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Business News/ Markets / Nifty Auto vs Nifty Realty: Which sector is a better investment bet for long term?
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Nifty Auto vs Nifty Realty: Which sector is a better investment bet for long term?

Both Nifty Auto and Nifty Realty indices are in focus after the RBI MPC kept its repo rate unchanged for the fifth time today, in the last policy meeting of 2023.

Nifty Auto vs Nifty RealtyPremium
Nifty Auto vs Nifty Realty

Markets have been hitting multiple all-time highs since the start of December, driven by continuous foreign fund inflows, improving macroeconomic data and positive global trends. Not just the benchmarks, most sectoral indices also touched their new peaks in this rally.

Nifty Auto index hit its record high of 18,005.60 on December 7 whereas Nifty Realty also hit its new high of 747.45 on December 8.

Moreover, both these rate-sensitive indices are in focus after the Reserve Bank of India (RBI) kept its repo rate unchanged for the fifth time today, in the last policy meeting of the calendar year 2023. The Monetary Policy Committee (MPC) of the central bank also retained its stance of remaining focused on “withdrawal of accommodation."

Read here: What are subtle hints from RBI monetary policy? 10 experts parse MPC decisions

Amid this backdrop and the ongoing positive market sentiment, let's analyse between Nifty Auto and Nifty Realty, which sector has better growth opportunities in the long run.

Looking at 2023 YTD, both of these sectors have outperformed the benchmark Nifty. However, Nifty Realty is the better-performing index. The index has soared over 70 percent in 2023 YTD as against a 42 percent rise in Nifty Auto. In comparison, the benchmark Nifty has gained over 15 percent in this period.

Both Nifty Realty and Nifty Auto have given positive returns in 8 of the 12 months in the calendar year 2023 so far.

Meanwhile, in the last one year as well, both Nifty Realty and Nifty Auto have outperformed the benchmark. However, the former has again emerged as a winner in this time period. The realty index has surged over 60 percent in the last 1 year while the Nifty Auto has added 39 percent. In comparison, the benchmark Nifty advanced almost 13 percent in the last 1 year.

In the long term (3 years) as well, Nifty Realty has given better and multibagger returns. It has skyrocketed 160 percent in the last 3 years while Nifty Auto has jumped 92 percent and Nifty has advanced over 56 percent.

Read here: Stocks to buy today: Experts recommend these 5 shares after RBI MPC meeting

Earnings

Auto

In the September quarter, The auto industry saw a noteworthy year-on-year (YoY) growth of 112% (compared to an expected growth of +87%), led by Mahindra & Mahindra (M&M), Maruti Suzuki, and Tata Motors.

Auto volumes in 2QFY24 were flat YoY despite an inventory buildup for the festive season last year, which fell relatively earlier. The healthy performance was driven by- i) traction in SUV demand, ii) strong growth in MHCVs, and iii) initial recovery in 2Ws. Consequently, wholesales for 3W/PV/CV grew ~11%/6%/4% YoY, but declined by 4%/3%/1% YoY for tractors/2Ws/LCVs. MHCV volume grew ~15% YoY. In 2W, exports/domestic volume declined 6%/2% YoY, MOSL said.

Read here: Auto sector sees better profitability in Q2 driven by soft raw material prices

Total revenue for our Auto Universe (ex-JLR) grew 15% YoY, led by volume growth and price hikes. EBITDA grew 42% YoY primarily due to moderating commodity cost inflation, operating leverage and Fx benefits. Adj. PAT for the quarter grew 59%, it added.

Realty

While 2Q is generally considered to be the weakest quarter in terms of seasonality, the sector has defied the trend. The universe registered its second-best quarter ever with cumulative sales of INR 223b, up 52% YoY/50% QoQ. This encouraging performance was fueled by Prestige Estates, which reported pre-sales of INR 71b, up 102% YoY (on a high base). This was due to the strong response received for a large project launch in Bengaluru, which generated INR 40b of bookings. Excluding Prestige, the cumulative sales rose only 37% YoY. Volume growth stood at 39% YoY and the companies posted a 9% YoY growth in realisation, driven by product mix and price hikes.

Read here: Nifty Realty up 49% this year; does the realty sector have more steam left?

Constituents

Of the 15 stocks in the Nifty Auto index, all gave positive returns in the last 1 month, 2023 YTD as well as in the last one year. Meanwhile, of the 10 stocks in the Nifty Realty index, again, all stocks were in the green in the last 1 month and in 2023 YTD. However, one realty stock (Indiabulls Real Estate) was in the red, down 9 percent, in the last 1 year.

