Despite auto ancillary companies’ clocking strong revenues in the April-June quarter of FY23, margins were under pressure due to higher commodity costs and logistic snarls.

However, with prices of key raw materials, used in automobile manufacturing, cooling off amid economic slowdown concerns, analysts expect related companies to see some relief over the next couple of months.

Nishit Master, Portfolio Manager, Axis Securities says softening of commodity costs a positive. Worst of chip crunch issues are behind. Gross margins to expand from Q2FY23.

New launches and demand uptick post Covid-19, too, have sparked hopes for a revival in the auto ancillary sector.

According to reports, around 10 to 15 new passenger vehicle launches are lined up this year.

Separately, the government’s renewed push towards road safety may benefit auto ancillary companies involved in manufacturing of safety equipment.

Gaurang Shah, Investment Strategist, Geojit Financial Services says new launches, demand uptick will aid auto ancillaries. New safety norms likely to benefit related companies. Replacement market a huge opportunity. Falling RM costs will improve margins.

That said, higher inventory costs may act as a spoilsport in the near-term. “Despite minor relief in margins due to cool off in commodity prices, we expect margins to remain subdued in the July to September quarter of the current fiscal year due to higher inventory costs. We expect profitability to be visible from Q4FY23 onwards,” says Kunal Bhakta, Investment Advisor, First Water Capital Fund [AIF]

On the bourses, shares of auto ancillary companies like Automotive Axles, Bosch, GNA Axles, Lumax Industries, and Varroc Engineering have surged up 36% so far this year.

In comparison, the S&P BSE Sensex and Nifty50 have gained over 1% during the same period.

As regards today, investors will track the European Central Bank’s interest rate stance.

Besides, rupee movement, crude oil prices and FII flows will continue to guide markets on Thursday.