GVSRwealth - Investing Perspectives - Automotive Sector-India

#GVSRwealth: Investing Perspectives : Automotive Sector – India – Dated 10-05-2023

With respect to stock markets, the Automotive Sector in India has a weightage of about 6% (on a weighted market cap basis) in the broader Large-Cap Index N50. Automotive sector in India can further be broadly classified into (i) Automobiles and (ii) Auto Ancillary segments, respectively. Indian Automotive Sector accounts for about 7% of India’s GDP and about 50% (approx.) of India’s manufacturing GDP.

The Auto-ancillary segment in India has come off the age and is emerging as a global hub for manufacturing and export of auto-components. For example, India exports about 25% of its auto-component production, which reflects its export competitiveness on account of low-cost of production, JV tie-ups with global players in the industry etc. Whereas ‘automobile segment’ is likely to shift to EVs, providing fresh growth opportunities to select players in the  2-wheeler and 4-wheeler industry in India.

Currently, the Automotive sector in India is undergoing some sort of correction. Upon completion of the correction (timing not known) , this sector is likely to throw up fresh investing opportunities, particularly in the Auto-ancillary segment of the overall automotive sector. Export focused auto-ancillary cos are likely to drive the growth of this industry for a long time to come. It may be noted that several ‘Value Buys’ did emerge during March, 2020 period, in this sector, but many of such Value Stocks have risen too fast since then, in the past three years, and to this extent, some of such Value Buys are less attractive to make any meaningful entry at this point of time, from a long-term investing perspective. We may see many Value Buys in the Automobile segment (on account of large capex , large-cap nature of the companies) and several growth investing opportunities (on account of export competitiveness) of the in the Auto-ancillary segment of the Automotive sector in India in the coming times.

From an Investing perspective, it helps to understand the key segments and themes that constitute the Automobile and Auto-ancillary segments of the ‘Automotive sector’ in India, from an Investing opportunity evaluation perspective. An illustrative view is given in Table 1 below.       #gvsrwealth, #automobile, #India, #smallcase

        Table 1: Key Market Segments and Themes in the Automotive Sector – India: Illustrative

Auto Sector	Potential Segment / Theme	Earnings Growth Potential*
A.  Automobiles	A.1 Automobiles – Value Investing	Low-Medium – for domestic focused
	A.2 Automobiles – Growth Investing	High for EV / Export focused
B. Auto-ancillary Units	B.1 Auto-ancillary – Auto components	Medium to High for Select Cos
	B.2 Auto-ancillary - Bearings	Medium; Well established
	B.3 Auto-ancillary - Batteries	Medium; Well established
	B.4 Auto-ancillary - Tyres	Low-Medium; Raw material  price pressures; commodity nature
	B.5 Auto-ancillary – Forgings etc.	Medium - High for select Cos; proven export competitiveness

     *(i)Views are personal;  (ii) For informational purposes only.(iii) Not an investment advise (iv) sources include:ibef.org

      (v)earnings growth varies from stock to stock.