Auto production cuts start as volumes slide: ICICIDirect

ICICIdirect.com: Quarterly auto sector update

At the end of the first quarter of FY14E, we review the quarter gone by vis-à-vis our expectations. The BSE Auto has outperformed the Sensex in this quarter, with stocks like Maruti Suzuki, Mahindra & Mahindra, Eicher Motors significantly outperforming. The auto sector remains a growth sector from a longer-term perspective. However, considering the high valuation gap of the auto sector with the overall markets and the shorter-term growth concerns, we modify our stance to "Equalweight" from "Overweight". The quarter saw production impact for OEMs like Maruti (scheduled maintenance) and Bajaj Auto (labour strike at Chakan).

Sector outlook: We have changed our stance from overweight to equal weight but continue to recommend large cap names with good business diversification. In ancillary stocks, we recommend businesses with pricing power and weaker input costs. We expect this rate sensitive sector to benefit from any consumption revival in FY14E," says ICICIdirect.com research report.

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