Tyre stocks grabbed limelight on January 20 trading session with the likes of Ceat, Apollo Tyres, Balkrishna Tyres, JK Tyre and MRF Tyres making fresh 52-week highs for themselves. This outperformance in tyre stocks was seen on a weak day for markets where Nifty slipped by about 50 points to close at 21,571 levels.
Ceat was the top gainer from the pack of tyre stocks, up by more than 12 percent. JK Tyre jumped higher by about six percent, Balkrishna Industries gained by about four percent while MRF strengthened by four percent.
A continuation of positive momentum is seen in January in tyre sector stocks, with JK Tyre and CEAT delivering returns in excess of 18 percent on year-to-date basis alone. MRF is up by more than 12 percent and Balkrishna Industries has gained by more than seven percent in January so far. This outsized performance of January in tyre stocks is seen despite a very good performance in tyre stocks in 2023.
What is triggering this rally in the tyre stocks?
According to Abhishek Gaoshinde, Deputy Vice President - Research, Sharekhan by BNP Paribas, "Steady RM cost along with focus on premiumization is expected to support the profitability of tyre companies in coming quarters. Further the gradual improvement in replacement demand in CV segment is expected to offset concern on OEM’s production growth. Higher share of replacement demand augurs well for the profitability. On a broader note, tyre players are now more judicious on capex front compared to earlier cycles and hence offers a healthy visibility for strong balance sheet and return ratios. Gradual volume growth visibility clubbed with better product mix, successful implementation of in house productivity increase programs, steady input cost trend, rise in premiumization and optimistic outlook by the management bodes well for the tyre stocks.”
With positive fundamentals supporting the sector, investors are taking a fresh view on tyre stocks. After the recent rally, Balkrishna Industries is trading at a PE multiple of 51 and MRF trades at ~36 multiple. CEAT, after rallying almost 80 percent in one year, is available at ~22 earnings multiple while JK Tyre trades at a PE of ~20.
On technical front Prashant Sawant, Founder, Catalyst Wealth has this to say, “Tyre stocks have shown very strong movement. MRF was the very first one to breakout and a big move from Rs 1,10,000 per share to Rs 1,45,000 per share was seen . The next to break out was Apollo Tyre. It has given a strong weekly close. Balkrishna Industries made a very strong higher bottom at 2500 levels and gave a strong weekly closing as well. Overall this sector looks positive and can be looking at higher levels in next week as well.”
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