Auto and ancillary company shares zoom on tariff reprieve hopes

Synopsis

The Nifty Auto index ended 3.4% higher on Tuesday, against benchmark Nifty's gains of 2.2%. Samvardhana Motherson International was the top performer on the index, up 8%, followed by Balkrishna Industries, Bharat Forge and Tata Motors, which gained 4.5-7% each.

Mumbai: Auto and auto ancillary companies bounced back on Tuesday in a relief rally after Donald Trump indicated the US might exempt tariffs on imported vehicles and components sector.

"Investors are relieved that the Trump administration is considering some of the exemptions based on material impact that could be felt because of the tariffs," said Kumar Rakesh, Auto Analyst at BNP Paribas. "This will be positive for the automotive sector also because otherwise, the companies would have struggled because they would either have to take price increases or their profitability would have come under pressure."

Agencies

The Nifty Auto index ended 3.4% higher on Tuesday, against benchmark Nifty's gains of 2.2%. Samvardhana Motherson International was the top performer on the index, up 8%, followed by Balkrishna Industries, Bharat Forge and Tata Motors, which gained 4.5-7% each.

On March 26, Trump announced a 25% tariff on all auto and components imports into the US, to be implemented from April 3.

The Nifty Auto Index is down 2.3% since March 26, compared with the Nifty 50's fall of 0.7%.

Within auto companies, the import tariffs would have impacted Tata Motors the most due to uncertainty around Jaguar Land Rover (JLR) exports to the US. The stock has declined 17% this year.

The temporary exemption in tariffs could help reduce the share overhang. Auto component makers such as Sona BLW Precision Forgings and Samvardhana Motherson, along with tyre makers Balkrishna Industries and CEAT are among the Indian companies with higher exposure to the US markets.

“In near term, we expect companies focused on domestic market to do better, and within this space, we maintain a positive outlook on Maruti and Mahindra & Mahindra in the OEM(original equipment manufacturer) space and Lumax Auto Technologies on the ancillary front,” said Shashank Kanodia, lead analyst — Auto, ICICI Direct Research.

“However, given the potential for an economic slowdown in the US, we advise caution and suggest investors to tactically play forging stocks such as Bharat Forge and Ramkrishna Forgings at this point,” said Kanodia.

BNP has an outperform rating on Samvardhana Motherson and Tata Motors. “In case of a tariff exemption, most of the auto parts suppliers should be beneficiaries,” said Kumar.

Kanodia said Tata Motors is a tactical investment opportunity now . “UK has been placed in the lowest tariff bracket of 10% by US, and there exists a strong possibility of a trade deal between both nations, which will benefit JLR.

...moreless

...moreless