The automobile sector is one of the most exciting industries in the stock market. But not every company in this sector is a good investment at all times. But here is point that how you should analyze the sector and stock before investing.
Understanding the Different Types of Automobile Stocks
Not all automobile stocks are the same. The sector is divided into different sub-sectors, and each performs differently based on market conditions:
Passenger Vehicles (PV) – Cars & SUVs (e.g., Maruti Suzuki, Tata Motors)
Two-Wheelers (2W) – Bikes & scooters (e.g., Hero MotoCorp, Bajaj Auto)
Commercial Vehicles (CV) – Trucks & buses (e.g., Ashok Leyland, Tata Motors)
Electric Vehicles (EVs) – New-age players (e.g., Ola Electric, Tata Motors EV)
Auto Ancillary (Parts & Components) – Tyres, batteries, spare parts (e.g., MRF, Exide, Bosch)
Example
During COVID-19 (2020), passenger and commercial vehicle sales crashed, but two-wheeler and auto parts companies survived better because people still needed affordable transport and replacement parts.
What Experts Look at Before Investing in Automobile Stocks
Market Leadership & Reputation
A company with a strong brand and market share tends to perform better.
Example: Maruti Suzuki holds over 40% market share in passenger vehicles, making it a stable investment.
Financial Strength
Revenue Growth (Higher sales mean strong demand)
Profit Margins (Higher margins mean better pricing power)
Debt Levels (Lower debt = better financial stability)
Return on Equity (ROE) & Return on Capital Employed (ROCE) (Shows how efficiently the company uses money)
Example: In 2019, Tata Motors had high debt, which affected its stock. But by 2023, the company reduced debt and improved profits, making it a good investment again.
Government Policies & Support
Electric vehicle subsidies (FAME II) helped boost Tata Motors’ EV sales.
Strict pollution norms hurt old diesel vehicle makers but benefited companies making cleaner cars.
Demand Trends & Consumer Preferences
EVs are growing fast, so EV-focused companies are attracting investments.Luxury car demand is rising, benefiting brands like Jaguar Land Rover (Tata Motors).
Raw Material Prices & Supply Chain
Automobile stocks depend on steel, aluminum, and semiconductor chip prices.In 2021, a global chip shortage hit carmakers like Maruti Suzuki, but companies with better supply chains performed better.
How the Economic Cycle Affects Automobile Stocks
The economy moves in four phases, and different automobile stocks perform differently in each phase.
1. Boom (Fast Growth) 🚀
GDP rising, people earning more, businesses expanding.
Best Stocks:
Luxury Cars & SUVs (Tata Motors, JLR, Mercedes-Benz India)
Commercial Vehicles (Ashok Leyland, Tata Motors CV)
Auto Ancillary (Tyres, Batteries) (MRF, Exide, Bosch)
People buy more cars and trucks; businesses buy more commercial vehicles.
2. Peak (High Inflation, Interest Rates Rising) 🔥
RBI increases interest rates, making car loans expensive.
Best Stocks:
Budget-friendly two-wheelers (Hero MotoCorp, Bajaj Auto)
Auto Parts Stocks (Tyres, Batteries)
Luxury cars and expensive SUVs see lower sales.
3. Recession (Slowdown or Crisis) 📉
People cut down on expenses, and vehicle demand drops.
Best Stocks:
Two-Wheelers (Affordable transport) (Hero MotoCorp, TVS Motors)
Auto Parts Stocks (Batteries, tyres, replacement parts)
Worst Stocks: Luxury cars & commercial vehicles drop sharply.
4. Recovery (Economy Improving) 📈
RBI lowers interest rates, loans become cheaper, demand rises.
Best Stocks:
Passenger Vehicles (Mid-range cars & SUVs) (Maruti Suzuki, Tata Motors)
Commercial Vehicles (Ashok Leyland, Tata Motors CV segment)
Sales start rising again, making auto stocks a great buy.
Example
After the 2008 financial crisis, auto sales crashed, and stocks fell.
But by 2010, recovery started, and auto stocks like Tata Motors and Maruti Suzuki gave massive returns.
How Experts Invest in Automobile Stocks?
Investing in Market Leaders- Experts prefer stocks with leadership in their category.
Example:
Passenger Vehicles (PV) – Maruti Suzuki
Two-Wheelers (2W) – Hero MotoCorp
Commercial Vehicles (CV) – Ashok Leyland
EV Leaders – Tata Motors, M&M
Auto Components – MRF (tyres), Exide (batteries), Bosch (spare parts)
Investing Based on Economic Cycles
Cyclical Stocks (Commercial Vehicles, Luxury Cars) – Best when the economy is growing.
Defensive Stocks (Two-Wheelers, Budget Cars, Auto Parts) – Perform well even in recessions.
Timing the Market with Technical Analysis
Experts track stock charts, moving averages, and investor trends before buying.
FIIs (Foreign Institutional Investors) and DIIs (Domestic Institutional Investors) buying in the sector is a strong signal.
Best Stocks for Each Economic Phase
Example
In 2020 (COVID recession), auto stocks crashed.Experts bought Tata Motors at ₹80-100 per share.By 2022, Tata Motors rose above ₹500, giving 5X returns!
The Indian economy is growing, and the automobile sector is cyclical, yet many auto ancillary (accessories and component makers) stocks have been struggling. Let’s break down why this is happening.
1. Shift in Consumer Preferences & EV Disruption
Traditional auto parts makers (like Bosch, Amara Raja Batteries, Motherson Sumi) depend on internal combustion engine (ICE) vehicles.
The shift toward electric vehicles (EVs) has hurt companies making traditional auto parts.
Example: A fuel-based car needs a lot of components (like spark plugs, fuel injectors), but an EV has fewer moving parts, reducing demand for these accessories.
2. Supply Chain & Raw Material Costs
Many Indian auto parts manufacturers import raw materials (like semiconductor chips, rubber, and lithium).
Post-COVID, supply chain disruptions increased costs, affecting profitability.
Example: In 2021-22, semiconductor shortages hit auto production, reducing demand for parts.
3. Increased Competition & Changing Market Trends
The rise of Chinese and Korean auto parts suppliers has affected Indian companies' market share.
Example: Companies like Delphi, Magna, and Hyundai Mobis are supplying directly to carmakers, limiting the business for Indian auto accessory firms.
4. Dependency on Domestic OEM Sales
Many Indian auto parts makers are heavily dependent on local car manufacturers (OEMs).
If companies like Maruti, Tata, and Mahindra reduce production or delay new launches, the accessory makers suffer.
Example:
Passenger vehicle production slowed down due to chip shortages, affecting auto parts makers like Bosch and Motherson Sumi.
Passenger vehicle production slowed down due to chip shortages, affecting auto parts makers like Bosch and Motherson Sumi.
5. Stock Performance vs. Earnings Growth
Some auto parts companies are profitable but stocks remain down because of weak investor sentiment.
Example: Motherson Sumi grew revenue in the last few years, but stock performance has lagged due to concerns over EV transition and global demand slowdown.
When Will Auto Accessories Stocks Recover?
As EV adoption stabilizes and new auto models launch, demand for advanced auto parts will rise.
Companies investing in EV components (like Exide & Amara Raja in lithium batteries) could outperform in the future.
When the automobile sector enters a full boom phase, auto parts makers should also see a revival.
