BSE Auto index hits new high on strong outlook; M&M zooms 37% in 3 months

The strong outperformance in auto sector is mainly due to pick up in pace of monsoons, cut in excise duty on fuels, and decline in global crude prices

Shares of automobile companies are on a roll with the S&P BSE Auto index hitting fresh record high in Thursday's intra-day trade on strong demand outlook. Individually, Mahindra & Mahindra (M&M) and Tube Investments of India (TII) hit their respective all-time highs on the BSE today.

The BSE Auto index hit a new high of 27,781, up 1.3 per cent at 10:55 AM, as compared to 0.66 per cent rise in the S&P BSE Sensex. The index has surpassed its previous high of 27,271 touched in November 2021. Meanwhile, the Nifty Auto index hit an intra-day high of 12,123.20, and was trading close to its record high level of 12,139.75 touched on November 17, 2021.

Thus far in the financial year 2022-23 (FY23), the BSE Auto index has outperformed the market by surging 15.5 per cent. In comparison, the benchmark index was down 7.6 per cent during the period. In the past three months, M&M, Eicher Motors, TVS Motor Company, Ashok Leyland, and Hero MotoCorp have rallied 16 per cent to 37 per cent.

The strong outperformance in auto sector is mainly due to pick up in pace of monsoons, cut in excise duty on fuels (Rs 8/litre on petrol, Rs 6/litre on diesel) in May 2022 (thereby lowering running costs of vehicles and an impetus for new vehicle sales), decline in global crude prices, and expectations of further softness in fuel prices (petrol, diesel).

"In the past couple of weeks, factors have turned benefitting the domestic automobile space. The supply chain issues have remain largely resolved with management commentary suggesting improving chip availability and commodity prices mainly metals have corrected substantially amid resurfacing global growth concerns, Covid-led clampdown in China, high inflation and consequent global central banks' efforts to tame the same via interest rate hike," ICICI Securities said in a auto sector update.

Analysts at Emkay Global Financial Services, too, expect a positive FY23 for automobile sector with volume growth of 20 per cent for commercial vehicles (CVs), 20 per cent for passenger vehicles (PVs), 11 per cent for two-wheelers (2Ws) and 4 per cent for tractors.

According to Tata Motors, in Q1FY23, the M&HCV and I&LCV segments recorded strong volume growth over the same quarter (Q1) last year on the back of increased activity in road construction, mining, and growth in agriculture and e-commerce. SCV demand from last-mile distribution has remained robust backed by continued consumer spending. CV Passenger saw a strong recovery due to the opening of schools and replacement of staff buses.

Going ahead, the management of the company remains cautiously optimistic about overall demand while keeping a close watch on interest rates, transporter profitability, commodity prices and semiconductor availability.

"With good prices for Rabi output, cash flow with farmers is good. Government’s approval on increase in MSP for all Kharif crops and forecast of a normal monsoon is very positive for a bumper Kharif crop. Though Kharif sowing is lagging in the first fortnight of the season than last year due to deficient rainfall in key kharif states, further advancement of Southwest monsoons across the country brings in positive sentiments and is likely to boost the tractor demands in the coming months," M&M's management said during June auto sales update.

COMPANY	LATEST	ONE-MONTH BEFORE	GAIN(%)
Tube Investments	2,008.50	1,551.25	29.5
Bosch	16,035.50	14,115.15	13.6
Eicher Motors	2,946.60	2,647.20	11.3
TVS Motor Co.	826.00	744.20	11.0
Cummins India	1,120.00	1,010.20	10.9
Maruti Suzuki	8,654.00	7,808.65	10.8
Hero Motocorp	2,845.25	2,569.20	10.7
M & M	1,135.65	1,041.60	9.0
Ashok Leyland	146.80	139.60	5.2
MRF	74,362.90	71,619.40	3.8