Sectoral Spotlight: Auto sector set to ride on festive fuel. Which stocks should you piggyback on?

As the Indian automobile sector gears up for the long festive season which begins in two weeks with the Ganesh Chaturthi festival, auto stocks, whose fortunes will be aligned with the performance of the companies during this period, have come under the spotlight.

Top brokerages along with analysts that ETMarkets spoke to remain gung ho on the prospects of the sector.

A look at the Nifty Auto index’s performance over the past one year suggests that it has done better than Nifty50 and also outperformed Nifty IT, Nifty Bank, Nifty FMCG, Nifty Metal and Nifty Media during this period while underperforming Nifty Pharma and Nifty Realty.

Kranthi Bathini, Director-Equity Strategy at WealthMills Securities opines that the outperformance of the auto sector will likely continue going ahead in the wake of the upcoming festive season. The strength in the economy, disposable income and the growing preference for big cars will see the auto industry sail comfortably through the season, Bathini said.

The auto sales have been strong on a year-on-year and quarter-on-quarter basis with traction for sports utility vehicles (SUVs) growing among vehicle buyers, he said, while highlighting that the future is EVs (electric vehicles) and India is witnessing a transformational shift towards them.

The WealthMills Securities Director remains bullish on Tata Motors, Mahindra & Mahindra and Maruti Suzuki among the OEMs while he is betting on Minda Corporation and Samvardhana Motherson International among the ancillaries. The views are for the long term with potential upside seen between 15% and 20%.

Sharekhan expects automobile players to continue their focus on premiumisation, new product launches and EBITDA margin expansion in FY24. In its view, the bottom-line growth will be driven by improvement in operating performance as volume growth is expected to moderate due to a high base while remaining healthy.

Within more than two dozen auto stocks under its coverage, the domestic brokerage has a buy view on 20 stocks including Maruti, Tata Motors, TVS Motors, Eicher Motors, Bajaj Auto, Ashok Leyland, M&M and Hero MotoCorps. In the ancillary segment, the preferred stocks include Amara Raja Batteries, Apollo Tyres, Bosch, Gabriel India, Rolex Rings, Ramkrishna Forgings, and others.

It holds a positive view on CIE Automotive India, Sterling Tools and Rolex Rings; a ‘Hold’ on Balkrishna Industries and Greaves Cotton while a ‘Neutral’ stance on Escorts Kubota and VST Tillers and Tractors.

The pecking order for brokerage LKP is PVs, 2Ws and CVs. It picks M&M on its “strength in the proliferating SUV segment”, prudent capital allocation and a robust growth strategy in utility vehicles, EVs and commercial vehicles (CVs). MSIL is another top pick on the PV side as the largest Indian passenger car maker offers a wide portfolio of vehicles, it said.

In two-wheelers, Bajaj Auto and TVS find favour from LKP. The former gains strength in EV space from Chetak and the upcoming launch of e-3W will be an additional positive, LKP said. Ashok Leyland is its top pick in the CV space. It recommends buying on dips in these stocks.

In a recent review of Maruti Suzuki stock, Morgan Stanley took an ‘Overweight stance, estimating a target of Rs 11,963.

LKP called August auto sales a mixed bag with 2Ws posting weak domestic performance while PV companies posting a strong growth led by the SUV segment.


The Federation of Automobile Dealers Association of India (FADA) reported August retail sales of passenger vehicles at 3.15 lakh units, up 6.5% YoY while the 2-wheeler retail sales stood at 12.5 lakh units, up 6.3% YoY. Retail sales of CVs and tractors stood at 75,294 and 73,849 units, respectively, which was higher by 3.2% and 13.6% YoY.

Antique in a note said that companies were building inventories ahead of the festive season with PV/2W inventory standing at 40-50 days. Notwithstanding a sharp decline in electric 2W volumes in the previous months following discontinuation of subsidy, a gradual rise in retail is being seen and the volumes could go up 6%-8% MoM from here, the report said.

What Charts Suggest
Technical charts suggest a further upside for the index with select stock playing a strong role towards the upsurge. Technical Analyst Rajesh Palviya expects the 15-stock index to test levels between 16,300-16,400 riding on the ongoing momentum.

“Nifty Auto index is now nearing its all-time high levels and is in a bullish trend with a rounding bottom formation taking place and the momentum can continue for more time. There is a strong buying action happening in auto stocks and it appears that there is no worry as of now,” Palviya said.

Maruti, M&M and TVS Motors have given a breakout and look good at this juncture. Tata Motors can be bought with a short to medium-term perspective and though it is seeing some consolidation, the long-term prospects remain optimistic for this counter, he further said.

Buy Maruti Suzuki | Target: Rs 11,000 – Rs 11,200 | Stop Loss: Rs 9,800
Buy M&M | Target: Rs 1,750 | Stop Loss: Rs 1,520
Buy TVS Motor | Target: Rs 1,580 – Rs 1,640 | Stop Loss: Rs 1,400
Buy Tata Motors | Rs 690 | Stop Loss: 607

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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