Diwali 2024: Will the festive season be a game changer for auto sector? Experts weigh in

The auto sector has delivered a stellar performance over the past year. Since Samvat 2080, the Sensex has risen 23 per cent, while the BSE Auto index has surged 50 per cent. Year-to-date (YTD), the auto index has rallied 31 per cent, significantly outperforming the benchmark's 11 per cent rise. 

Falling commodity prices have supported margin improvements, and the improved availability of semiconductor chips has enabled automakers to bridge supply gaps. This recovery is evident in the increasing vehicle volumes, as companies adopt new strategies to meet demand. Despite earlier challenges, the auto industry has made an impressive comeback.

The auto index has given positive returns in eight of the 10 months so far this year. Meanwhile, it has advanced over 50 per cent in the last one year.

The auto index has shed over 9 per cent in October so far after a 3.4 per cent rise in September and a 2 per cent fall in August. Meanwhile, during the first seven months of the year, the index was in the green. It climbed 5 per cent in July, 8 per cent in June, 3.8 per cent in May, 3.9 per cent in April, 5 per cent in March, 6.4 per cent in February and 4.2 per cent in January.

Even with the recent volatility, the index hit its record high of 62,443.41 on September 27, 2024, and is currently 11.5 per cent away from the peak. Meanwhile, it has now surged 54 per cent from its 52-week low of ₹35,917.10, hit on November 1, 2023.

September Auto Sales

The Indian automobile industry's September 2024 performance revealed mixed results across segments. While passenger vehicle sales faced challenges, commercial and electric vehicles showed promising growth, signalling shifts in the sector. Data from the Society of Indian Automobile Manufacturers (SIAM) highlighted that total passenger vehicle sales fell by 3.4 per cent to 3,63,078 units, with passenger car sales plunging by 17.1 per cent. However, utility vehicles (UVs) saw a 6.7 per cent increase, reflecting growing consumer preference for SUVs.

The two-wheeler market exhibited strong growth, rising 12.9 per cent, with motorcycle sales surging 14.2 per cent year-on-year to 15,42,616 units. Three-wheelers also posted a 3.9 per cent increase, though electric rickshaws lagged with an 18.8 per cent drop. Meanwhile, exports in the two-wheeler segment rose by 23.2 per cent.

SIAM’s report indicates robust domestic growth driven by utility vehicles and two-wheelers, while the decline in passenger cars and some electric vehicles highlights ongoing challenges in the sector.

Stocks

On a YTD basis, all constituents, barring one from the BSE Auto index have given positive returns, with Samvardhana Motherson rallying the most, up 89 per cent, followed by Cummins India, up 74 per cent M&M, up around 64 per cent and Bosch, up over 62 per cent.

Meanwhile, Bajaj Auto climbed 52 per cent whereas IT India, TVS Motor, Hero Moto, and Ashok Leyland also advanced between 20 per cent and 30 per cent. Furthermore, Balkrishna Industries, Tata Motors, Maruti Suzuki, Escorts, and Eicher Motors, added over 10 per cent each. MRF was the only stock in red, down around 4 per cent.

Will festive season be a game-changer for auto space?

The auto space is entering a crucial period with the onset of the festive season, a time traditionally associated with higher vehicle sales. Industry experts are offering mixed forecasts on how the sector will perform, with some segments expected to thrive while others may face challenges. As the auto market adapts to evolving consumer preferences and economic conditions, the upcoming festive season could be pivotal.

Mumuksh Mandlesha, Research Analyst at Anand Rathi Institutional Equities, expects strong performance in the two-wheeler (2W) and tractor segments, driven by a favourable base and improving rural demand following a good monsoon season. However, the passenger vehicle (PV) segment is predicted to remain flat or see a slight decline due to last year’s high base, tempering expectations for this segment.

Saji John, Senior Research Analyst at Geojit Financial Services, echoes this cautious outlook for the PV segment, noting that automakers are reducing vehicle dispatches to dealerships as consumers remain wary despite significant discounts. However, John foresees better sales in the 2W and three-wheeler (3W) segments, particularly during festivals like Navaratri and Dussehra. He attributes this to stronger rural demand, boosted by favourable monsoons, improved crop yields, and increased government investment in rural development. The expert also highlights that the industry is returning to pre-pandemic levels, with 21 million units sold in fiscal 2019, and anticipates further momentum through the second half of the year.

In summary, the upcoming festive season holds promise for select segments within the Indian auto industry, particularly two-wheelers, three-wheelers, and tractors. While passenger vehicle sales may remain subdued, improved rural sentiment, stronger demand for entry-level models, and favorable weather conditions are expected to drive growth in other areas. As the sector looks to regain pre-pandemic momentum, the festive season could provide a much-needed boost, particularly in rural markets. However, consumer caution and economic factors may still limit gains in certain segments, keeping the overall outlook mixed.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.