Tata Motors, M&M to Bajaj Auto: Why are auto stocks rising after India’s stellar GDP print?

Stock market today: After the announcement of India's stellar gross domestic product (GDP) for the third quarter of the current fiscal year, auto stocks in India are witnessing strong demand since early morning deals on Friday. Tata Motors shares are up over 2 per cent, Mahindra & Mahindra (M&M) share price is up by around one per cent, Bajaj Auto share price gained to the tune of 2 per cent, Hero MotoCorp shares gained around 1.50 per cent, whereas Maruti Suzuki and Ashok Leyland shares gained nearly one per cent in early morning deals on Friday.

According to stock market experts, auto stocks are in an uptrend today as the real GDP of India for Q3FY24 has come to 8.4 percent, which is much better than expected. Moreover, they said that the Indian GDP has been continuously giving positive signals and healthy conditions for the national economy. They said that a healthy economy means better purchasing capacity, which powers auto, banking, and real estate. On why they are bullish on auto, realty and banking segments in the strong Indian economy, they said that higher income leads to higher spending in residential real estate, cars, and bikes. On auto stocks to buy today, they advised long-term investors to buy shares of M&M, Tata Motors, Maruti Suzuki India, Bajaj Auto, and Hero MotoCorp. 

GDP of India in focus

Highlighting the key takeaways from India's GDP data for Q3FY24, Nikhil Gupta, Chief Economist at Motilal Oswal, said, "In another pleasant surprise, India's real GDP grew 8.4% YoY in 3QFY24, compared to the market (and our) forecast of 6.5-7%. Further, the last two quarters' growth was also revised up to 8.1% (from 7.7% earlier). FY22 growth was revised up to 9.7% (from 9.1%) and FY23 was revised down to 7% (from 7.2%). Notably, the unexpectedly sharp growth of 32% YoY in net taxes supported 8%+ GDP growth, as real GVA growth was 6.5% in the quarter. Details suggest that the decline in the farm sector was entirely offset by double-digit industrial growth and strong services."

Speaking on the reason for the rise in auto stocks today, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "In a strong economy, the purchasing power of an earning individual goes northward and in the case of higher income, people spend on their home and vehicles. Those who have both a vehicle and a house, they go for an upgrade when one's spending capacity goes up."

Nifty 50 vs GDP of India

Sandeep Pandey, Founder of Basav Capital, said, "There is a thumb rule in the market that the Nifty 50 index grows two to two and a half times annually of the growth registered by the GDP of India. So, when the Indian GDP is growing at a consistent 8 percent in the previous three quarters, it is expected to trickle into the stock market. By going through the above-mentioned rule of stock market growth, one can expect the 50-stock index to grow around 16 to 20 percent in FY24. This is expected to happen through the alpha returns in auto, banking, and real estate sectors attracting the majority of the investment in upcoming sessions."

Auto stocks to buy

On auto stocks that one can add to one's stock portfolio, Sandeep Pandey said, "M&M, Maruti Suzuki and Tata Motors in four-wheeler segment whereas Hero MotoCorp and Bajaj Auto in two-wheeler segment is expected to deliver stellar returns in the long-term."

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