Nifty Auto In Focus: Here Are The Factors Driving The Rally

Five of the 15 index constituents hit their 52-week high on Friday, while three scaled new records.

<div class="paragraphs"><p>Maruti Suzuki vehicles stand lined up at the Maruti Suzuki India Ltd. Brand Centre in New Delhi. (Photo: BQ Prime)</p></div>
Maruti Suzuki vehicles stand lined up at the Maruti Suzuki India Ltd. Brand Centre in New Delhi. (Photo: BQ Prime)

The Nifty Auto hit a fresh record of 17,067.95 on Friday, extending gains as a recovery in demand, improving supply chains, premiumisation and lower operational costs aid the rally.

Bosch Ltd. and Hero Motorcorp Ltd. hit a 52-week high on Friday, while TVS Motorcorp, Eicher Motors, and Bajaj Auto scaled life highs.

The index has been the third-highest gainer in the past year with 33% returns. All index constituents have gained, led by TVS Motor Co.'s 71.41% surged, followed by Bajaj Auto Ltd. and Tata Motors Ltd.'s at 63.32% and 59.10% gains, respectively.

Key Drivers

Motilal Oswal anticipates high growth potential and demand recovery in the two-wheeler and medium-to heavy-commercial vehicle segments. While it has a cautious outlook on passenger vehicles, the brokerage anticipates moderate growth led by new models and improving supply chain.

Crisil Ratings, in a Nov. 23 note, foresees robust 8–10% revenue growth for auto dealers this fiscal. The drivers include a 5-7% increase in sales volumes, premiumisation, and 2-5% price hikes by original equipment manufacturers. Analysing 150 dealers, Crisil also predicts stable credit profiles due to steady operating profitability and manageable debt levels.

Passenger vehicle sales are expected to grow 6–8%, driven by improved semiconductor supply and strong demand in the utility vehicle segment. Commercial vehicle sales are set for a moderate 4-6% increase, supported by government's infrastructure push. Despite subdued rural demand and EV competition, two-wheeler sales are forecast to grow 5–6%, fuelled by executive and premium motorcycle demand.

Valuation Comparison

Tata Motors Ltd. is the most expensive auto, trading at 108.1 times its earnings compared with its five-year average of 63.26.

Mahindra & Mahindra is the least expensive stock with 16.73 price-to-earnings multiple compared with five-year average of 15.89.

Of the 15 index constituents, 12 trade at a premium to their five-year average. Sona BLW Precision Forgings, Bosch, and Samvardhana Motherson International trade at a discount to their historical PE.