These 2 stocks- Tata Motors and MRF are trading 20% down from their 52 Week highs. The Tata Motors Stocks, whose 52-week high price is around Rs. 361 is now Rs. 75 lower to Rs. 286 as of 27th August 2021. While 52-week high of MRF is around Rs. 98,580 which is now trading at around Rs. 55,360, which is almost a fall of 44% of Rs. 43,220 from the 52-Week High levels. Let’s discuss the reasons behind this, and know why should these stocks be on the Investor’s Watchlist.
The reason behind the Fall:
i) Impact of Second Wave of Covid-19 and the lockdown situation.
ii) Shortage of Semi-Conductor Chip which affected the sales of the company. Also, the projection of the sales given by the company in the next 2 quarters is quite unimpressive.
iii) The Demand is intact but currently, the supply side seems to be affected.
iv) Also, 75% of the revenue of Tata Motors comes from the JLR business and the company had projected a lowering down of overall sales figure in the next 2 quarters.
i) Specifically, MRF is into Auto-Ancillary Business. And Hence since the Auto Sector is facing hindrances due to Chip Shortages, the business associated with this are also suffering and hence MRF seems to be impacted by the same.
ii) Crude Oil Derivatives are used in Tyre Manufacturing and due to the rise in Crude Oil Prices in the recent past, the company has reported a rise in raw material price which has led to a contraction in margins.
Reasons to Watch:
i) From a longer horizon point of view, once the Semi-Conductor Chip gets resolved, then things can go better for the company. Recently, N Chandrasekaran said that the Tata Group is looking to enter into the Semi-Conductor Manufacturing Business.
ii) Also, the company is currently enjoying the first-mover advantage in the Electric Vehicles Segment wherein the company enjoys a healthy market share as of now.
iii) Similarly, the company is planning to develop the same surrounding of Electric Vehicles in its JLR Vehicles too.
iv) The developing ecosystem of Tata Group Companies which include Tata Motors, Tata Power, Tata Elxsi, and Tata Chemicals which will add a lot of value to Tata Motors.
i) Both the vehicles- IC Engines and Electric Vehicles (EVs) will be using the Tyres and hence this sector is not going to be impacted by the developing EV Trend.
ii) In Tyres, there are 2 kinds of demands. The first one is Tie-Ups with Original Equipment Manufacturers (OEMs) like Hyundai, Tata Motors, etc. where they are having a quite good edge.
iii) The Second one is Replacement Demand where the future looks to be good for the company looking at the incoming normalcy in the economy.
This price correction of more than 20% in both the Large Cap Stocks from its 52-Week Highs can be a good opportunity for investors. Both the stocks are having good upside potential looking at the developing scenario and future positive outlook and hence one should have these stocks on their radar. This discussion is not direct advice and hence consult a financial/investment advisor before making any decisions.