Auto stocks find favour with fund managers

Following a recovery in sales and a turnaround in the commercial vehicles (CVs) segment, equity fund managers have raised exposure to the stocks of automobile and auto ancillaries companies. Owing to significant deployment of capital towards these stocks, the automobile sector accounts for the third-highest equity mutual fund contributions, accounting for nine per cent of equity assets (the highest equity mutual fund exposure is to banking stocks, at 21 per cent, followed by technology stocks at 11 per cent).

Many say the automobile sector is poised to overtake information technology as the second-most favourite for mutual fund managers. Stocks in the pharmaceuticals and consumer goods segments are said to have lost favour among fund managers.

Navneet Munot, chief investment officer of SBI Mutual Fund, says, “We have been overweight on auto stocks for quite some time. The CV segment is witnessing a turnaround, along with a rise in the sales of passenger cars. Domestic demand is rising; for the time being, we will not cut positions on the sector.”

At the beginning of this year, only 7.6 per cent of equity assets under management (AUM) were in automobile stocks. Now, this has increased to 9.05 per cent, one of the highest in several years. In absolute numbers, the invested sum has risen from Rs 14,179 crore in January this year to Rs 23,672 crore.

Of the equity AUM of Rs 2.61 lakh crore, Rs 1.06 lakh crore found its way into the auto, banking and technology sectors.

During the past two years, the automobile sector has been under pressure — in the CV, passenger vehicle and two-wheeler segments. Several companies had to cut production, owing to low demand. This appears to be changing. Sonam Udasi, head of research at Tata Mutual Fund, says, “Two quarters earlier, the picture was different. Two quarters hence, the situation will further change. With the outcome of the elections, hopes have increased. Auto is a sector that sees a swing once demand comes back.”

Incremental money has gone into auto stocks, and it is likely this will continue, Udasi says, adding, “Margin pressure in the CV segment has stabilised and it will improve from here. Domestic, as well as export, markets will help auto makers.”

In the CV segment, fund managers prefer Tata Motors, while Maruti Suzuki is a clear winner in the passenger car space. Hero MotoCorp and TVS, too, have found traction among fund managers. MF investment in these stocks has helped these funds outperform in recent months.

Nandkumar Surti, chief executive of JP Morgan Mutual Fund, says, “As the economy rebounds, demand for CVs will rise. Fund managers have taken an early call on the sector, given the general economic turnaround amid expectations interest rates will be relaxed.”