In 2018, India became the fourth largest automobiles market in the world, according to the government and the 7th largest manufacturer of commercial vehicles in India. India has a big automobiles market. We make two-, three- and four-wheelers, tractors and other vehicles for agricultural purposes, commercial vehicles like buses and trucks and more. Recently electric vehicles were also introduced in the Indian market by companies like Mahindra & Mahindra.
Investing in auto stocks should never be an individual decision. There are multiple factors you need to look into. While fundamentally analyzing any stock, you should research about the company and more importantly the industry that stock belongs to.
You should invest in the automobile industry and the stocks comprising it after taking into consideration factors that impact the automobile industry. Here are a few of them:
Emission norms:
Indian automobiles have to abide by Bharat Stage Emission norms that are set by the central government in India. To curb the air pollution levels in the country, the government sets emission norms and pollution levels automobiles are legally allowed to generate so as to keep the environment safe and sound. Future of auto stocks in India is impacted a lot by global and domestic emission standards.
Bharat Stage IV was introduced in 2017 and we were supposed to transition to BSV with stricter norms but the Indian government took a leap to BS VI norms from BS IV norms. This means that they will have to sell their old BS IV vehicles till a particular date after which new BS IV sales will become invalid. This happens every time a new emission norm is put in place. Older vehicles have to be sold off till a particular date.
This means that automobile manufacturers will implement heavy discounting for selling their old stock.
Lending rates and Demand:
Automobiles are expensive products and more often than not, people take a loan to buy cars. Loan interest rates can implement the demand for cars and two wheelers and other vehicles. Demand for the products in turn impacts the performance of the individual companies, the industry at large and the performance of the industry on the stock markets.
External factors:
A lot of times equipment and raw materials may be imported from other countries so factors such as import duty also impact the status of automobile companies and consequently automobile stocks. Also, many companies have tie ups with foreign companies. Like Hero Motors had a tie up with Honda earlier, Maruti still has one with Maruti Suzuki. So external factors impacting their business in other countries also becomes important.
These are some unique factors that impact the auto sector. Apart from that general macroeconomic conditions, global economy and other macro factors may also impact the automobile industry.
Here are some of the auto stocks:
Bajaj Auto: Bajaj Auto in the olden days became synonymous with ‘Chetak’, the two-wheeler family vehicle that has ridden many Indian families for years. It has come a long way from manufacturing scooters. While Chetak has its own range of variations, Bajaj also makes motorcycles like Pulsar, CI, Avenger, Platina etc. In fact a lot of the three-wheeler autos plying on the road are manufactured by Bajaj.
Maruti Suzuki: The company was set up long back in the early 1980s. It is one of the biggest passenger car manufacturers. Maruti 800, its flagship brand was one of the most sold cars for a long time. SOme other names under Maruti are: Swift and Swift Dzire, Alto, i10 and i20, Omni (van), S-cross, Ertiga and a few others. The stock is slightly on the expensive side and has been
Eicher Motors: One of the most interesting facts about Eicher Motors is its growth story. It had a rough start and ha snw paved its way to being one of the most expensive stocks in the Indian stock market. The company manufactures one of the most premium bikes in India; the Royal Enfield range and Himalayan. It also makes buses and trucks in a joint venture with ‘Volvo’, a Swedish company.
Force Motors: Set up in the 1950s, Force Motors manufactures mostly commercial and agricultural vehicles only. Buses, mini- and traveller buses, school bus, ambulance, goods carrier and few passenger carriers. In the agricultural segment, the company has its own range of tractors.
Mahindra & Mahindra: M&M as a company has avaried businessline. Few examples apart from the automobile business are: solar energy, construction equipment, solar energy, defense, vehicle financing, insurance broking, power backup, consulting, logistics, retail and more.
In the automobile section some of the famous brands are: Bolero, Xylo, XUV, Verito, Scorpio etc.
There are other stocks in the sector too like Escorts, Tata Motors and Ashok Leyland. MRF Tyres, which is actually an auto ancillary company and not a part of automobile stocks, has long been the most expensive stock in the Indian stock market, trading
Is it the right time to invest?
Timing the market is the wrong way to go about stock investing. To know should you invest in auto stocks, you should research about the companies and the industry, factors that impact the performance upwards and downwards, things that work and don;t work for the industry, volatility levels and other such factors. To know about the future of auto stocks in India, you need to conduct thorough research on the historical performance and present conduct.
