The next 3-4 years will be strong for the auto sector, says Ashish Nigam, Auto Analyst at Axis Capital. Speaking to CNBC-TV18 from the sidelines of the Axis Cap Conference, Nigam said two-wheeler volumes have seen a sharp recovery post demonetisation lows and they have crawled back to normalcy in the months of February-March.
Adding that there is a strong investor interest in the auto segment compared to last year, Nigam said that most funds are overweight auto sector.
Though he declined to comment on individual stocks, Nigam said valuations for the tyre sector have been comfortable as compared to the auto pack.
Below is the verbatim transcript of Ashish Nigam’s interview to Anuj Singhal, Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Before you start the conference what is the sense you are getting, is there a return of strength and demand to the two-wheeler space that was the one that saw maximum distress in the past couple of months?
A: The two-wheeler space actually has positively surprised us. It was the most impacted for demonetisation and after very week November and December volumes are almost back to normal in February and March, so that has actually positively surprised us. We are actually in a position where in our conference right now, this is our third annual auto conference. We have some 17 companies participating a good blend of original equipment manufacturer (OEM), ancillaries, dealers and financers. The investor interest has been extremely high.
I don’t know if it is the function of stage of the cycle for two-wheelers and the other segments or just the liquidity in the market, could be both. But the investor interest has been very high. The view is, among the investment community is that you do have next three-four years, could be very strong for this sector. While the entire sector will do well, still relatively undiscovered who can be the biggest beneficiaries among the sector? So, this is a platform that we generally have every year where investors can come in and sort of cherry pick.
Sonia: The space that has really flared up lately is the tyre space. What could be the reasons for that and within that sector any top preferred picks that you have for long-term investing?
A: I can’t discuss individual stocks for compliance reasons, but the tyre space, see there has been one underlying trigger for the tyre space and that is mainly the fact that valuation for a variety of reasons has always been lower than the auto ancillary pack. So, you have tyre stocks which are trading at 10-12 times forward earnings whereas the entire auto ancillary pack is anywhere between 15-30 times. So, that has been one support for the sector which is where no one has any discomfort as far as valuations are concerned.
Yes, for the tyre space one trigger has been the fact that the replacement market has done pretty well. Post demonetisation a lot of Chinese imports haven’t done as well as they were doing earlier, so that has been an advantage for the tyre companies domestically.
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