Auto Sales Down

Declining auto sales, media crying that Auto sector is the biggest contributor for the country’s GDP and slowdown there would mean big job losses and hit to the economy. It is unfortunate that, these days the media in order to prove themselves right, has always been on the wrong foot.

Sales down because people are not buying cars. Was it that, in the past we were guzzling vehicles? No, our country moved to a better standard of living and people afforded to own a car. That population which is getting transformed from poor to affordable has slowed down. Then one basic requirement for growth is hurger for it.

That population which was hungry for growth moved to the next level, rather a part of them. They are now wanting a better car, not the same old entry level variants. The reason why entry level cars sales have dropped 56%.

Our manufacturer’s have built huge capacities for entry level variants, copying all that is possible from higher level products. Now there is over production which is piling up more on the inventories.

True that the economic cycle has slowed down. People have now started to postpone purchases due to various reasons. One of it is availability of money. The other reasons are, no good compelling design or product experience that is forcing people to change. Manufacturer’s are now coming up with creative design changes, they are only tinkering a little bit here and there and making the new variants look different.

In the era of disruption, there is poor creativity here.

Then, there is this hiring and rentals. Today with cost of owning a car getting higher along with the challenges of traffic and parking. The peaceful lot of the population prefer to do away with nuisances. OLA, Uber kind of disruptions have put down the need to own a car these days. For a person who is busy, a chauffer driven car will help him or her do some work on the way as the drive consumes huge amount of time due to traffic.

Elder people prefer to be driven than to drive on their own. In all these levels, hiring a car is a better choice. Even if 1 out of 5 users prefer to hire, car sales will drop 20%. Then, rentals is one more option, you need not own the car. Rent it when you need for some long drives. So, for short distance, hire, for long distance rent. Relief from the thought that, I should have one in case of a need to travel a little longer than in and around the city.

No creativity, over productions, options to hire and rent and then the buzz of the change to electric. Those who are planning a purchase in a year or two will prefer to wait for the new developments because if there is a chance to get the new technology why miss it, kind of thought.

Manufacturers need to find a better way out to improve sales rather than blaming on the government in the name of GST and Demonetization. Both of these transformations which our country saw was to kill black money generation. Welcome the change, your next generation will have a better living standards in this country.

Car Sales Slow down effects the Indian Economy

Luxury car segment has registered 25% decline in sales, which is a big surprise to the industry. Luxury car sales have lost more than the rest of the industry, which was not the norm. Financing issues that are significant for the regular market is not a requirement for the luxury market. They generally tend to outperform.

So far it was assumed that due to elections people were postponing purchases. Whereas the trend now states something different. Looks like there is a shift in the buying decision itself.

Now that the taxes on the super rich has increased substantially, they will continue to postpone their decisions or some may even drop their plans of changing their cars.

On the general market side, OLA’s & Uber’s along with troubles in parking, increase in fuel costs have made users think of not owning cars. It can be even a few percentage. The resultant impact on the economy – all the major manufactures have reported double digit negative growth, have announced plant shut downs.

Auto sector has been a major contributor on employment. Now, it will have serious impact. With a considerable number of employees getting displaced from jobs, it will create a circle of events, triggering further slowdown of the economy and bringing challenges to some of the connected industries.

FMCG sector has slowed down since the last 3 quarters,  which is due to part reactions from the Auto slowdown.

Contraction even luxury segment is worrisome to the industry. So far about 245 auto dealerships have shut shop. Thereby creating further pressure on employment. How are we going to accommodate these labour force that is getting out?

There is a big challenge the government has at it’s hands.

2 years of normal monsoon a boon to the markets

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Met department has predicted normal monsoon this year. It follows the previous year which was also normal. This means big good news for the markets. We are going to see big gains coming…. Reason, farmers will have surplus income in their hands and will add to consumption. Rarely does such occurrences happen, where always there are drought conditions following one good or normal year of monsoon. Where our farmers clear off all their loans when there is normal monsoon and a fairly good crop. Now, if there is a second year of good income, where they will not have loans to pay, and can think of some luxuries for their families.

Once they have surplus funds, they will think of buying a new TV, automobile, renovate his home and more such goodies…. As their lifestyle improves, so will the economy. Businesses will have good sales, sectors like home construction, which already has a booster in the form of the Government’s “Home for all Scheme”, consumer goods and auto companies.

