Nifty Auto outperforms Nifty50 so far in 2024: What next?

As we are set to usher in the new year and we are keeping a track of the individual sector performance, it has come to light that the Nifty Auto index on a year-to-date basis (YTD) has outperformed the bluechip Nifty50 index by a wide margin. As against Nifty50's year-to-date gain of just over 13 per cent, Nifty Auto during the same time has delivered a return of 28 per cent.

So, as all the 15 cosntituents gave positive return, with YTD return in the range of 

Of the 15 counters, stocks like M&M, Bosch and Samvardhan Motherson led the gainers list gaining up to 76 per cent. On the contrary, OEM major Tata Motors just gained nearly 2 per cent so far this year.

Outlook for auto sector

Saji John, Senior Research analyst, Geojit Financial Services summarising the performance thus far of the auto sector said, "In H1, the auto sector underperformed due to a high base and lower pent-up demand, leading to earnings de-growth compared to estimates."

Despite robust growth in recent years and outperforming the benchmark index, the sector's current valuations are attractive compared to long-term averages, noted the analyst.

However, any further earnings downgrades in H2 could negatively impact overall sentiment. Looking ahead, a positive rural outlook, export focus, and new EV launches may benefit select OEMs, but not the sector as a whole. Therefore, we maintain a neutral rating on the sector, he added.

Koustubh Shaha, Co-Fund manager, Wallfort PMS, on the other hand, said the two-wheeler (2W) industry had a strong quarter so far, with year-over-year (yoy) growth of 36.4 per cent in October and 15.8 per cent in November. This growth is expected to continue due to the recovery in the rural economy, supported by good monsoon conditions. The passenger vehicle (PV) industry also performed well in October, showing a yoy growth of 35.6 per cent, though November was mixed, with brands like Maruti, M&M, and Tata Motors reporting single-digit to mid-teens yoy growth.

So given the current momentum, Shaha believes the auto sector is expected to benefit from a potential interest rate cut by the RBI in Q4 and a modest economic recovery, which should support PV sales. Overall, the upcoming quarter is anticipated to be positive for the automotive industry, he added.

Atul Parakh, CEO of Bigul believes that the Indian auto sector is expected to continue its positive momentum into FY25, driven by several factors including:

Growth in 2-wheeler segment- The two-wheeler market is projected to experience high single-digit growth due to strong rural demand and new product launches. 

EV Adoption- With increasing investments in EV technology and infrastructure, companies like Hero MotoCorp are positioning themselves to capture market share in this emerging segment.

Economic Recovery: The overall economic recovery post pandemic and government initiatives to boost infrastructure will likely support auto sales growth.

The strong outlook is expected even as the sales during the November month on the retail front remained weak.The drop in sales was reigistered both for the commercial vehicles as well as passenger vehicles.