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MUMBAI : Domestic fund managers deepened their exposures in the automotive sector betting on robust festive demand despite supply constraints plaguing auto firms this year. The weightage of auto stocks by mutual funds climbed to 6.1% in September, showed data for the top 20 domestic mutual funds. This marked a rebound from a two-month sell off, with exposures of the mutual funds falling to a 17-month low of 5.9% in August.

Data from the Association of Mutual Funds in India (Amfi) and NAV India and analysed by Motilal Oswal Financial Services Ltd showed auto stocks had a weightage of 5.9%, 6.2% and 6.5% in August, July and June, respectively.

A global shortage of semiconductor chips has severely hit carmakers, forcing them to cut production sharply. Maruti Suzuki India Ltd, the top carmaker, cut production for three straight months and said its total production this month will be 60% of normal production. Maruti cut output by 60% in September.

The acute shortage of chips led to a 41% drop from the year earlier in wholesales or factory dispatches of passenger vehicles last month, the Society of Indian Automobile Manufacturers (Siam) said on Thursday.

Analysts are however, betting on a revival of the sector led by festive demand.

Channel checks by Emkay Global Financial Services Ltd showed that order bookings are extremely strong for passenger vehicles with a waiting period of up to six months for the top-selling models. “Dealers expect a subdued festive season owing to supply constraints. Dealer inventory levels are low at 1-2 weeks. Assuming supply issues persist, dealers may run out of stock by October-end for passenger vehicles," analysts at Emkay Global Financial Services Ltd said.

Highlighting the risk of vehicle supply constraints affecting sales during the upcoming festive season, Nomura said this will likely lead to a reduction in discounts. “There have been investor queries if lower discounts due to chip shortages are likely to positively benefit margins for original equipment manufacturers (OEMs). In our view, in the short term, this can support gross margins. For those OEMs that don’t have large production cuts, overall EBIT can be higher. In the long run, we expect supply to normalize and so should discounts. Thus, we continue to focus on underlying demand, market share performance and model cycle," Nomura said.

Overall in September, the Nifty Auto index gained 5.62%, recovering from declines of 0.14% and 5.21% in the previous two months. In October so far, the index has gained 11.37%.

Besides auto, mutual funds increased their exposure to oil and gas, automobiles, real estate, PSU banks, consumer durables and retail in September. Meanwhile, net inflows into equity mutual funds fell 20% sequentially in September despite record contributions from monthly systematic investment plans (SIPs). According to Amfi data, equity schemes received net inflows of 6,456.38 crore in September, falling from 8,056.80 crore in August. Total outflows through SIPs totalled 10,351.33 crore in September, against 9,923.15 crore in August.

“In last few months, participants are withdrawing money via lumpsum route at peak valuations while new/existing investors continue to show confidence for long term by increasingly contributing to equities in staggered manner via SIP route," Abhilash Pagaria, an analyst at Edelweiss Securities said.

According to Edelweiss Securities research, Max Healthcare Institute, HDFC Bank, SBI Life Insurance, SBI Cards and Payments and Axis Bank were the top five most-bought stocks by mutual funds in September.

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