Automobiles : Fund managers' 3rd most preferred sector

Investments in auto stocks higher than pharmaceuticals and FMCG

The automobile sector is the new entrant among fund managers' top three most preferred sector picks. It is despite the fact that industry has not been doing good for last two years with de-growth in sales of passenger vehicles and commercial vehicles.

Automobiles have cornered close to Rs 17,000 crore of mutual funds' equity assets as per the latest statistics available from the Securities and Exchange Board of India (Sebi).

With this, the so called defensives - pharmaceuticals and fast moving consumer goods (FMCG) have gone down in terms of fund managers' exposures. Fund managers have had a sizeable cut in their exposure to defensives recently and shifted investments.

So much so that 8.27 per cent of the overall equity assets under management (AUM) has been pumped into the auto stocks (including ancillaries). This is the highest exposure in the sector in many years. It appears that fund managers have positioned themselves well in advance to reap the benefits in case scenario turns positive.

"It's mainly the big four-wheeler makers which are being preferred the most. On top of it, ancillaries have seen sizeable traction," says Nilesh Surana, head of equities at Mirae Asset. According to him, there could be an upturn in the sector by second or third quarter of the current financial year. "Moreover, it's a rate-sensitive sector and growth comes from consumers' discretionary spends," he adds.

It's well evident from the position taken by country's star fund managers in large car makers. For instance, several of the large equity schemes (including HDFC Top200 and ICICI Pru Focused Bluechip Equity) have invested 3-4 per cent of their assets. It's the same case with Tata Motors where equity schemes have invested 2-4 per cent of their assets.

In recent times, auto stocks have given decent returns. Be it Tata Motors or Maruti Suzuki. Even two-wheeler makers Bajaj Auto and Hero MotoCorp too have not disappointed investors is the last few months' rally is taken into consideration. BSE Auto Index have gained 8.4 per cent so far this year.

On the ancillaries side, due to lower input costs the margins have improved for the companies. Shares of tyre makers have had a robust run for last few months. For example, shares of Ceat galloped to above Rs 300. Similarly, battery-maker Amara Raja Batteries too surprised the market.

According to fund managers, if demand picks up, which is likely in a few quarters time, there is still more heat left on the counters. However, they were a bit cautious on the two-wheeler segment. "With Honda's fast rise in the market share, it has been a rough journey for companies like Hero and Bajaj Auto," adds a fund manager.

Till last year, fund managers remained neutral with a negative bias on auto stocks. However, with improvement in macro economic situation and expectation of rate cuts on the rise, things have started to change slowly.

Banks continue to lead with an exposure of 19.76 per cent of equity schemes' assets while IT had 11.92 per cent of the deployed equity assets.