Even as the global chip shortage continues to slow down production, some of India's market veterans have started betting on the auto sector.
When the global chip shortage subsides, the pent-up demand will take over, according to BloombergQuint's conversations with analysts and investment managers. And the nation's electric vehicle potential is also driving interest. India is looking to turn 80% of its scooters and motorbikes and 30% cars electric by 2030.
Nifty Auto has surged more than 14% so far this year against a near-20% gain for the benchmark Nifty 50. And there's a wide divergence with Tata Motors Ltd. gaining nearly 150% and Mahindra & Mahindra Ltd. and Maruti Suzuki India Ltd. underperforming the benchmark.
Auto sales, however, jumped to an 18-month high in November, aided by the festive push. But that's still below the pre-pandemic levels as the chip crunch persist.
Pent-Up Demand
Once the chip shortage issue is behind the auto industry, the space essentially is going to fire up again as there exists a pent-up demand, according to Nilesh Shah, founder and chief executive officer at Envision Capital Services Pvt.
Shah is also betting on EVs road map. "Some of these companies will have a very strong EV strategy and we would want to participate in that," he told BloombergQuint's Niraj Shah in a conversation.
"Of course, they will have their preferred vendors of auto component," he said. These companies will have a "clear-cut EV strategy" to partner with these original equipment makers, he said.
Valuations Attractive
Carmakers have underperformed and "we have seen pessimism around demand outlook due to the chip shortage", Mahesh Nandurkar, equity and macro strategist at Jefferies India Pvt, said in another interview. "[But the] valuations are reasonable and strong urban hiring can propel auto sales."
EV Potential
For Nirav Sheth, chief executive officer, institutional equities, at Emkay Global Financial Services Ltd., India's electric vehicle transition is worth a bet.
There is no doubt about the shift towards EVs, according to him. “We are only debating the pace of adoption if it will be five times or 10 times in 10 years."
Sheth is "fairly confident that the incumbents will have an advantage” over newcomers, particularly in the two-wheeler category, he said in an interview, referring to capacity addition. “I don't see an outsider coming and disrupting the two-wheeler space. I think the incumbents will end up owning a larger market share.”
The newcomers are increasingly banking on the private equity funding, and now the public market, Sheth said, referring to IPOs of new-age startups. “When you live on borrowed cash, it's a question of time and at some point, it is going to hit you.”
Supply-Chain Issues Easing
There is not much to lose by betting on the auto industry, according to Manish Gunwani, chief investment officer, equity, at Nippon India Mutual Fund.
"If you see right across two-wheelers, four-wheelers and commercial vehicles, there is good value emerging in the sense that there are multiple themes," he said in another interview with BloombergQuint's Niraj Shah. "Some of these OEMs are trying to create value in the EV space right now."
He also expects chip availability to improve as both commodity and supply-chain pressures ease.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
