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Despite major headwinds, only 2 Nifty Auto stocks have given negative returns in the last 1 year

The sector underperformed benchmark Nifty by a small margin, which rose 54 percent in this period (Photo: Mint)Premium
The sector underperformed benchmark Nifty by a small margin, which rose 54 percent in this period (Photo: Mint)

The Auto sector has been facing a number of hurdles recently including chip shortages, rise in raw material prices, drop in demand etc. However, despite the obstacles, the majority of stocks in the index have given double-digit returns. Is the worst over for the sector? Let’s find out

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Despite a number of major headwinds, the auto sector has risen around 48 percent in the last 1 year. The sector underperformed benchmark Nifty by a small margin, which rose 54% in this period.

The underperformance of the sector comes on the back of a steep fall in demand due to the COVID pandemic. Other recent hurdles including chip shortage and rise in raw material prices also impacted the performance of the sector. However, going ahead with the normalcy returning to the market and the demand slowly getting back to the pre-COVID, the sectors present a good investment opportunity for the medium to long term.

Even as the performance of the sector has not been the best, only 2 stocks from the Nifty auto index - Hero Moto Corp and Amara Raja Batteries have given negative returns in the last 1 year, falling 8 and percent, respectively.

Meanwhile, the remaining 13 constituents from the index under review generated positive returns for investors with Tata Motors surging over 250 percent and Tube Invest rallying over 130% in 1 year.

Further, Balkrishna Industries, Ashok Leyland, Bharat Forge, Bosch, and TVS Motor Company advanced between 50% and 90% in this period. The remaining constituents M&M, Bajaj Auto, Eicher Motors, Maruti Suzuki, MRF, and Exide Industries also all gave double-digit returns.

Tata Motors has been on the rise especially in the last few months despite weak quarterly earnings on the back of brokerage upgrades and electric vehicle plans. The brokerages remain bullish on the stock even after the loss widened in the September quarter. The company's loss widened to 4,442 in Q2FY22 against a loss of 314 crore reported in the same quarter a year ago.

"We maintain our positive stance on Tata Motors as (1) PV business to likely gain further market share based on its SUV focused approach, new product pipeline and EV focused approach (2) CV industry is benefitting from cyclical upturn and volumes will be driven by infra, agricultural and e-com segments (3) new refreshes in Land Rover and strong order book to benefit JLR and drive FCF generation," Prabhudas Lilladher noted.

As for the Auto sector, experts believe that the worst of the chip shortages, which forced supply shortages and production cuts are behind and will improve by early next year. Also, with the economy reopening, there has been a recovery in demand and the sales as well as the booking have been rising in a steady fashion the last few months.

However, the rising raw material prices may lead to automakers increasing costs in the near term. The aluminum prices have doubled since April last year. The usage of aluminum in vehicles has also increased in the near term to make the vehicles lighter and improve fuel efficiency.

The jump in aluminum, as well as steel prices, can be a concern in the near term and decline bottom line for the automakers.

However, as per experts, not considering the recent quarterly earnings and with a little stability in commodity prices, the auto space is expected to do much better from a 1-2 year perspective. Also, the government's big electric vehicle push will immensely benefit the sector.

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