The Indian auto industry has seen a surge in foreign investment due to greater cost control and robust earnings. The sector’s share of FPI portfolio weighting peaked in July at 8.10%. This fiscal year, profits growth of 15–18% is projected, which would increase the sector’s attractiveness amidst higher overall market valuations.Â
ET Intelligence Group: With results above consensus projections and lower raw material prices and an improved product mix, foreign investors are increasing their exposure to the Indian automobile sector at a record-breaking rate.
Largest Gain Of All Industries
On a rolling three-month basis, foreign investor weightage in the auto industry hit a record 8.10% in July, according to data from NSDL. This represents the largest gain of all industries, up 140 basis points year to far.
Historically, the auto industry has received a weightage allocation of about 6% over the long run. According to NSDL data, as of July-end, the car industry is currently ranked fourth in terms of weight, after financial services, IT, and oil and gas, with weightages of 27.5%, 9.25%, and 8.53%, respectively.
FPIs made $735 million (₹6,137 crore) in auto investments in July, making about 18% of the $3.8 billion (₹32,322 crore) total inflow. By the end of July, the auto sector’s equity portfolio value had climbed by 45% year to date to $72 billion, while the overall equity value of FPIs had increased by 20.7% to $890 million.
Auto Bajaj Retaining Good Margin
Within the consumer discretionary category, MSCI India, the benchmark index for foreign investors, gives the auto industry 13.31% of its weight; Mahindra & Mahindra has the largest weight among discretionary stocks, at 2.15%.
So, in spite of a recent slowdown in car sales, why are FPIs increasing their stakes in the auto industry? First off, auto companies’ earnings growth has above market projections, upgrading their results.
For instance, because of decreased raw material costs and rising average selling prices, Maruti Suzuki, the biggest automaker in India, achieved an operating profit margin that was about 100 basis points better than analysts had predicted.
Similar to this, Bajaj Auto was able to retain good margins thanks to dynamic profit and loss management even as sales of electric scooters, which have a lower profit margin, increased.
