Automobile Sector- Escape from the negative wind

It is well known that every sector booms up suddenly in stock market where all firms under this sector enjoys peak ralley and goes back to it's original place from where it has originated.

Smart investors participate in this ralley and attain huge profits while rest buy at the peak price of the stock and get caught at the peak of the mount Everest.

Whatever might be the sector say like steel, cement, paint, FMCG, automobile etc, everything has a cycle.

Let's focus on automobile sector where it has enjoyed uptrend ralley and is in downtreand at present and I am sure that this negative trend will continue further.

What makes it to go down?
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1. Weak demand
2. Non financial bankers faces liquidity crunch and this paved a way for major firms to stop their production
3. As goods are filled with both factories and dealerships, maruthi Suzuki,Mahendra and Mahendra decided temporary closure of their factories.
4. In the passenger vehicle segment, car sales fell 26% from the year earlier in May to 147,546 units. Sales of utility vehicles and vans fell 5.6% and 27% respectively

*More Expenses
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The expenses for these sectors will be more in future because of following reasons

• Huge investments in R&D to meet government norms
• Need to focus on alteration in their business models
• During migration from diesel engines to the new Bharat Stage VI emission, there is slightly possibility for the firm to face losses in case if there is no proper sales in diesel cars 
• Sale of heavy Vehicles fell nearly 20%
• Even two wheelers which is a dream area for adults have seen decreased sales that includes both urban and rural areas
• Apart from this, fluctuations in fuel prices and increasing insurance premium has joined it's hands in contributing for lack of sales in vehicles

 *Can government help?

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Government can't help for this downtrend as this is due to technological update. But they can help by

1. Reducing GST in vehicle from 28% to 18%
2. Reducing  corporate tax from 30% to 25%

*Recent sales data for the month of June

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• Maruthi Suzuki sold 1.24 lakh units in June 2019, which were sharply lower by 14 percent compared to 1.44 lakh units sold in the same month last year. Source: moneycontrol
• Eicher motors, royal enfield brand sales down 22% to 58,339 units in June. Source: Business standard
• Ashok Leyland sales down 14%. Source: Indiatimes
• Mahindras new launches like XUV300 and Marazzo helped to buck the trend on its sales while rest of it's peers are lagging. It has reported 4% increase in sales for the month of June.

*Advice for Investors

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1. Just stay away from investing in automobile sectors
2. Be a watch dog in monitoring it's technological updates
3. Spare parts stake might impact companies profit
4. Q2 results will be further low when compared with Q1 results which they will be posting it shortly

*1 year Negative rains for below stocks

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• Ashok Leyland one Year negative returns is 31.34%

• Maruthi Suzuki one year negative returns is 26.17% 

• Eicher motors one year negative returns is 30.89%

• Tata motors one year negative returns is 38.56%

 Source: moneycontrol

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Sudharsun

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