The auto space is back in the game. The decline in major commodity prices has been fruitful and margins have already started to improve. The availability of semiconductor chips has been encouraging and companies are fulfilling the gaps by adopting different strategies as seen in the increase in volume offtake. The automakers have overcome the challenges and bounced back impressively
The Nifty Auto index has jumped over 28 percent in 2023 YTD, giving positive returns in 7 of the 11 months so far this year. Meanwhile, it has advanced 22 percent in the last 1 year. In comparison, the benchmark Nifty is up over 7 percent in 2023 YTD and 6.5 percent in the last 1 year.
The auto index has added 1.7 percent in November so far after a 1.7 percent decline in October. During the middle of the year, the index was in the green for 4 straight months between April and July, rising over 28 percent in that time. However, it fell in the first 2 months of the year, down 1.1 percent in Jan and 4.7 percent in Feb.
Even though the market was under pressure in October, the index hit its record high of 16,664.85 on October 20, 2023. It has now surged 40 percent from its 52-week low of ₹11,901.85, hit on March 28, 2023.
October Auto Sales
While they achieved record-high wholesale dispatches of passenger vehicles (PVs) in October, showrooms are now dealing with unprecedented inventory levels, raising concerns for both dealerships and manufacturers.
According to FADA, the Navratri period saw a surge in bookings driven by the introduction of new models, particularly SUVs, and attractive consumer offers. Vehicle registrations during Navratri, as a result, soared 18%, an all-time high, surpassing the highs previously recorded in 2017.
However, the impact of local elections and market saturation meant that the festive spirit didn’t translate uniformly into sales across all regions, it said. Passenger vehicle registrations spiked 6.5% in the 10-day Navratri period (from 15-24 October) year-on-year to 140,000 units, data released by FADA showed.
Registrations in October at 354,000 units were up 6.5 percent from September, but down 1.36 percent from a year earlier. However, it may be noted that, unlike last year, this October had a 15-day period at the beginning considered inauspicious for big-ticket purchases.
Overall, total auto sales rose 8 percent in October on a MoM basis. Total auto sales in October stood at 21,17,596, from 18,82,071 sold in September. Two-wheelers, three-wheelers, passenger vehicles, tractors and commercial vehicles expanded by 15 percent, 2 percent, 7 percent, 15 percent, and 10 percent, respectively, from the previous month.
Stocks
On a YTD basis, all constituents in the Nifty Auto index gave positive returns with Tata Motors jumping the most, up 66.5 percent, followed by Bajaj Auto, up almost 50 percent and TVS Motor, up 48 percent.
Meanwhile, Sona BLW Precision, Samvardhana Motherson, Maruti Suzuki, MRF, Bharat Forge, and Balkrishna Industries also advanced between 20 percent and 34 percent. Furthermore, Eicher Motors, TI India, Hero MotoCorp, Bosch, Ashok Leyland, and M&M added between 8 and 19 percent.
Narendra Solanki, Head – Fundamental Research, Investment Services, Anand Rathi Shares and Stock Brokers
The festive season has generally been the best time for the automobile industry. Right now, we believe that one should start accumulating those auto stocks of quality companies that have more domestic presence. We recommend TVS Motor and M&M in our Diwali picks.
Manish Raj Singhania, President of FADA
The PV segment is navigating through a tricky phase. Festive days might spike bookings, yet the shadow of year-end discounts looms over immediate sales. High inventory levels in PVs, at a critical 63-66 days range, demand urgent attention from OEMs. Without substantial interventions and if Diwali sales don’t rise to the occasion, the weight of unsold stock could lead to significant dealer distress, echoing FADA’s concerns for potential industry-wide repercussions. Immediate and decisive action is imperative to counter the risk of a financial squeeze as the year closes.
Parul Rao, Research Analyst, SAMCO Securities
The festive season is indeed a good time to accumulate fundamentally strong auto stocks as the domestic demand typically increases during this period. Top picks include stocks like Maruti Suzuki, TVS Motors, Ashok Leyland, and Eicher Motors.
Vinit Bolinjkar, Head of Research, Ventura Securities
Helped by strong festive season demand and momentum in the economy, domestic PV sales reached a new peak for the third consecutive month in October. Furthermore, the enhancement of urban infrastructure and the expansion of highway networks are contributing to the growing presence of PV in India.
Additionally, the development of hybrid and EV technology within the PV sector is appealing to customers, particularly in situations where fuel prices are high. These factors have the potential to drive long-term growth in the domestic PV industry. Maruti Suzuki, with its robust growth figures, is leading the industry, making it our top choice.
Akshay Tiwari – Fundamental Analyst, Religare Broking Ltd
The demand environment has been quite robust in the auto industry, especially for the premium category of passenger vehicles and 2-wheelers. The healthy demand is well supported by favourable input prices which will enable auto OEMs to post consecutive years of record growth. Going ahead, market share gains in key pockets like the premium category of utility vehicles and 125+cc range of motorcycles will prove to be the next leg of growth for auto OEMs present in respective categories. Factoring this, we would recommend investors to add Maruti Suzuki, Bajaj Auto and M&M to their portfolios.