July PMI Data, Developments in the Auto Space, and Top Cues in Focus Today

Mon, 5 Aug Pre-Open

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On Friday, Indian share markets witnessed buying interest during closing hours and ended their trading session marginally higher.

Sectoral indices ended on a mixed note with stocks in the telecom sector, automobile sector and IT sector witnessing buying interest, while metal stocks and power stocks witnessed selling pressure.

At the closing bell on Friday, the BSE Sensex stood higher by 100 points (up 0.3%) and the NSE Nifty closed up by 17 points (up 0.2%). The BSE Mid Cap index ended the day up by 0.2%, while the BSE Small Cap index ended the day down by 0.4%.

Top Stocks in Focus Today

Market participants will be tracking ITC share price, BEML share price, Exide Industries share price, and State Bank of India (SBI) share price as these companies announced their June quarter (Q1FY20) results on Friday.

You can read our recently released Q1FY20 results: Jagran Prakashan, Hero MotoCorp, UPL, Axis Bank, IOC, Vinati Organics, Ceat, Apollo Tyres.

From the automobile sector, shares of Ashok Leyland will be in focus today. The scrip of the company hit an over 5-year low on Friday to trade at Rs 61 per share, slipping 12% intra-day, as analysts remained cautious on the company's medium-term outlook for the domestic medium and heavy commercial vehicle industry.

The company's net profit dropped 45% to Rs 2.3 billion in Q1FY20 from Rs 4.2 billion reported in the corresponding quarter of the last year.

Revenues declined by 9% to Rs 56.8 billion from Rs 62.6 billion year-on-year (YoY).

Meanwhile, the company's sales continued to slide in July 2019. The total sales fell by 28% YoY to 10,927 units in July 2019 over July 2018, whereas the total domestic sales fell by 29% to 10,101 units in July 2019 over the same month in the previous year.

From the banking sector, State Bank of India (SBI) will be in focus today as the sate-run lender reported a net profit of Rs 23.1 billion for June quarter on the back of healthy growth in advances and stable asset quality. The bank had reported a net loss of Rs 48.8 billion in the corresponding quarter of the previous fiscal.

The profit beat analysts' expectations who had pegged the profit at Rs 20.7 billion.

Asset quality improved with gross non-performing assets (GNPA) at Rs 1.68 lakh crore, down 21%, from Rs 2.13 lakh crore reported in Q1FY19. It was down 2.8% sequentially from Rs 1.73 lakh crore in Q4FY19.

Net NPAs came in at Rs 656.2 billion, down 0.4% QoQ from Rs 658.9 billion. Asset quality remained stable with gross non-performing assets as a percentage of total loans standing at 7.53% at June-end, lower than 10.69% in the same period last year.

Manufacturing Activity Strengthens in July

In the news from the macroeconomics space, India's manufacturing activity strengthened in the month of July, on the back of quicker upturn in factory orders.

As per the survey report, the Nikkei India Manufacturing Purchasing Managers' Index (PMI) surged to 52.5 in July from 52.1 in June.

As per the survey report, consumer goods producers led the upturn in July for the third month in a row, although there was also a stronger improvement in business conditions at intermediate goods makers.

The capital goods sub-sector dipped into contraction, with lower sales causing reductions in output & quantities of purchases.

Besides, new export orders also continued to rise, but a slowdown in growth was noted. Besides, external sales rose to the least extent since April 2018 as factories took a hit from subdued global trade flows. Hiring continued in July and additional inputs were purchased.

On the price front, input costs increased slightly in July as higher prices for steel, chemicals, cotton and freight were partly offset by lower charges for base oil, copper and plastics.

The overall rate of inflation was at a three-month low and well below its long-run average. Output charges rose marginally in July, following reductions in each of the two previous months.

Developments in the Automobile Sector...

From the automobiles sector, Eicher Motors share price will be in focus today as the company's motorcycle division reported 22% fall in sales at 54,185 units in July 2019 as compared to 69,063 motorcycles sold in July 2018.

During July 2019, export of number of motorcycles increased by 143% to 5,003 units from 2,062 units in July 2018.

The company's sales of vehicles with engine capacity up to 350 cc decreased by 29% at 45,041 units in July 2019 against 63,713 units in the same period year ago.

However, the sales of its vehicles with engine capacity exceeding 350 cc increased by 71% at 9,144 units as against 5,350 units in July last year.

Meanwhile, Atul Auto has reported sale of 3,272 units for the month of July 2019, a fall of 15.12%, as compared to 3,855 units sold in July 2018.

Total Sales from April to July 2019 stood at 13,786 units.

Eicher Motors' share price and Atul Auto share price opened the day down by 2.2% and 2.5% respectively.

Note that, automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June, nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Reports state that many dealers who have recently entered the auto industry are finding it difficult to manage their repayment obligations. Banking industry experts estimate the total outstanding loans to automobile dealers to be in the range of Rs 700-800 billion.

However, it is interesting to note that despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Electric-2 wheelers sales volume registered 130% YoY growth in FY19. 4-wheeler EVs grew by 200% YoY.

Similarly, electric three-wheelers reported the highest sales volume of 630,000 units. It is important to note that the electric three-wheeler industry has been growing without government support.

The base is quite low compared to the internal combustion engine (ICE) vehicle sales. However, you cannot ignore the growing momentum in EV sales.

The recently announced government incentives will give a further boost to EV sales. The coming one year will be a real test for India's auto companies.

It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.

Richa Agarwal, editor of Hidden Treasure, believes that the companies which will adapt their business models to the rapidly changing environment will survive and thrive.

In fact, she has picked out 4 Rebound Stocks to profit from the market crash.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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