Nifty Auto achieves eighth consecutive monthly gain in June, soars 8%; check stocks with highest gains

The Indian auto industry is accelerating at full throttle, driven by a significant surge in vehicle demand, improved export performance, a drop in raw material prices, and a recovery in the rural market.

This surge is clearly reflected in the soaring performance of auto stocks, with many achieving record highs and delivering significant returns within a short timeframe. The Nifty Auto index concluded June with a 7.60% gain, extending its winning streak for 8th consecutive month.

Looking at the individual stocks, 13 out of 16 constituents of the index finished the June month in the green, with Samvardhana Motherson International standing at the top with a gain of 32.4%.

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Among the other top gainers in the index were Exide Industries, Mahindra & Mahindra, Bosch Apollo Tyres, Hero MotoCorp, Bharat Forge, and Ashok Leyland, all of which ended the month with gains ranging between 3.5% and 14.2%.

After experiencing one of the bleakest intraday performances on June 4, the index has rebounded sharply in subsequent sessions following the formation of the BJP-led NDA government at the center.

This has heightened expectations that the new coalition government will prioritise rural spending over capital expenditure. As anticipated by the Street, the government has begun addressing the voting gaps observed in farm-heavy states and rural markets.

The release of a ₹2,000 instalment for farmers and financial assistance to build 30 million new houses in rural and urban areas, coupled with a recent hike in the MSP for 14 Kharif crops for the 2024–2025 season, underscores this focus. The MSP increase is estimated to result in an additional ₹35,000 crore for farmers compared to the previous season, significantly boosting farmers' incomes and improving their economic conditions.

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The rise in farmers' income is expected to have a ripple effect on various sectors heavily dependent on the rural economy, with the auto sector being one of the primary beneficiaries.

On the other hand, expectations that the government would continue its focus on the infrastructural push, as it has been delivering for the last decade, also led to a rise in the stocks of CV makers.

FY25 is poised to build upon robust performance

The auto sector achieved impressive earnings growth of 96% YoY in FY24, driven by consistent volume expansion, an improved product mix, disciplined pricing strategies, and favorable input costs. The momentum has carried into the first two months of the current fiscal year, with all segments posting steady YoY growth.

Notably, wholesale volumes for 2-wheelers (2Ws), passenger vehicles (PVs), commercial vehicles (CVs), and tractors have recorded YoY increases of 20%, 3%, 13%, and 3.5%, respectively.

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Despite challenges such as heat waves affecting foot traffic, unseasonal rains impacting certain segments, and the pre-election season affecting fleet utilisation, the sector has maintained resilience. Additionally, recovery in export volumes, particularly in 2Ws, has bolstered overall growth.

Looking ahead, projections suggest a strong economic outlook for India compared to developed economies, potentially boosting consumer spending in sectors like real estate and automobiles. Despite being the world's second-largest market, India's vehicle penetration of approximately 30 vehicles per 1,000 people remains significantly below global norms and is expected to rise.

Indian auto companies are well-positioned to capitalise on this growth trajectory. Many firms have announced plans to launch multiple vehicles over the next five years, with a strategic focus on electric vehicles, aligning with global trends towards sustainable mobility.

Also Read: Auto sales in June likely to be mixed bag with growth seen in two-wheelers, PVs

Projected demand trends

Ambit Capital Research projects divergent demand trends in the automotive sector over the next 2-3 years, following a robust recovery observed in the past two years post-Covid. The outlook highlights promising growth prospects across various segments: 2-wheelers are expected to achieve a 9.8% CAGR from FY24 to FY27E, driven by sustained recovery in domestic markets and improving exports.

Tractors are anticipated to grow at a 6.1% CAGR, supported by favorable monsoon conditions and increased adoption of agricultural machinery. Light commercial vehicles (LCVs) are projected to experience a 6.8% CAGR, benefiting from a recovering consumption economy.

It anticipates passenger vehicle (PV) volumes to grow at a 6.5% CAGR, led by SUVs with a 9% CAGR, while smaller cars may see subdued growth. Medium and heavy commercial vehicle (M&HCV) volumes are expected to show the slowest growth, with a projected 3.5% CAGR and the possibility of decline by FY27E, influenced by lower fleet utilisation rates and subdued infrastructure investments.

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.