We look forward to have a great year for the markets. As this writing happens, the market is in consolidation, with no mood to get into correction. Mid caps, which were the stars as always have corrected to some extent. Sector rotation is happening, Sugar is showing signs of weakness, while banking is showing strength.

Good times ahead…….

Stock markets ready for its next euphoric rally

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Expectations….expectations. Expectations, towards the end of a Government term which did not have the confidence to decide on any plans that will allow the economy to grow. Expectation on the team that was coming to power, which was aggressive. Expectation on Narendra Modi, who was presumed to be a strong decision maker, as the next Prime Minister. Expectation that, the new government will clear all the infra projects awaiting clearance, which will drive the economy into a robust growth phase.  Indian economy staged a pretty strong recovery and went on to give a robust growth.

Favourable RBI policies, supported by Raghuram Rajan’s strong commitment to revive the Indian economy with his bold decisions on the interest front along with the cleaning up the banking system. His decision to impose curbs on Gold consumption, bring transparency into the Real Estate markets.

Almost all the external factors supported the expected growth. Crude Oil prices crashed, never to see the high’s that it went through. Favourable monsoon, good automobile sales followed by growth in profits of companies in competence. 2014 was a wonderful year for investors as the SENSEX surged more than 40%.

This expectation fizzled out earlier than it was to, things changed. As markets grew leaps and bounds, businesses did not see growth in sales. People began to complain that, “only the stock markets are moving up, money flow is not seen yet. No visible developments in the economy.”  Soon, it was followed by the historical crash of the Chinese markets. Volkswagen case and normal to flat growth from the businesses, markets turned down, went into a tailspin throughout 2015.

After the March quarter results, there are glimpses of change visible. One of the most important factors in the results announced so far is that, sales growth has been still at a slower pace, while profits are showing good growth numbers. Such number growth is possible only if operations are controlled. On one side it is a negative, as controlling operational expenses cannot give continuous growth, it can become counterproductive.

While, on the other side, there are green shoots visible, if the companies who have managed to bring down their expenses, continue to maintain the same tightness on their expenditure and along with that when the sales numbers improve, the profit margins are going to be phenomenal. And that would mean a euphoric rally in stock prices.

As many analysts say on the media, “we are in a cusp of a great bull market” the future looks very attractive for India. It is time to give more exposure to Equity investments. For those who have missed the 2014 rally, now there is an even bigger price move waiting to happen. Those who have maintained a wait and watch on their stock investments, now it is the right time to begin investing. One can even think of adding to their existing investments. Those of you who had stopped their SIP’s or had moved to the debt markets for safety of capital can now think of venturing into the Equities segment to have very good gains.

If things pan out well, we might witness a rally in stock prices, which we had not seen so far in the Indian Stock market history. The next 5 years are going to be a boon to all those investors who venture into the markets.

Take advantage of the markets next move; at the early stage itself, waiting for more confirmation will only result in lost opportunities.

Ashok Leyland leads in August Auto sales.

Auto sales were weak for most of the frontline companies in August this year. Hero lost near 14%, TVS had a 1% growth, Maruti managed due to Ciaz and S-Cross, which otherwise would have been negative. M&M goes weak, Tata Motors 0.50% down on overall sales.

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Ashok Leyland & Eicher were super stars. Ashok Leyland managed a 39% growth, supported by pre-buying ahead of ABS (Anti breaking System) becoming a mandatory norm from October 1st 2015. The growth was slightly ahead of expectations. Eicher continued with its above 50% growth. Royal Enfield sales grew 59% and commercial vehicle sales grew 22%.The company has opened sales office in the North America, which is another positive for its growth as exports are on a steady increase.

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Ashok Leyland turned around in the last quarter and it is likely to continue its growth phase for some more time to come. Stock has already run up, but still has a lot of room to be captures. Ashok Leyland came into our portfolio at ₹74, in August 2015. Post strong growth numbers we are adding to the existing exposure after the current correction phase is over.

At its high of ₹99.65, our investment in this stock has reached 30+ percent profits in a month. The broad based correction in the market post Chinese currency crisis has brought the stock down, which is an opportunity to accumulate for those who missed it at 75 levels.