Top 10 Auto Sector Stocks on NSE for Long Term Investing in 2024

Introduction

Investing in the automotive sector can be a thrilling journey into one of the most dynamic segments of the market. With the Nifty Auto index having gained over 20% in the last year, and some stocks even doubling in value, the sector is buzzing with activity. This impressive growth is fueled by strong demand for cars and motorcycles, rising disposable incomes, and government incentives for electric vehicles. Looking forward, the sector is expected to grow at a Compound Annual Growth Rate (CAGR) of 10% over the next five years, promising strong returns for those who invest wisely.

Whether you’re a car enthusiast or simply aiming to grow your investments, this blog is your comprehensive guide to navigating the promising world of automotive stocks on the NSE, tailored for long-term investment strategies. Let’s dive in.

Table of Contents

1. What are Auto Sector Stocks?
2. Top 8 Automotive Stocks in India for Long-Term Investing
3. Is it good to Invest in Automobile industry?
4. Overview of the Top 8 Auto Stocks in India
5. Key Considerations Before Investing in Auto Sector Stocks
6. Features of Automobile Sector Stocks
7. Potential Risks in Automotive Stock Investments
8. Future Prospects of Automotive Sector Stocks
9. Advantages of Investing in Automobile Stocks
10. FAQs

What are Auto Sector Stocks?

The roar of engines, the sleek curves of a new car, the thrill of the open road – for many, the automotive industry is more than just a sector; it’s a passion. And for investors, this passion translates into exciting opportunities in the form of auto sector stocks.

These stocks represent ownership stakes in companies that design, manufacture, or sell cars, motorcycles, trucks, and other vehicles. It’s like buying a piece of the action, a miniature garage in your portfolio, with the potential for substantial returns.

But before you hop behind the wheel, let’s take a closer look under the hood:

Global Growth Engine:

• The global auto industry, despite its cyclical nature, is projected to chug along with a steady CAGR of 3.6% between 2022 and 2027. That’s a promising track for investors seeking long-term value.

Economic Powerhouse:

• The Indian automotive sector alone employs over 32 million people directly and indirectly, contributing a whopping 15% to the nation’s tax collection. Investing in this sector isn’t just about personal profit; it’s about supporting a crucial engine of economic growth.

Beyond the Showroom Floor:

• Auto sector stocks encompass more than just car manufacturers. Think auto parts suppliers, tech giants developing electric vehicle (EV) solutions, and even companies providing financing and insurance for these gleaming machines. The diversity expands your investment options and caters to various risk appetites.

Fueling Your Portfolio:

• Investing in auto sector stocks offers the potential for:
  • Steady growth: The industry’s inherent demand for vehicles provides a stable foundation for these companies, translating into consistent returns for investors.
  • Innovation: With the rise of EVs and autonomous driving, the auto sector is at the forefront of technological advancements. Early bets on these trends can yield significant rewards.
  • Diversification: From luxury carmakers to budget-friendly two-wheeler manufacturers, the auto sector offers a spectrum of options to balance your portfolio and mitigate risk.

Navigating the Road Ahead:

• Like any investment, auto sector stocks come with their own set of challenges:
  • Economic fluctuations: Global economic downturns can impact consumer spending on vehicles, leading to temporary setbacks for auto companies.
  • Competition: The industry is fiercely competitive, with established players and new entrants vying for market share. Careful research and analysis are crucial.
  • Regulatory landscape: Government policies and regulations, particularly regarding emissions and fuel efficiency, can significantly impact the auto sector. Staying informed is key.

Ready to Invest? Buckle Up!

The auto sector, with its potential for growth, economic contribution, and diverse investment options, can be a compelling addition to your portfolio. But remember, thorough research, understanding your risk tolerance, and seeking professional guidance are essential for a smooth ride. So, buckle up, do your research, and hit the gas on your auto sector investment journey!

FinPlay Tip: While individual stocks offer the thrill of handpicking your winners, consider exploring diversified portfolios curated by experts. These portfolios provide exposure to a range of auto sector leaders, mitigating risk and maximizing your investment potential.

Best 10 Automotive Stocks in India for Long-Term Investing in 2024

India’s top auto stocks currently listed on the NSE are: 

Is it good to Invest in Automobile industry?

Forget shiny cars and roaring engines – think steady growth, green innovation, and diversification! The auto industry, with its proven track record and exciting future, could be the perfect addition to your portfolio. Here’s why:

• Demand on wheels: Millions hit the road every day, creating consistent sales and profits for established auto companies. Buckle up for long-term wealth creation!
• Green shift, green money: Sustainability is the new road rage, and electrics are the hottest ride. Forward-thinking companies are leading the charge, offering early investors a chance to fuel their portfolios with green alternatives.
• Beyond the showroom floor: Forget just carmakers – the auto world is a vibrant ecosystem of parts suppliers, tech giants, and even financing companies. Find your niche and tailor your investment journey!
• Built to weather the storms: The auto industry has seen its share of bumps, but the need for mobility ensures a rebound. Invest in strong companies with diverse offerings, and enjoy the long-term ride.

