India's auto stocks rise as strong October sales signal resilient festive demand (updated)

Mahindra And Mahindra

Yesterday 04:05

Updates share move in paragraph 2, adds analyst comments in paragraphs 3-6
By Surbhi Misra
Nov 2 (Reuters) - Shares of Indian automakers rose on Monday after strong October vehicle sales signalled resilient festive demand, though analysts said inventory build-up ahead of Diwali accounted for some of that and warned that rising input costs could test demand.
The Nifty Auto index .NIFTYAUTO closed 1.33% higher, with Ashok Leyland ASOK.NS rising 3.02%, Tata Motors Passenger Vehicles gaining 2.64% and Maruti Suzuki MRTI.NS advancing 2.41%.
October's strong sales partly reflected automakers stocking inventory with dealerships ahead of Diwali, the Hindu festival of lights, which falls in November this year, said Tanvi Kanchan, associate director at Anand Rathi Share and Stock Brokers.
Passenger vehicle inventories stood at around 43-45 days at the end of September, more than double the level recommended by industry body FADA, she said. 
"The real test comes in November and December: whether Diwali and wedding-season retail clears that inventory or forces discounting."
She flagged higher loan repayments, elevated fuel costs and potential vehicle price hikes as risks to demand, expecting industry growth to moderate to mid-single digits in the second half of the fiscal year.
Two-wheeler demand remained strong, Jefferies said, adding that passenger vehicle sales gained momentum despite a high comparison base following last year's tax cuts.
TVS Motor, Maruti Suzuki and Hero MotoCorp HROM.NS delivered the biggest positive surprises versus its October wholesale forecasts, according to Jefferies, which retained TVS and Eicher Motors EICH.NS as its preferred picks.
Emkay Global favoured two-wheeler and commercial vehicle makers over passenger vehicle companies, citing their greater flexibility to raise prices to offset rising commodity costs.
TVS Motor's October sales rose 29%, while Maruti Suzuki posted a record monthly total sales of 276,120 vehicles, up 25%. Commercial vehicle sales rose 27% at Tata Motors and 23% at Ashok Leyland ASOK.NS.
However, tractors remained a weak spot, with Mahindra & Mahindra MAHM.NS reporting a 12% decline in total sales. Analysts flagged risks from a high comparison base and rising input costs, although Mahindra attributed the decline primarily to the shift in festive dates.

 (Reporting by Surbhi Misra in Bengaluru; Editing by Rashmi Aich and Janane Venkatraman)
 ((Surbhi.Misra@thomsonreuters.com ||  www.linkedin.com/in/surbhi-misra9/;))