Tata Motors, up 86 percent is the top gainer in the auto index this year so far, followed by TVS Motor and Bajaj Auto, which rallied 77 percent and 68 percent in 2023 YTD, respectively. Meanwhile, Hero Moto, Sona BLW, M&M, MRF, and Bahar Forge jumped over 30 percent each.

Similarly, in the realty index, Prestige Estates is the top gainer, more than doubling investor wealth in the 2023 YTD. It has soared 148 percent this year so far. It was followed by Brigade Enterprises, up 81 percent, and DLF, up 73 percent. Meanwhile, Oberoi Realty, Sobha Developers, Macrotech Developers, Phoenix Mills, Godrej Properties and Sunteck Realty advanced between 50 and 68 percent each.

Which sector has better long-term investment opportunities?

Vinit Bolinjkar, Head of Research, Ventura Securities, prefers Nifty Realty over the auto space.

Based on the current market conditions, Nifty Realty appears to be a more attractive option for long-term investors as the Indian real estate market exhibits substantial growth potential in comparison to developed economies, primarily due to its under-penetrated nature. Government backing, particularly in the areas of affordable housing and infrastructure development, is anticipated to be a key driver of sectoral expansion. Additionally, the presence of low interest rates contributes to enhanced affordability, resulting in heightened demand for properties.

Rupak De, Senior Technical Analyst at LKP securities, has also chosen realty over auto.

Both sectors appear promising for long-term investment. Consider the auto industry, which seems poised for a remarkable rally in the medium to long term. The rise in middle-class income, coupled with anticipated lower interest rates due to cooling retail inflation, is likely to significantly boost demand in this sector. A breakout in consolidation during the June quarter earlier this year led to a substantial rally, and this momentum might persist in the coming months.

Simultaneously, anticipated lower interest rates and the government's affordable housing scheme are expected to drive demand in the real estate sector. From a technical perspective, the Nifty Realty index experienced a remarkable rally following a flag pattern breakout in the June quarter. The future outlook for the real estate sector appears very bullish.

Now, if I were to choose one sector for long-term investment between the two, I'd lean towards the real estate space. This decision is primarily based on the technical charts that show the bull run in the realty sector seems relatively younger compared to the bull run in the Nifty Auto index.

Sanjay Moorjani, Research Analyst, SAMCO Securities

The auto industry has just got more interesting. The path ahead appears promising, thanks to the sweeping changes in the industry as a whole, be it electric vehicles (EV) or the increasing love for premiumisation. The increasing demand, easing commodity prices, government support, new capacity expansion by the companies, and robust management commentaries signal promising opportunities for the industry.

The realty sector seems to be back in action after a long gestation gap as a consequence of the increased housing demand and supportive government policies. It’s essential to recognise that it moves in a cycle. The growth story for Nifty Realty stocks seems to be priced in.

The adoption of more technological advancements in the auto space such as ADAS (Advanced Driver Assistance Systems), Green Hydrogen-powered vehicles and the increasing prevalence of Electrical Vehicles, etc. makes it one of the preferred sectors for the long term.

Neeraj Chadawar, Head - Fundamental and Quantitative Research, Axis Securities, believes both sectors will do well in the long term.

The fundamentals for both sectors are entirely different, so it is difficult to compare, but both sectors look attractive for the long term at the current juncture.

As far as the automobile industry is concerned, we are witnessing significant demand improvement, which is becoming more broad-based on a sequential basis. Encouraging demand was visible in FY23, including PV, CV and 2W space. Demand momentum is expected to continue, albeit at a slower growth rate in FY24 due to the higher base of FY23. We maintain our positive outlook on the sector as demand drivers remain intact. However, due to the recent rally in stocks, valuations are no longer attractive. Against this backdrop, we recommend a “Buy on Dips" strategy for quality stocks.

Given the real estate sector, the demand is visible in the top 10 cities and beyond. The demand momentum in the industry is likely to continue in upcoming quarters as most of the ready or nearer possession inventories are sold out. One can play the cycle with building material themes as they provide more comprehensive investment options in tiles, wire and cables, cement and wood panels, etc. as they capture the PAN India growth story.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision

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Published: 08 Dec 2023, 05:39 PM IST
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