4 auto stocks including Bajaj Auto, TVS Motor hit new all-time highs – here’s why

Indian auto stocks gained sharply in Tuesday's trading session, with the Nifty Auto index gaining 5% to touch a fresh record high of 24,347 points. Two-wheeler stocks like Bajaj Auto, HeroMoto Corp., and TVS Motor Company, attained fresh record highs during the session, with gains ranging between 4% and 6.5%.

Likewise, Mahindra & Mahindra (M&M) also touched a new all-time high of ₹2,753 per share. Additionally, other auto stocks, including Ashok Leyland, Exide Industries, Balkrishna Industries, Samvardhana Motherson International, MRF, Bosch, Apollo Tyres, Bharat Forge, and Tata Motors, closed today's session with gains ranging from 3% to 8%.

What caused the spike?

Today's surge in auto stocks was driven by increased investor confidence, fueled by expectations that the anticipated new coalition government (comprising BJP and its allies) may shift its focus towards prioritising rural spending over capital expenditure, diverging from past strategies.

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Increased spending in rural areas often translates into higher disposable income for rural consumers. Two-wheelers are popular modes of transportation in rural regions, and higher disposable income could lead to increased demand for two-wheelers.

The highly anticipated results of India's general elections brought a significant surprise compared to the earlier exit polls' expectations. Despite projections indicating 360–400 seats for the BJP-led NDA and over 320 for the BJP alone, the final outcome revealed 292 seats for the NDA and 240 for the BJP.

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While the BJP-led NDA is expected to form the new government, domestic brokerage firm Nuvama Institutional Equities expressed concerns about potential policy uncertainty. It anticipates a slowdown in decision-making and further reform push, with potential shifts in policy priorities in the near term.

Specifically, Nuvama suggests a renewed focus on the rural and lower-end economy, considering the stagnation in rural spending, while the momentum behind capital expenditure initiatives may ease. With broader private capital expenditure yet to see significant traction, Nuvama emphasises that consumption is likely to surpass capital expenditure in FY25.

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However, despite these short-term shifts, the brokerage believes that the election outcome will not disrupt India's medium-term policy direction, its commitment to fiscal prudence, or its fundamental growth drivers. Nonetheless, there is expected to be an increased emphasis on inclusive growth in the coming years, it added. 

"The broad pillars of India’s economic momentum are unlikely to change. The focus on manufacturing will continue, especially given its importance in job creation. There may be a subtle shift back towards consumption stimulus, but we think it would not be material," said Emkay Research. 

Sharp recovery

Looking at the benchmark indices, Nifty 50 and Sensex, witnessed a notable resurgence in today's session. Nifty 50 concluded the trading day with a gain of 3.36%, while Sensex ended the session with a rally of 3.2%.

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This surge followed N. Chandrababu Naidu, leader of the regional Telugu Desam Party, reaffirming his party's commitment to the NDA. 

Additionally, market sentiment received a boost from optimistic forecasts of favorable monsoon rainfall, which bodes well for the rural recovery narrative.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.