Auto index clocks double-digit gains for 3rd year straight. Can it stay in fast lane?

NEW DELHI: With Motown in top gear, auto stocks once again rewarded investors handsomely in 2022, clocking double-digit returns for the third consecutive year. The BSE Auto index which is up around 18% so far in 2022, rallied 19% in 2021 and 13% in 2020.

But interestingly, the auto index has managed to outperform the benchmark Sensex for the first time in five years as a cool-off in crude and metal prices and ease in supply-side issues worked in their favour, sparking record auto sales.

For the year, automakers are projected to record sales of 3.8 million passenger vehicles (PVs), exceeding the previous record by more than 4,00,000 vehicles.

"A few things have clearly happened largely on the positive side, thankfully for the auto sector. One, of course, the global crude price has seen a sharp correction. The second factor is that in the initial months of the year a lot of metal prices corrected. In the last two-three months, metal prices have been flat but still on a year-to-date basis, they are down 15%-20% except for nickel. So, as most metal prices are down it is a positive for the automobile sector," said Kunj Bansal of Investment-illiteracy.com in an interaction with ET NOW.



For the year, 11 of the 15 index constituents of the BSE auto pack look poised to settle in the green, with gains of up to 65%, with TVS Motors and Tube Investments leading the table. On the other hand, Samvardhana Motherson International (down 53%), UNO Mind (down 13%), Tata Motors (down 13%) and Balkrishna Industries (down 8%) have posted cuts.


Road Ahead
Even after strong returns for the third year in a row, analysts on Dalal Street believe the outlook for auto remains strong, with many stocks likely to hit 52-week highs, riding on the back of strong sales numbers. But the rising interest rate environment and inflation environment could pose headwinds.

“Interest rate hike has been one factor which is of course on the negative side for all those people who buy vehicles on borrowed money as it becomes a slightly expensive proposition. But nonetheless given the numbers that have come in, including as recently as for the November month, we continue to see the passenger vehicle certainly seeing good growth," Bansal added.

Echoing similar views, Hemang Jani of MOSL said that the next one year or so would be reasonably good, particularly for the passenger vehicles and the CV part of it.

"Two-wheelers is a space where we are not too sure, the growth visibility is not looking that great. The automobile would see a margin expansion of about 150 to 180 bps and that would definitely bode well for the sector. Our preferred pick is Maruti followed by Mahindra & Mahindra and Ashok Leyland. In the auto ancillary space, we have a strong positive view on Bharat Forge," Jani told ET NOW.

(Data Inputs: Ritesh Presswala)

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