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Shortage of raw material, rise in metal prices weighing on auto stocks: Nirali Shah of Samco Securities

The chip supply crunch and a rise in base metal prices have forced automakers to resort to price hikes, denting demand for an already cyclical industry, says Shah.

March 27, 2021 / 11:29 AM IST

Nirali Shah, Head of Equity Research, Samco Securities, says the auto sector is in for a rough ride. A shortage of semiconductor chips has hit automobile players across the globe, disrupting and even temporarily halting production, she says. At home, rising fuel prices continue to hit demand, leading to the selloff in autos.

Shah says the market is likely to remain volatile as COVID-19 cases rise. In an interview to Moneycontrol’s Kshitij Anand, she says fourth-quarter earnings, MPC meet, bond yields and other macros will also be a dominant factor in the April series. Edited excerpts:

The Sensex and the Nifty fell by over 1 percent each in the week gone by. What led to the price action?

Domestic markets during the week witnessed heightened volatility as the bears continued to hold their grip on the benchmark indices.

After Nifty’s swift breathtaking rally from March 2020 lows, it only seems logical that markets witness a healthy correction.

Hence, the correction can be attributed to the pressure from macros and the new (coronavirus) variants causing uncertainty about renewed lockdowns. It is because of these reasons that the bulls have preferred to remain on the sidelines.

Close

What does the March expiry data say about how markets will behave in the April series? What is the range or the target you have for the Nifty and Bank Nifty for the new series?

The outlook for the next expiry is sideways to mild bullish as the Nifty index is still trading within the rising channel and might possibly bounce from the channel support for the next up-leg.

The outlook for the Bank Nifty is also bullish as it is also rising in higher low higher high formation as well. The Bank Nifty index has found a cushion at the previous resistance level.

The immediate support and resistance levels for the Nifty are now placed at 14,250 and 14,870 and for the Bank Nifty 32,600 and 34,370.

Any factors that investors should watch out for in the April series?

The market is likely to remain volatile going ahead due to uncertainty regarding the rising COVID cases and potential lockdowns domestically as well as globally.

The threat of a second wave will loom over the markets. Besides, companies will start reporting their Q4FY21 earnings in April, wherein numbers are expected to be decent given the low base from last year.

MPC meet, bond yields and other macros will also be a dominant factor for the Nifty’s move in the April series.

Small and Midcaps underperformed. Are investors booking profits in the broader market space after the recent rally?

Broader markets have mostly aped the pressures on the benchmark indices after the swift rally from lows. This seems to be a healthy correction as there was a lot of froth built up in terms of valuation.

Investors who have booked profits at the higher levels should keep 6,500 levels as an immediate support for the Nifty midcap50 and 3,900 in Nifty smallcap50.

If these levels are substantially broken, then only investors should undergo further profit booking.

In terms of sectors, BSE auto and telecom sectors cracked by over 4 percent each. What led to the price action in these sectors?

Automobile players across the globe persistently witnessed a shortage in semiconductor chips, which have disrupted and even temporarily halted production in some cases.

The supply crunch and a rise in base metal prices have forced automakers to resort to price hikes, denting demand for an already cyclical industry.

Further, with rising petrol and diesel prices domestically, automobile demand continues to remain under strain, all of which caused the selloff in autos.

On the other hand, telecom stocks have underperformed considerably and witnessed correction due to ongoing financial stress as they refrain from taking tariff hikes and the impasse on tariff floor pricing.

Any top investment ideas?

New IPOs continue to hit D-Street as we approach the last trading week of FY21. As the week will be a short one due to festivals, investors can look for knee-jerk reactions in specific stocks as an interesting opportunity to buy and commit a small proportion of fresh capital for the longer term before the start of Q4 earnings in April.

Investors can take positions in IT and metal stocks as companies are expected to report strong earnings.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Kshitij Anand is the Editor Markets at Moneycontrol.

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