Despite big odds, only 2 Nifty auto stocks gave negative returns in 1 year

The sector’s poor performance has come due to a sharp drop in demand due to the COVID pandemic. Other recent constraints, including chip shortages and rising raw material prices, also impacted the sector’s performance. However, moving ahead with the return of normalcy in the market and demand slowly coming back to pre-COVID, the sectors present a good investment opportunity for the medium to long term.

Even though the sector has not been the best, only 2 stocks in the Nifty Auto Index – Hero Moto Corp and Amara Raja Batteries – have given negative returns in the last 1 year with 8 and per cent fall respectively.

Meanwhile, the remaining 13 components of the index under review generated positive returns for investors, with Tata Motors rising over 250 per cent and Tube Invest rallying over 130% in 1 year.

In addition, Balkrishna Industries, Ashok Leyland, Bharat Forge, Bosch and TVS Motor Company advanced between 50% to 90% in this period. Remaining constituents M&M, Bajaj Auto, Eicher Motors, Maruti Suzuki, MRF and Exide Industries also all delivered double digit returns.

Tata Motors has been growing especially in the last few months despite weak quarterly earnings on account of brokerage upgrades and electric vehicle schemes. The brokerage firm remains bullish on the stock even after the losses increased in the September quarter. The company’s losses have increased so much ₹Against a loss of 4,442 in Q2FY22 ₹314 crore reported in the same quarter a year ago.

“We maintain our positive stance on Tata Motors as (1) the PV business to gain further market share based on its SUV centric approach, new product pipeline and EV centric approach, (2) the CV industry to benefit from cyclical uplift and will be volume driven by infra, agriculture and e-com segments (3) new refreshes in Land Rover and strong order book to benefit JLR and drive FCF generation,” said Prabhudas Lilladher.

For the auto sector, experts believe the worst of the chip shortfalls, which have forced supply crunch and production cuts, will improve early next year. Also, with the reopening of the economy, demand has improved and sales as well as bookings have been growing steadily over the past few months.

However, rising raw material prices may increase costs to automakers in the near term. Aluminum prices have doubled since April last year. The use of aluminum in vehicles has also increased in the near future to make vehicles lighter and improve fuel efficiency.

A jump in the prices of aluminium, as well as steel, could be a concern in the near future and could lead to a decline in the bottom line for automakers.

However, according to experts, the auto space is expected to outperform from a 1-2 year perspective, taking into account the recent quarterly earnings and with little stabilization in commodity prices. Also, the sector will benefit immensely from the government’s big electric vehicle push.