Falling auto sales and negative quarterly incomes impacted stocks of tyre companies despite a revival in Indian equity markets. During the period of December 9, 2016 to February 14, 2017, most tyres companies’ stocks reported a negative growth, ranging from 1% to 13%. The BSE Sensex in the period rose 5.61% in January.
​The impact of demonetisation continued in December too. In the month, Indian equity markets dropped to a seven-month low, eroding its gains for the year, on concern over the imposition of long -term capital gains tax on market transactions and uncertainty over the outcome of high-value currency ban.

Global factors

Coupled with these, the Dalal Street in December remained under the influence of global factors such as US presidential elections, oil prices, Brexit and US Fed Rate hikes. The US Fed raised interest rates by 25 bps in December signalling that the country’s economy is improving. The US Fed also hinted that it could raise rates at a faster pace in 2017.
The net investment by Foreign Institutional Investors (FIIs) stood at Rs 205.66 billion in the year 2016 and sold Rs 81.76 billion worth of equities in December 2016. At the end of December 2016 , the BSE Sensex remained flat and settled at 26,626.46.
However, January started with some positive notes on the pre-Budget rally and anticipation of better corporate earnings. Equity markets raised expectations from the Union Budget after the historic demonetisation move, nearing state elections and clubbing the Rail Budget with the Union Budget.
The Budget proved to be a rural development and farmer-centric one. The Centre will now focus on doubling income of farmers in the next five years and affordable housing is made part of infrastructure development. Reduction in tax rates for individuals in tax slabs and removal of service charges on bookings made through IRCTC to boost digital transactions brought a smile on common man’s face.
The month finally ended with a positive return of 3.87% to settle at 27,655.96. On the institutional side, FIIs sold Rs 11.77 billion worth of equities during the month while domestic mutual fund houses continued their buying spree with net purchases of Rs 52.34 billion in January 2017.

Performance of tyre majors

Following trends on the bourses, most of the tyre companies’ stocks fell during the period of December 9, 2016 to February 14,2017. Only stocks of Balkrishna Industries and PTL managed to have positive growth in the period.
Apollo Tyres’ stocks fell 10.87%  during the period of December 9,2016 to February 14,2017. The company’s results for the third quarter ended  December 31,2016 did not help its stocks to gains on the bourses.
Apollo Tyre’s Q3 consolidated net profit rose 6% to Rs2.96 billion as against Rs2.79 billion in the same period of the previous year. Sales increased 17% to Rs34.35 billion in the quarter. Apollo announced that it will raise Rs15 billion through placement of equity shares to qualified institutions for business expansion.
Stocks of MRF fell 4.5% in the period. The Chennai-based company’s stocks fell initially in the period, but picked up from the first week of January and rose till the middle of the month. The stocks however showed a downtrend after mid-January.
Meanwhile, the company announced a 30% plunge in its standalone net profit in the quarter of October- December  2016. It recorded a standalone net profit of Rs2.88 billion in the quarter as compared to a consolidated net profit of Rs 4.16 billion in the year-ago quarter. Its total income from operations during the quarter under review stood at Rs 35.33 billion as against Rs 35.72 billion in the year-ago quarter, down 1.08 %.

BKT makes gain

Like MRF’s stocks, Balkrishna Industries’ stocks too fell at the start of the period. However, from the start of January, it gained momentum and moved up steadily throughout the period and reported an increase of 1.83% in the period.
After falling in the end of December, stocks of JK Tyre & Industries rose on the bourses till mid-January. However, in tandem with the movements on the bourses, it fell in the last three weeks of the period. JK Tyre stocks reported a fall of 6.51% in the period.
JK Tyre too reported a fall in its consolidated net profit by 22% in the October- December 2016 quarter on higher raw materials cost. Its consolidated net profit stood at Rs861.9 million, while total income from operations during the period under review stood at Rs 19.87 billion.
Mumbai-based Ceat’s stocks fell by 15% in the period. After a two-week fall at the start of the period, the company’s stocks spiked up and remained flat throughout the period.
Ceat reported a 25.30 % drop in its consolidated net profit at Rs 838.3 million for the third quarter. The company had posted a net profit of Rs 1.12 billion for the same period of previous fiscal. Its total income from operations rose to Rs 15.57 billion as against Rs 14.84 billion in the year-ago period.
Stocks of PTL Enterprises and Modi Rubber rose 4.05 % and  11.56% respectively, however, stocks of Goodyear India  and TVS Srichakra  declined 2.31% and 13.10% respectively.

Decline in auto sales

The impact of demonetisation was seen in auto sales across categories for December 2016. Among categories, two-wheeler section was hit the most. Data released by the Society of Indian Automobile Manufacturers (SIAM) shows that sales of two-wheelers plunged 22% to 910,235 units compared with 1,167,621 units in the year-ago month.
Domestic car sales fell 8.14% to 158,617 units in December 2016 as against 172,671 units in December 2015.  Vehicle sales across categories registered a decline of 18.66 % last month at 1,221,929 units from 1,502,314 units in December 2015, says SIAM.
However, January brought some relief to automakers. Passenger vehicle sales witnessed an increase of 14.40% to  265,320 units in January this year as against 231,917 units sold during January 2016.
Passenger car sales rose 10.83 % to 186,523 units, while utility vehicles’ sales were up 24.47 % at 62,264 units in January 2017. Sales of two-wheeler continued to drop in January too. Two-wheeler sales fell by 7.39% to 1,262,141 units in January 2017 from 1,362,879 units in January 2016.

Photo courtesy: Shutterstocks