Tyre stocks, such as Apollo Tyres, Ceat, MRF, TVS Srichakra and JK Tyre and Industries, skid sharply on the bourses on Tuesday — in the range of 1.4 per cent to as high as 12.7 per cent — reacting to the news of a 2 per cent devaluation by China of its currency, the yuan.

Dumping concerns However, analysts consider it only a ‘knee-jerk’ reaction and continue to maintain a positive view on the companies over the long term.

Rajiv Bhudraja, Director-General at Automotive Tyre Manufacturers Association aired concern over Chinese tyre exports into India. According to him, the situation can get worse as dumping of cheap Chinese tyres look poised to increase following the devaluation.

 Though Mayur Milak of Anand Rathi echoed a similar view, he is positive on the sector’s prospects. In a recent report dated July 27, he listed frontline companies, such as Ceat, Apollo Tyres and MRF as his top picks. “The domestic demand story is intact, valuation is cheap and commodity cycle is in their favour,” summed up Milak.

“We reckon that the threat from Chinese manufacturers would be mitigated by government action as was done a few years ago. We are positive on the tyre segment given that this is one of the rare occasions when OEM and replacement demand are expected to rise in unison. With rubber prices low, we expect tyre companies to register higher margins,” he pointed out in the report. 

Rising parity While Indian player are growing at 15-20 per cent in volume terms, the growth rate is 45-50 per cent for Chinese tyres in India. Commercial vehicles form the largest segment in the Indian replacement market, of which Chinese products account for 20 per cent currently, analysts pointed out. 

According to NSE data, the spurt in open interest at 17.3 per cent in Apollo Tyres was the second most active stock future after SBI in the F&O segment. The company announced its results on Tuesday. 

While Ceat witnessed only a marginal change in open interest, in MRF, open interest positions tumbled a sharp 8.2 per cent along with a steep fall in share price.

 Surge in open interest combined with drop in share price means that shorts are being piled on. Similarly, if both price and open interest decline, then traders are indicating bearish view. If these trends continue, stock prices are expected to go down further.

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