Do you have Maruti, M&M or Ashok Leyland in your portfolio? Heres what experts say post-October sales

Auto stocks: Most auto and auto ancillary stocks have given decent returns to investors in the past 12 months. The Nifty Auto Index has risen around 19 per cent during the window, thus outperforming the benchmark index, Nifty, which has gained around 5 per cent between November 2, 2022, and November 1, 2023.

Among individual stocks, Tata Motors has been an outstanding performer with around 50 per cent jump in the one year, followed by Bajaj Auto (up 42 per cent), Samvardhana Motherson International (up over 40 per cent), and TVS Motor Company (up over 37 per cent), the Trendlyne data shows.

That said, October turned out to be a strong month for automobile manufacturers as the festive season, lower base, and discounts on entry-level models boosted sales across passenger vehicles (PVs), two-wheelers (2Ws), commercial vehicles (CVs), as well as original equipment manufacturers (OEMs).

The growth in sales was observed both sequentially as well as year-on-year (YoY). Two-wheelers posted a strong recovery as sentiments improved and also due to a low base. For all three 2W companies, the growth was above 20 per cent YoY, while Bajaj Auto grew 20 per cent month-on-month (MoM) while Hero MotoCorp and TVS Motor Company posted high single-digit growth MoM, notes LKP Securities.

As per a Reuters report, Indian two-wheeler makers' sales to dealers inched closer to pre-pandemic volumes during the month. Indians generally make big-ticket purchases, including vehicles, during the festive period, which runs from mid-October to mid-November this year.

The tractor sales, however, were muted YoY as El Nino impacted monsoons and ended up with a deficit of 94.4 per cent of the long-period average (LPA), thus recording below-average rainfall in some of the important agricultural regions. This, along with the cyclicality observed in this segment and the high base, will end the year with muted growth. On a sequential basis, inventory build-up led to solid growth in wholesale tractor numbers, note analysts at LKP Securities in their latest auto sales report.

Auto sector: What lies ahead?

Analysts at JM Financial say that based on their channel checks, domestic demand is gradually picking up pace, and they expect this to reflect in 2W retail performance going ahead. "2W export sales have also started to recover, albeit gradually. The near-term 2W demand remains contingent on a healthy festive offtake and revival in rural consumption," the brokerage says in its November 1 report.

The report further adds that the electric 2W momentum is also expected to gradually pick up, led by the OEM’s focus on production and distribution expansion. In the CV segment, MHCV wholesale volume continued its healthy growth momentum. LCV/SCV demand posted some recovery ahead of the festive season. Fleet operators’ sentiment remains healthy based on the pickup in infrastructure activities. Rising demand from state transport undertakings (STUs) / private operators continues to reflect robust bus sales growth.

LKP Securities says that going forward, the impact of the currently prevailing El Nino needs to be seen on rural-centric segments like 2Ws and tractors. CVs have posted a strong performance sequentially after the decline seen in the previous month. The impact of BS VI phase-2 implementation, on-board diagnostic-2 (OBD-2) norms, and high base seem to be fading off, it says.

Auto sector: Takeaways for investors

Analysts remain positive on the overall sector. G. Chokkalingam, founder and MD of Equinomics Research, says that robust sales on a YoY basis in October are quite surprising. The expert added that they didn't presume stellar growth in two-wheelers, as "we thought with EVs picking up and exports getting a hit, the overall sales growth would get impacted. Hence, we have missed the bus. So, those who are holding can continue to hold, but we don't recommend fresh buying in two-wheeler stocks such as TVS Motor or Hero at this stage," Chokkalingam added.

The expert, however, is super bullish on Maruti and suggests investors buy the stock at the current levels. After a long time, it has beaten industry growth, and its growth outlook remains strong, Chokkalingam told Zeebiz.com.

LKP Securities, on the other hand, is positive on Bajaj Auto in the two-wheeler space, while on the PV side, it is bullish on M&M because of its strength in the proliferating SUV segment, prudent capital allocation, and robust growth strategy in UVs, EVs, and CVs.

"We also like Maruti on the PV side because of its wide portfolio of vehicles and inroads into the SUV industry. We like Ashok Leyland within CVs as it has a diversified revenue base deriving from LCVs, defence, MHCVs, exports, and spares," it added.

Every dip in the stocks mentioned above shall provide good opportunities for investors to enter them from a medium- to long-term perspective, the brokerage advises.