Auto index hits record as MSIL surges 5%, M&M, Bajaj Auto hit life highs

Thus far in calendar year 2024, the BSE Auto index has surged 46 per cent, compared to the 18 per cent rally in BSE Sensex.

Shares of automobile companies were in demand on Thursday's trading session, with the BSE Auto index hitting a record high of 61,540.

The index gained nearly 2 per cent in intra-day trades to extend its upward movement after the Securities and Exchange Board of India (Sebi) approved Hyundai Motor India's Rs 25,000-crore initial public offering (IPO) on Wednesday.

Shares of auto companies, Maruti Suzuki India (Rs 13,409.95) and Tata Motors (Rs 989) have rallied 5 per cent and 3 per cent, respectively, on the BSE on Thursday’s intra-day trade, while Mahindra & Mahindra (Rs 3,163) and Bajaj Auto (Rs 12,584.45) are up 2 per cent each, hitting their respective new life highs.

At 01:30 PM, the BSE Auto index, the top gainer among sectoral indices, was up 1.5 per cent, as compared to the 0.37 per cent rise in the BSE Sensex. Thus far in calendar year 2024, the BSE Auto index has surged 46 per cent, compared to the 18 per cent rally in the benchmark index during the same period.

Fluctuations in crude oil prices and the INR-USD exchange rates directly affect auto demand due to raising fuel costs and import costs. Monsoon, too, has a direct impact on agriculture related factors like crop yields and food prices, which in turn impact auto sales by shaping consumer spending behaviour and economic stability. 

Similarly, auto finance rates are pivotal in determining affordability. Moreover, private final consumption expenditure (PFCE) and per capita income serve as a vital factor in determining consumer purchasing power, which directly influences affordability and automotive demand.

For the domestic passenger vehicle industry, the year-end and festive (Dusshera/ Diwali) quarter is normally the best quarter from a retail perspective. Retail sales are typically highest during the festive period around Dusshera and Diwali.

The auto industry also offers additional discounts during the festive period and sometimes, aligns new vehicle launches around the same time.

Hence a substantial amount of inventory is built up by the industry, one to two months before the festive period (generally between August and October) begins, therefore pushing second quarter sales ( between July and September).

CRISIL MI&A has assumed three years of normal monsoons within the 5-year outlook period and has considered positive momentum in rural demand. Fuel prices are also expected to remain nearly steady in the next five years. These favourable macro-economic factors are expected to aid consumers' disposable income levels.

Besides macro-economic factors, continued support from the government in terms of policies as well as continued expenditure and investments are expected to provide added support. The favourable demographics is an added advantage for India which is also expected to help propel the passenger vehicle industry forward, Hyundai Motor India said in its Draft Red Herring Prospectus (DRHP).

Hyundai Motor India is the second largest contributor to Indian domestic PV sales since fiscal 2009 and has maintained its position in the market since then.

This is due to continued traction for popular sport utility vehicle (SUV) models like Creta and Venue, coupled with new vehicle launches along with upgrades of its popular models.

Tata Motors has gained ground in the past five years, riding on the success of its SUV models, Nexon and Punch. The increase in traction for electric vehicles (where Tata Motors dominates) has also provided an additional support to the company's sales. In turn, Tata Motors' share of total market expanded from 6 per cent to 11 per cent between fiscal 2019 and 2024 year-to-date period.

Meanwhile, Motilal Oswal Financial Services expects the two-wheeler (2W) segment to continue to outperform other segments even in FY25. This positive outlook seems to be fully priced in after the recent strong rally in 2W stocks.

MSIL is a top pick among auto original equipment manufacturers (OEMs) as it continues to be a play on rural recovery with an attractive valuation.

The brokerage firm said it also likes Mahindra & Mahindra, given healthy demand momentum for the company in both SUVs and tractors for FY25.