BSE Auto index surges 39% from March lows on robust growth momentum

Shares of companies in the automobile sector, including auto ancillary and tyre firms, continued to move up, with the S&P BSE Auto index rising over 2 per cent to hit a fresh high of 30,379.58 points on Tuesday.

The auto index has surged around 39 per cent from a low of 21,802 on March 8, as momentum in commercial vehicles (CVs), passenger vehicles (PVs), and two-wheeler (2Ws) sales remains strong. In comparison, the S&P BSE Sensex has been up around 12 per cent during the same period.

Escorts Kubota, Apollo Tyres, Bosch, Eicher Motors, MRF, and Maruti Suzuki India were up in the range of 2-10 per cent. Mahindra & Mahindra (M&M) and TVS Motor Company hit their respective record highs following a rise of around 2 per cent and 3 per cent, respectively.

In the financial year 2022-23 (FY23), the BSE Auto index has outperformed the market by surging 26 per cent. In comparison, the benchmark index is up about 2 per cent during the period.

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

In July 2022, CVs maintained robust growth momentum, driven by strong demand in both passenger and cargo segments. PV volumes also witnessed double-digit growth due to a large order book and increased production. In addition, 2W volumes were positive due to a ramp-up in production and inventory build-up with dealers in the run-up to the festive season.

According to Saji John, research analyst at Geojit Financial Services, “the sector is anticipating a substantial recovery in growth, owing to a lower base, pent-up demand, opening-up of economy, and new launches. This year, volume growth is expected to continue to be supported by festival season, normal monsoon, and faster adoption of EVs. In addition, production levels have normalised due to the ease in semiconductor shortage and a fall in metal & fuel prices. We expect the current trend to continue in the short term given upside in rating.”

Analysts at Emkay Global Financial Services expect FY23 to be positive with volume growth of 26 per cent for PVs, 20 per cent for CVs, 14 per cent for 2Ws, and 5 per cent for tractors.

“In the 2W auto OEM space, we ascribe a BUY rating to Eicher Motors amid the launch of affordable offering in the premium motorcycle segment and assign a HOLD rating to other incumbent 2W auto OEMs. We await firm volume growth (monthly numbers), as well as more meaningful action from them on the EV front before turning decisively positive,” ICICI Securities said.