Home/ Markets / Stock Markets/  Auto stocks in fast lane as FPIs bet on sector's strong growth outlook

The Indian automobile sector has been in the fast lane since beginning of FY23, attracting substantial interest and investment from both, domestic as well as foreign investors. The Nifty Auto index, characterized by 11% year-to-date gain and an impressive 26% rally over the course of one year, stands out as a silent performer, propelled by robust growth across all its segments.

The sector's outlook has experienced a further boost as demand resurged in the two-wheeler and commercial vehicle (CV) segments, accompanied by evolving consumer preferences in the passenger vehicle (PV) segment.

This year so far, Tata Motors has rallied over 22%, Maruti Suzuki India has jumped 11% and M&M has gained 1.5%. While among two-wheeler makers, Bajaj Auto shares surged over 27%, TVS Motor Company gained over 17%, and Hero MotoCorp remained flat YTD.

Additionally, the auto sector has also witnessed picking up of investments from foreign portfolio investors (FPI). In April, FPIs infused approximately 1,987 crore in the auto sector, while during the first half of May, they infused 4,705 crore into the sector. As a result, the automobile sector’s weight in FPI’s net assets under custody has risen to 6.18%, which is around 2.97 lakh crore, as indicated by data from the National Securities Depository Limited (NSDL).

“The FPI influx into the sector comes on the back of strong performance by the automakers led by strong demand across segments. The two-wheeler space has shown improvement, while the capacity utilisation levels have risen. The growth in the sector is likely to sustain," said Avinash Gorakshakar, Director Research, Profitmart Securities.

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During the fourth quarter of FY23, Indian automakers reported decent performance across various segments, primarily driven by robust volume growth and reduced margin pressures owing to favorable commodity prices. Notably, the passenger vehicle segment achieved record sales in FY23.

Last month, retail sales of three-wheelers increased by 57% led by high demand for e-rickshaws and passenger-oriented vehicles. Tractor sales grew by modest 1% and commercial vehicle sales witnessed 2% growth, as per industry data. There has also been a noticeable increase in customer inquiries for two-wheelers, indicating a positive outlook for the segment.

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“The upsurge in demand within the PV and CV segments can be attributed to various new model launches. Consumer preferences are progressively shifting towards utility-focused vehicles, which is expected to fuel further growth in this segment," Gorakshakar added.

Meanwhile, the performance of CV segment is also linked to the economic growth, which is showing signs of improvement. As a result, this segment stands to benefit from the favorable economic conditions.

Going ahead, Gorakshakar believes monsoon will play a critical role for the growth of the automobile sector. Among stocks, he believes valuations of Mahindra & Mahindra (M&M) looks appealing.

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Updated: 25 May 2023, 03:17 PM IST
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