According to investment bank Nomura, Indian businesses with substantial global exposure would profit from an improvement in global vehicle demand.
According to analysts, the Japanese bank sees “strong opportunity for global plays from India” and expects a “strong recovery in global automotive demand over 2021-22.”
Vehicle demand has outpaced supply in markets such as the United States. It comes after the auto industry was impacted by the pandemic last year, as well as a global shortage of semiconductor chips this year.
Nomura predicts a strong recovery in private vehicle sales, including luxury vehicles, led by the United States. It forecasts a significant increase in the share of electric vehicles and plug-in hybrid electric vehicles.
According to the bank’s analysts, inventory levels in the United States are approximately 40% below normal, and they may not return to normal until the end of 2022. That means output will almost certainly set a new high next year.
Nomura likes the following five auto-related stocks in India:
Sumi, Sumi’s motherson
Nomura has upgraded this Indian supplier to a “buy” rating from “neutral.” This means that analysts at the bank expect the stock to outperform the Nifty 50 benchmark index over the next 12 months.
Motherson Sumi collaborates with global automakers on wiring harnesses, rearview mirrors, cockpits, bumpers, and other components.
According to Nomura analysts, the company has the “highest exposure to global demand,” with its operations outside of India accounting for approximately 89 percent of its consolidated revenue. “With an increasing (electric vehicle) share in its order book, it may continue to outperform industry volume growth and, as a result, is our preferred sector pick.”
The investment bank’s target price for the stock is 301 Indian rupees ($4.05) per share, representing a 23 percent increase over Thursday’s close.
Bharat Forge is a forging company in India.
Because of a recovery in truck demand in the United States, Nomura likes Bharat Forge. The stock has a “buy” rating from the bank, with a target price of 924 Indian rupees per share, implying a near 21% gain.
According to the analysts, the U.S. government’s $1.2 trillion infrastructure investment plan has the potential to boost growth in U.S. demand for trucks. They also stated that order inflow trends for Class 8 trucks in North America have remained strong, and that the increase in demand will benefit both Bharat Forge and Motherson Sumi.
Bharat Forge’s new “lightweight forging business” for private vehicles and electric vehicles, according to the bank, will likely benefit from strong global demand.
According to Nomura, a strong demand for original equipment in private vehicles has translated into a strong demand for tires that need to be replaced in the United States and Europe, which will benefit Apollo Tyres.
Demand for tire sizes larger than 18 inches increased by about 11% in the first three months of 2021 compared to the same period in 2019, before the pandemic, according to the bank. That segment accounts for approximately 35% of Apollo Tyres’ sales, and the company “should benefit from a stronger revival in the segment.”
Nomura rates the stock as a “buy,” with a price target of 302 rupees per share, implying a 32.5 percent gain.
Nomura is bullish on Bajaj Auto, one of India’s largest manufacturers of motorcycles, scooters, and auto rickshaws. This is due, in part, to a strong recovery in exports.
According to the bank, rising commodity prices are driving demand for two-wheelers in emerging economies. According to the report, six countries account for roughly 60% of India’s two-wheeler exports, with Nigeria and Kenya experiencing the greatest demand recovery.
“Exports will continue to benefit from strong demand from oil/commodity-dependent economies,” according to the company.
Nomura has a “buy” rating on Bajaj Auto and a price target of 4,847 rupees per share, implying a 15% upside.
Tata Motors is an Indian automobile manufacturer
Nomura raised the stock’s rating from “reduce” to “neutral,” predicting that the Indian automaker will benefit from the global demand and pricing environment. A neutral rating indicates that analysts expect the stock to perform similarly to the Nifty 50 over the next year.
However, the bank believes that rising electric vehicle launches in the luxury segment in 2021 and 2022 will pose long-term risks to Tata Motors. According to Nomura, Tata Motor is “likely to launch EV models on its new Born EV (BEV) platform only from 2024 onwards.”
According to media reports, Tata plans to launch ten electric vehicles in the commercial and passenger vehicle segments in India over the next four years.
Nomura raised Tata Motors’ price target to 353 rupees, implying a 2.5 percent increase.