How has the rally been in the automobile stocks so far in this year?

Automobile stocks have been the surprise package in this year as they have been in the midst of a dream run. That is amply evidenced by the BSE Automobile Index which has rallied by a whopping 39% from the lows of March 2022. The auto index on the BSE includes auto and auto ancillary companies. So you don’t just have PV companies, but there are also auto part makers, tyre manufacturers, automobile battery makers, two-wheelers etc.

The surge in the auto index has come on the back of momentum in commercial vehicles (CVs), passenger vehicles (PVs) and two-wheeler sales. This is amply reflected not only in the wholesale dispatches but also in the dealer sales as reflected by new registrations on the Vaahan portion of the government. The entire spectrum of auto related stocks like Escorts Kubota, Apollo Tyres, Bosch, Eicher Motors, MRF and Maruti Suzuki have rallied in the range of 2% to 10%. In fact, the stocks like M&M and TVS Motors also hit all-time highs.

What has driven these auto stocks? Firstly, input costs of metals is sharply and that is boosting the margins of auto companies. Secondly, rural sales are picking and the signal is that if the Kharif output is normal there could be more interest in auto stocks. Thirdly, the highly problematic shortage of microchips, may not have abated, but Indian auto companies have now been able to tie in alternate supplies of chips. All these factors have resulted in a sharp rally in these auto stocks.