Auto space looks weak: Nilesh Shah

Auto space is looking weak, says Nilesh Shah of Envision Capital.

Shah told CNBC-TV18, "On the rate sensitive side, one sector which still looks relatively weak is the automobile sector and there are two broad issues. One is of course the fundamental issues I terms of pressure points coming in from higher raw material prices and maybe slightly muted demand coming in from hike in interest rates and probably you are going to see further hike in interest rates actually happening over the course of next few months or more towards March. And of course they have to basically navigate themselves out of high base effect because they have clearly been seen lot of heady growth in the last few months and few quarters. Growth is going to moderate significantly for them over the next few quarters." He further added, "Second, is that some of the auto companies have been huge out performers for 2010. Last year we have clearly seen stocks like Bajaj Auto and Tata Motors gain anywhere between 70% to 80-90%; these are huge moves. With the growth outlook being not as benign as was it has been in the past, I think there could still be some more downward pressure on the auto side. I think within the rate sensitive, the auto sector still continues to be probably the most vulnerable."
 
"The second sector on the rate sensitive is basically going to be infrastructure and the engineering side. However, having said that while there is going to be some kind of fundamental impact on them but the reality is that most of the infra, engineering stocks have been under performers for the last 12-18 months. There is some amount of under ownership about them and expectations are running pretty low. So from price damage point of view you probably think that price damage on infra and on the engineering side could be a lot less, relative to the price damage which could potentially happen on the auto side."