated to remain weak," Emkay said in its note.
Nomura also feels December 2019 wholesales numbers are likely to remain subdued with marginal growth in PVs and a slight decline in two-wheelers (2W).
"Our industry interactions indicate that retail sales have declined in December, post some growth in October/November, which is a negative. Also, companies will avoid inventory build-ups due to the upcoming new year and impending BS-6 shift in April 2020," the Japanese brokerage firm said.
Brokerages expect around 2 percent growth in passenger vehicle segment driven by Maruti Suzuki, the country's largest carmaker and other unlisted OEMs. However, they see weak trend in Tata Motors and M&M.
Nomura expects the PV industry to report around 2 percent YoY growth in December. "There could be some upside risk to our expectation of industry volumes declining 15 percent YoY in FY20. We maintain our forecast of 10 percent industry growth for FY21, on a low base," it said.
Emkay also said domestic PV industry growth was expected to be marginally positive at 2 percent YoY in December, driven by Maruti and other unlisted OEMs such as Kia Motors, MG Motors, Renault and Hyundai.
In comparison, other listed OEMs such as Mahindra & Mahindra (down 7 percent) and Tata Motors (down 33 percent) are expected to report a decline, the brokerage feels.
In two-wheeler space, the sales are expected to be flat to negative as demand turned negative in urban areas due to the current weak sentiment, but it remained flat in rural areas despite strong monsoon/harvest season.
"Majority of the demand is being driven by the ongoing marriage season. Strong festival sales and inventory management resulted in inventory being under control. We expect wholesales to decline marginally by around 2 percent YoY for Bajaj Auto (around 7 percent decline for domestic 2Ws) and around 9 percent YoY for TVS Motor. Hero MotoCorp's wholesales should remain flat, while Royal Enfield dispatches are likely to decline around 6 percent," Motilal Oswal said.
Nomura expects two-wheeler industry volumes to decline 1 percent YoY (was down 2 percent in December 2018), compared to a double-digit decline seen over the past 12 months. "With impending sharp price hikes of
13-15 percent for BS-6 models from April 2020, demand headwinds should continue in FY21, as well (we forecast flat growth YoY)."
Brokerages feel commercial vehicle (CV) sales are expected to decline sharply (fall in double-digits) year-on-year due to surplus capacity with transporters, but the demand is expected to be stabilised on month-on-month amid heavy discounts.
"Discounts and offers have started tapering off due to lower inventory levels. Light commercial vehicle (LCVs) continue to do better than M&HCVs. Inventory levels stood at lower than 30 days," Motilal Oswal said.
The brokerage expects CV wholesales to decline around 25 percent for Tata Motors (down 43 percent for M&HCVs) and around 37 percent YoY for Ashok Leyland (down 49 percent for its M&HCVs).
According to Emkay, volume declines are expected in the domestic market for Ashok Leyland (down 44 percent), Tata Motors (down 38 percent) and Eicher Motors-VECV (down 33 percent).
While seeing a 33 percent decline in MHCV sales, Nomura said, "We expect lacklustre infrastructure and construction activity to continue to keep new truck demand subdued. Freight rates have also remained weak.
However, companies have won various bus orders from state transport unions, which will provide some respite."
"Also, we expect there will be some pre-buying happening in Dec-19F/Jan-20F, followed by a decline in the first half of FY21. We do not expect a strong recovery until second half of FY21," the Japanese brokerage added.
In case of tractor segment, demand picked up marginally after the harvest season but remained below expectations due to uncertainty in demand from the construction sector, said Motilal Oswal which expects
tractor volumes to decline around 8 percent YoY for M&M and around 5 percent YoY for Escorts while Nomura expects 4 percent decline in M&M sales.
Brokerages expect a gradual recovery in auto sales, but sustenance of demand recovery and smooth transition to BS6 are key monitorables for stock performance of auto companies.
They bet on Ashok Leyland, Minda Industries, Motherson Sumi Systems, Maruti Suzui, Tata Motors, Exide Industries and Endurance Technologies.
"We expect the auto sales cycle to see a gradual recovery due to the confluence of factors such as a low base, better rural sentiments, lower interest rates and a possible introduction of the scrappage policy," said Emkay.
Motilal Oswal said, "Over the next 12-18 months, our preference lies with PVs over CVs/2Ws as the segment is likely to (a) be the least impacted by the BS6 transition, and (b) face lower risk from EVs and competition, in turn reflecting better earnings growth.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.