Fund managers increase stake in auto stocks despite supply issues

Data from Association of Mutual Funds in India (Amfi) and NAV India and analysis by Motilal Oswal Financial Services Ltd showed that auto stocks were up 5.9%, 6.2% and 6.5% respectively in August, July and June.

The global shortage of semiconductor chips has hit carmakers badly, forcing them to sharply cut production. Top carmaker Maruti Suzuki India Ltd cut production for three consecutive months and said its total production this month would be 60% of normal production. Maruti cut production by 60% in September.

The Society of Indian Automobile Manufacturers (SIAM) said on Thursday that wholesale or factory dispatches of passenger vehicles declined by 41% last month due to acute shortage of chips.

However, analysts expect the sector to improve on the back of festive demand.

An investigation by the channel by Emkay Global Financial Services Ltd revealed that the order bookings for passenger vehicles with a waiting period of up to six months for the best-selling models are extremely strong. “Dealers expect shortfall in the festive season due to supply crunch. Dealer inventory levels are low in 1-2 weeks. If the supply issue persists, the dealers may run out of stock of passenger vehicles by the end of October.

Highlighting the risk of impact on sales due to supply constraints of vehicles during the upcoming festive season, Nomura said this is likely to reduce discounts. “If the margins of original equipment manufacturers (OEMs) are likely to benefit positively from lower discounts due to chip shortages, investors have been questioned. In our view, in the short term, this could support gross margin. For OEMs that do not have major production cuts, the overall EBIT may be higher. In the long run, we expect supplies to normalize and so should relaxation. Thus, we continue to focus on underlying demand, market share performance and model cycle,” Nomura said.

Overall, the Nifty Auto index rose 5.62% in September, recovering from losses of 0.14% and 5.21% in the previous two months. The index has gained 11.37 per cent so far in October.

Besides auto, mutual funds increased their exposure in September to oil and gas, automobiles, real estate, PSU banks, consumer durables and retail. Meanwhile, net inflows into equity mutual funds declined by 20% sequentially in September despite record contributions from monthly systematic investment plans (SIPs). As per Amfi data, equity schemes received a net inflow of ₹Falling from Rs 6,456.38 crore in September ₹8,056.80 crore in August. Total outflow through SIP ₹10,351.33 crore in September, as against ₹ 9,923.15 crore in August.

Abhilash Pagaria, an analyst at Edelweiss Securities, said, “In the past few months, participants have been withdrawing money through the lump sum route at peak valuations, while new/existing investors have been investing in equity through the SIP route for a longer period by contributing rapidly. Continue to show faith.” .

According to research by Edelweiss Securities, Max Healthcare Institute, HDFC Bank, SBI Life Insurance, SBI Cards & Payments and Axis Bank were the top five stocks most bought by mutual funds in September.