While the auto sector in India is under pressure due to a sluggish economy, the two-wheeler segment is expected to outperform the rest of the industry, and their stocks may be an attractive investment option, according to market analysts.
“While two-wheelers and tractors should show strength, four-wheelers and CVs (commercial vehicles) will continue to be laggards,” says Mihir Jhaveri, director of institutional research, Religare Capital Markets, about the outlook for the auto industry in India for the rest of the calendar year.
“Two-wheelers, specifically scooters, are outperforming in the auto universe,” says Yaresh Kothari, auto analyst for Angel Broking. “In the first half of the current fiscal year, while two- wheelers will post 3% growth, scooters will grow between 14 and 15% from both domestic as well as export markets.”
In the first six months of this fiscal, motorcycle sales have grown by 0.88% to 50,14,123 units, while scooter sales have grown by 16.6% to 16,57,921 units, according to the Society of Automobile Manufacturers (Siam) figures.
“In the global markets, the penetration of Indian companies in terms of exports has been less compared with China,” says Kothari.
The export potential for India’s two-wheelers is huge given that Indian auto companies have underpenetrated potential export markets. Exports account for around 15% in volume terms for the industry.
The Chinese yuan has appreciated in the recent past, so the price advantage that the Chinese had is now reduced, making exports competitive.
“The weaker rupee does favour exports from India’s auto companies,” says Jinesh Gandhi, auto analyst at Motilal Oswal.
Experts are very choosy about the stocks from the investor’s perspective. “Currently, we prefer two-wheelers over four- wheelers and our top picks are Bajaj Auto and Hero MotoCorp,” says Jhaveri.