Automobile stocks have been preferred choices for a large chunk of investors in the Indian stock market. In fact, in spite of temporary market fluctuations, several people believe that they comprise the best stocks to buy in India for the long term. This is because of the long-term resilience of auto stocks spanning sectors like passenger vehicles, commercial vehicles, automotive ancillaries, two-wheelers, and the like.
The Indian automobile sector is expected to see rapid progress over the next few months. Sales figures have been slowly but steadily stabilizing over the last few months for the Indian auto sector. With economic activities scaling up steadily in the unlock phase and hopes of a regular monsoon, auto stocks are hoping to tap into pent-up demand in the consumer market to witness steady growth in the near future.
There was a time when the sector was grappling with zero sales volumes for the month of April 2020 although with lockdown limitations easing up steadily, companies partially started functioning from May onwards.
Market experts feel that auto stocks could surge strongly in the next few months owing to several factors including pent-up demand from pre-bookings before the lockdown, increase in demand for personal mobility and transportation on the back of COVID-19 infection fears, stronger sentiments in rural markets, and preference for social distancing which makes personal mobility more imperative.
Best Auto Stocks to Buy in India- What you should Know?
Before getting into the list of auto sector stocks in the market, you should learn more about several prevailing market factors. In fact, the Nifty Auto index has witnessed a strong rally of 42% ever since the 23rd of March, 2020, when there was the declaration of the lockdown throughout the nation.
It was designed for preventing the spread of the deadly COVID-19 pandemic. The rise was strong in comparison to the rise of 36.35% for the S&P BSE Sensex as per reports. The Nifty Auto index has also risen handsomely by 1.12% on a single day as it witnessed some months earlier with Bosch posting handsome gains of 4.6%, Maruti Suzuki posting gains of 2.67%, and MRF posting gains of 2.46%. Eicher Motors share on that very day saw gains of 1.89% while Hero MotoCorp posted 1.8% in gains. The BSE Sensex index, however, saw flat trading on the same afternoon.
You have to be closely aware of market movements and fluctuations. Such gains are not hard to come by provided you have ample patience and can invest for the long haul. Experts feel that PV (passenger vehicles) dispatches should go up steadily and in a sequential manner although they will stay lower on a year-on-year basis.
As per reports, the industry operated at its 40% level for the month of June 2020. Although operations are improving rapidly, urban demand is significantly behind overall demand from rural India and smaller towns. Amongst several top heavyweight brands in the industry, analysts forecast that Maruti Suzuki should see a decline (year on year) of approximately 58% in sales volumes on the back of operations being gradually scaled up.
In the case of Mahindra & Mahindra (M&M), analysts feel that sales volumes of tractors will witness a marginal decline although demand remains relatively robust owing to better rural market sentiments. Automotive sales will also see steady recovery, particularly in rural markets amidst constraints pertaining to supplies as per experts.
Other market experts have opined that demand has been surprisingly resilient overall although sustenance of auto biggies will be a key factor worth watching out for. With several moving parts including stabilization of supply levels, overall consumer market sentiments, finance availability, and the impact of cost inflation (BS-VI), normalizing demand is the biggest factor that can be observed in recent times.
For large-cap stocks, Eicher Motors and Mahindra & Mahindra are recommended by experts while Motherson Sumi Systems is a top pick in the midcap category. Recovery is also being spurred by the demand that is based on the necessity with the major chunk of sales volumes being generated by first-time consumers.
Some Tips that you Should Keep in Mind
Bear in mind that Maruti Suzuki is comparatively better placed than its rival and peer companies on account of its solid portfolio in the entry-level segment.
Volumes will come down significantly but overall, there will be some gains as well. Other analysts also forecast an improvement in overall sales figures in the next few quarters owing to factors like pent-up demand, a low base, improved sentiments amongst rural buyers, and a steady improvement in overall countrywide economic activity.
In fact sales volumes in the domestic PV space have been going up steadily on a month-on-month basis although the year-on-year basis figures will be lower.
There is a stronger shift towards better personal mobility which has resulted in higher demand and comparatively stabilized sales volumes for the Indian auto sector in recent months. Retails are much improved in comparison to the wholesale category as per several reports. Domestic sales volumes may come down on a yearly basis although some analysts predict a dip of yearly sales for Maruti Suzuki to the tune of 62% while Mahindra & Mahindra may witness 65% lower sales volumes.
However, Maruti Suzuki, India’s biggest carmaker, may still revive faster and better than many counterparts. This is one stock that is highly recommended with an upside target of 10%. Mahindra & Mahindra share may give an upside of 13% as per forecasts of industry analysts. Other stocks in the reckoning include Eicher Motors, Hero MotoCorp, TVS Motor Company, Ashok Leyland, Cummins India, Amara Raja Batteries, and Exide India among others.
The automobile industry is very big and it’s the biggest contributor to India’s GDP. There are a ton of publicly listed companies trading on the Indian stock markets (right from OEMs to ancillaries). Thus, one can say that there are plenty of automobile stocks worth looking at. Auto stocks may turn out to be great buys even as the near-term earnings outlook is not very optimistic but will definitely fetch some good profits in the long run.
The recent correction in some of the renowned auto stocks’ share prices has made the pack appealing, given that the long-term positive outlook remains intact. However, all the in and out of all the automobile manufacturers in trading in the market have been clearly curated in this article. Hence, you can check according to your investment objective and past experience which company has the greatest scope to provide you with expected returns.
However, it is highly recommended that investors, before investing in any kind of stock, should do thorough research. Also, patience is imperative in the stock market, and especially during these times, that will be your biggest support.