Are Auto Stocks Entering Speed Limits After a Fast and Furious FY23?

A look at FY23 performance of auto stocks and what to expect in FY24

Auto Stocks Performance

In the first full year without any COVID-19 scare, auto sales saw unprecedented double-digit growth. The Federation of Automobile Dealers Association (FADA) disclosed that overall auto industry sales rose by 21% in FY23. Individually, all vehicle segments barring tractors generated double-digit growth.

Also Read: Bajaj auto reports 23% jump in net profits beating estimates: Here’s what investors should do

Looking Back at FY23

In terms of stock performance, Mahindra & Mahindra lead the four-wheelers segment with a 40% gain on its share price. Other prominent players generated a 10-16% growth in their stocks, including Maruti Suzuki, Ashok Leyland and Eicher Motors. TVS Motors led the overall auto stock performance with a 65% growth in share price. There was a distinct demand surge in the passenger vehicle category, including the premium segment. 

Category-wise, the sales growth among various categories was as follows:

  • Two-wheeler – 19%,
  • Three-wheeler – 84%,
  • Passenger vehicles – 23%,
  • Commercial vehicles – 33%,
  • Tractors – 8%

In terms of units sold, the two-wheeler segment saw a seven-year low of 15.9 million units. Interestingly, the category saw a 5.4% electric vehicle penetration. Electrification in the three-wheeler category was a whopping 52%. This was buoyed by the sale of e-rickshaws, which was encouraged by the availability of finance and state subsidies. Passenger vehicles had an all-time high of 3.2 million units in FY19. This was breached last year with the sale of 3.9 million vehicles.  

Also Read: Indian EV industry touch $130 billion by 2030: Which are the best stocks to invest in the EV industry

What To Expect in FY24?

There are various existing and emerging factors which are expected to dwindle auto sales in FY24. The remarkable performance of the industry has created a high base. In simple terms, even a very good sales figure in FY24 may pale in terms of percentage, due to the high yardstick of FY23. Besides, price hikes and inflationary pressure may make it difficult for the industry to repeat the FY23 performance this year. FADA expects the growth rates to be low single digits in FY24. 

The El Nino effect can potentially affect the monsoon in India, which in turn may affect the rural economy. Signs of it are already apparent with untimely rains playing a dampener for Rabi crops and their harvesting. 

Besides, the penetration of EVs will continue to shrink the penetration of internal combustion engine vehicles. Focus on EV growth is expected to be a key driver for the auto players. 

Also Read: Electric vehicle industry seeks government assistance in Union Budget 2023-24 to accelerate expansion

Expert View

Brokerage house Emkay Global predicts a 5-7% growth in the passenger vehicle segment. However, it expects Maruti Suzuki to grow faster than the industry due to its upcoming SUV offerings. Motilal Oswal expects the growth of commercial vehicles to be on the higher side within the industry.

All in all, FY24 is expected to be a year of steady consolidation, rather than a year of stupendous growth.

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

Source:

NEWSLETTER

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