Auto Stock Prices are on a Tear Today; Should You Buy?

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Auto Stock Prices are on a Tear Today; Should You Buy?
Credit: © Reuters.

By Aditya Raghunath

Investing.com -- Auto companies’ stock prices have been on a tear for the second day in a row. Tata Motors (NS: TAMO ) has surged 7.59% after closing up 12.6% on January 11 and Ashok Leyland (NS: ASOK ) is up 4.49% after gaining 3.5% yesterday.

December 2020 was the month in FY2021 where automobile retail sales outpaced the corresponding period in the last year. Retail sales grew 11% compared to December 2019 with two-wheelers (up 11.8%), passenger vehicles (up 24%), and tractors (up 35.5%). Commercial vehicles (down 13.5%) and three-wheeler sales (down 52.7%) declined for December 2020.

The sector recorded these numbers on the back of a spill-over from festival sales and to take advantage before the hike in January 2021. The data was released by the Federation of Automobile Dealers Association (FADA) and marks actual sales to customers by dealerships. This doesn’t include the dispatched from auto factories to dealerships. The total number of vehicles sold was 18.44 lakh compared to 16.61 lakh in December 2019.

However, FADA has cautioned that the prospects for January appear bleak. According to a report by Business Today, there is an acute shortage of components like semiconductor chips which could impact sales negatively. An increase in the price of raw materials has caused auto companies to hike the prices of their vehicles, and this too could lead to a drop in January numbers.

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