Auto sales revving up in May 2023

As we reflect on the performance of India’s auto sector in May 2023, we are reminded that the automotive industry is a complex, interconnected web of various segments. Each has its own unique set of dynamics and drivers, contributing to the ebb and flow of the industry. Overall, the month witnessed mixed performances, with PV segment reflecting increase in wholesale volume, two-wheelers riding high on the back of wedding season and pre-buying of electric vehicles, while other segments such as commercial vehicles experienced muted demand. However, even with this mixed bag of results, the auto sector continues to look attractive for investors.

Key Highlights from the Month of May:

Passenger vehicle: The passenger vehicle (PV) industry showed sluggish retail volumes but recorded a significant 13-15% YoY increase in wholesale volumes. Maruti Suzuki, Mahindra & Mahindra, and Hyundai Motor reported growth in sales, with Maruti Suzuki’s dispatches rising 10% YoY.

Two-wheeler segment: The two-wheelers segment witnessed robust volume growth of 10% YoY, a surge mainly driven by pre-buying of electric models and increased demand during the wedding season. Companies like Hero MotoCorp, Eicher Motors, and TVS Motor reported growth in sales, with Hero MotoCorp’s dispatches to dealerships surpassing analysts’ expectations with a 7% rise.

Commercial vehicle: On the flip side, the commercial vehicle (CV) segment experienced a mid to high single-digit YoY decline in volumes. This downward trend was primarily due to the pre-buying activity preceding the transition to BSVI Phase II in March 2023. Despite this, some companies like Eicher Motors saw growth, with its commercial vehicle arm’s sales rising by 11.6% YoY.

The domestic tractor industry observed a low single-digit decline in volumes, but the upbeat sales figures from Escorts Kubota Ltd. present an encouraging picture.

A sector attractive for investors

The mixed bag of performances notwithstanding, the auto sector seems increasingly attractive for investors, particularly Foreign Portfolio Investors (FPIs). In recent times, the auto sector has witnessed a significant upsurge in FPI investments.

The weight of the automobile sector in the equity portfolio of FPIs touched a multi-month high of 6.18% in May. According to data from the National Securities Depository Limited (NSDL), the auto sector accounted for 21% of the total FPI inflow of $5.4 billion since the start of the year.

Several factors contribute to this investment attractiveness. The Indian government’s emphasis on infrastructure, ease of access to vehicle loans, a surge in new launches, and a focus on electric vehicles have all combined to make the auto sector a hotbed for investment.

Moreover, the auto sector accounts for a significant 7.1% of India’s GDP and 8% of its exports. This underpins the strategic importance of the sector to the national economy and the investment landscape. Despite having a high base, industry experts project the sector will continue to grow at a rate of 5-6%.

An interesting fallout of the pandemic was the inadvertent advantage to the auto companies of streamlining their operations and reducing costs, allowing for improved market shares. This has put many companies in a position of having low inventory but high order backlogs – an appealing prospect for investors.

A bullish outlook ahead?

Given the sector’s performance and the increasing inflow of investments, the prospects are looking much brighter than anticipated. With companies like Tata Motors, Eicher Motors, and Mahindra & Mahindra witnessing increased sales, and the Society of Indian Automobile Manufacturers forecasting a 5-8% growth in the passenger vehicle market for the current fiscal year, the horizon looks promising.

While uncertainties abound in the economic landscape, the auto sector, backed by a rising demand for electric vehicles, increased FPI investments, and strong sales performances, is poised to be an attractive arena for investment.

For investors, the auto sector presents an attractive investment opportunity given its resilience, growth potential, and the ongoing shift toward electric vehicles. Companies that have shown strong performance like Hero MotoCorp, Eicher Motors, TVS Motor, Tata Motors, and Mahindra & Mahindra offer good investment options.

Investors may consider building a diversified portfolio across various segments of the auto industry, from passenger vehicles to two-wheelers to tractors, to hedge risks and capitalize on the sector’s growth trajectory. However, as always, investors should align their investment decisions with their risk appetite, investment horizon, and financial goals.

In conclusion, despite the various challenges, the auto sector’s future looks bright, underpinned by rising demand, robust sales numbers, government support, and increasing interest from foreign investors. As the industry navigates its way ahead, it would indeed be worthwhile for investors to keep a close watch on this space.

Markets this week

Source: BSE and NSE

• The Indian equity market showed a flat performance for the week ending on June 2, with fluctuations largely contained within a specific range.
• The week was marked by positive GDP data that exceeded market expectations.
• Manufacturing PMI reached a 31-month high, indicating strong manufacturing activity.
• GST collections observed an upsurge, suggesting an increase in economic transactions.
• Auto sales for May recorded strong figures, signalling a promising trend in the automotive sector.
• The closure of US debt ceiling discussions took place, potentially affecting global financial markets.
• Foreign institutional investors (FIIs) emerged as net buyers this week, with a total purchase of equities amounting to Rs 6,519.73 crore.
• Conversely, domestic institutional investors (DIIs) sold equities worth Rs 1,043.1 crore.
• Sector-wise, the Nifty Realty index saw a near 4 percent gain, the Media index increased by 3 percent, and the Healthcare index rose by 2.5 percent.
• On the other hand, the Oil & Gas index dropped by 2.7 percent, and the Energy index declined by nearly 2 percent

Weekly Leaderboard:

Source: BSE

Stocks that made the news this week:

👉Boosted by robust performance reports, shares of top auto companies, Hero MotoCorp, Bajaj Auto, and Maruti Suzuki, experienced notable surges. Hero MotoCorp, a leading motorcycle and scooter manufacturer, saw a 3% rise in share prices following a 7% sales growth in May 2023. Meanwhile, Bajaj Auto’s shares hit a new 52-week high, buoyed by a significant 29% YoY increase in total sales as reported in their stellar Q4 results. Similarly, Maruti Suzuki’s shares ascended by 1.68%, reflecting a strong performance in May 2023, with production up by 9.3% and a significant sales leap of 10.6%. These figures signify positive growth trends for these auto sector giants.

👉The two-day offer for sale (OFS) of Coal India shares was enthusiastically received, being over-subscribed by both retail and institutional investors. The government, which sold its 3% stake (equivalent to 18.48 crore shares) at a floor price of Rs 225 per share, anticipates a revenue exceeding Rs 4,000 crore from the transaction, indicating strong market confidence in the coal industry.

👉Olectra Greentech’s shares jumped by 12.05% during the week following a string of significant accomplishments, including securing a major order for 550 electric buses from the Telangana State Road Transport Corporation in March. This achievement consolidates its reputation as a preferred provider of sustainable transportation solutions. Additionally, Olectra Greentech has entered into a strategic partnership with Reliance Industries to co-develop hydrogen buses, underscoring its commitment to innovative technologies and product portfolio expansion.