Nifty Auto Index reaches near its life time high of 12,660 levels as buying surges in various auto stocks

The auto sector witnessed some buying action in today’s trade driving the Nifty Auto index near to its life-time high of 12,660 levels. This was on account of heavy buying seen in M&M, Tata Motors, Hero Motocorp and Maruti Suzuki shares. In the last month, Nifty Auto index generated an alpha return of 14% while both Sensex and Nifty could deliver only around 5.50% return. It is being anticipated that the Nifty Auto Index can go upto 13000 levels in the next few weeks.

The surge in buying comes from positive sentiment shown by customers resulting in spike in sales numbers, Indian auto companies focus on the EV segment which is attracting foreign investors and current geopolitical setup is favourable for the country’s auto industry as the investors rather choose to invest in India which has healthy diplomatic and trade relations with the global community over China (due to Covid outbreaks) and Russia (due to the outbreak of Russia-Ukraine war).
Other reasons supporting the breakout in Auto Index are ease on the supply side constraints, a fall in crude oil and metal prices, resulting in lower input costs.

Retail investors and market observers constantly scan through the Indian ace investors portfolios to track which sector and stock is attracting the smart money. In the recent past, Rakesh Jhunjhunwala bought stake in an Auto stock named, Escorts Kubota. This could possibly translate into him being bullish on the sector too.

On a one-year forward basis, the Nifty Auto index is largely trading in line with its 3-year historical average. The sector is highly cyclical in nature, hence even though it may be in cyclical upturn over the next three years, one cannot rule out the downside risks such as continuation of supply issues, weak global and domestic macros, volatility in commodity prices and adverse currency movements.

Even with such a bullish outlook, many experts suggest that retail investors are better off investing in the sector via mutual funds. Unless, one is a savvy investor with a high-risk appetite and has the ability to time the exit well can consider having a tactical allocation to the sector of not more than 5-10%.