Overview of the Top 10 Auto Stocks in India

In the bustling landscape of the Indian economy, the automotive sector stands as a pivotal driver, shaping market dynamics and consumer trends. At FinPlay, we delve deep into this sector, bringing to light the top 8 automotive stocks that are steering the course of this industry.

Maruti Suzuki India Ltd (Maruti):

Maruti Suzuki leads the pack with an impressive operating revenue of Rs. 130,528.40 Cr over the past 12 months, marking a robust 33% growth annually. This indicates not just market dominance but a keen ability to adapt and grow in a competitive environment. Their financial health is further underlined by a healthy 9% pre-tax margin and an impressive 13% return on equity. Maruti stands out as a debt-free company, reflecting a strong balance sheet that promises resilience and consistent earnings growth potential.

Tata Motors Ltd (Tata Motors)

Tata Motors, a conglomerate known for its diverse range of vehicles, recorded an operating revenue of Rs. 401.79 billion in the last year. This growth, pegged at 25%, signifies their expansive reach in the automotive market. However, the company’s pre-tax margin stands at 1%, hinting at potential areas for improvement. With a fair return on equity of 5% and a high debt-to-equity ratio of 196%, Tata Motors represents a mix of challenges and opportunities for investors.

Mahindra and Mahindra Ltd (M&M)

Mahindra & Mahindra, a brand synonymous with rugged reliability, has shown impressive growth, with an operating revenue of Rs. 131,312.94 Cr in the last 12 months. Their annual revenue surged by a significant 34%, coupled with a strong 10% pre-tax margin and an exceptional 18% return on equity. However, investors might note the higher debt-to-equity ratio of 98%.

Eicher Motors Ltd (Eicher)

Eicher Motors, the name behind the iconic Royal Enfield, boasts an operating revenue of Rs. 15,626.22 Cr, which grew by an extraordinary 40% over the past year. Their financial strength is evident in the 24% pre-tax margin and an exceptional 19% return on equity. Being debt-free, Eicher Motors demonstrates a robust financial health and sustainable growth trajectory.

Bajaj Auto Ltd (Bajaj Auto)

Bajaj Auto, a key player in the two-wheeler segment, has generated Rs. 39,397.92 Cr in operating revenue in the last 12 months, growing at 9%. Their financial acumen is reflected in a 20% pre-tax margin and an impressive 20% return on equity. The company’s debt-free status speaks to its solid financial position and reliable performance.

Samvardhana Motherson International Ltd (Motherson Sumi)

Motherson Sumi, a global auto component powerhouse, recorded Rs. 88,639.04 Cr in operating revenue, growing at 23% annually. Despite a moderate pre-tax margin of 3% and a fair 6% return on equity, the company maintains a balanced debt-to-equity ratio of 29%, marking it as a stable player in the market.

TVS Motor Company Ltd (TVS Motor)

TVS Motor, known for its two-wheeler and three-wheeler vehicles, has shown robust growth with Rs. 35,085.86 Cr in operating revenue and an annual growth rate of 32%. With a 6% pre-tax margin and an impressive 24% return on equity, TVS Motor, however, navigates a higher debt-to-equity ratio of 165%.

Hero MotoCorp Ltd (Hero MotoCorp)

Hero MotoCorp, the world’s largest manufacturer of two-wheelers, reported Rs. 34,936.69 Cr in operating revenue, with an annual growth of 15%. The company’s sound financial health is evident in an 11% pre-tax margin and a commendable 16% return on equity. Being debt-free, Hero MotoCorp exemplifies stability and reliability in the sector.

Tube Investments of India Ltd (Tube Investments)

Tube Investments of India Ltd, a prominent name in the auto parts industry, has marked a significant achievement with its operating revenue reaching Rs. 13,311.62 Cr over the last 12 months. This figure not only reflects the company’s substantial growth but also its market resilience, with a stock price currently at Rs. 246.25. The company’s notable revenue growth is complemented by healthy profit margins, signifying operational efficiency. Moreover, Tube Investments boasts an impressive 10% return on equity (ROE), reflecting its financial strength.

Bharat Forge Ltd

In the realm of forged components, Bharat Forge Ltd stands out with consistent growth, as evidenced by its operating revenue of Rs. 23,238.99 Cr in the last year. The company’s robust stock price of Rs. 725.5 mirrors strong market confidence and investor interest. Bharat Forge’s financial journey is characterized by steady growth and solid financials, positioning it as a formidable player in its sector.

Key Considerations Before Investing in Auto Sector Stocks

As a seasoned analyst at FinPlay, I always emphasize the importance of thorough research before diving into any investment, especially in a dynamic sector like the automotive industry. Here’s a comprehensive guide on the key factors to consider before investing in automobile stocks:

Financial Health Check

A critical starting point is examining the company’s financial stability. Look for companies with manageable debt levels. Key financial ratios such as debt-to-equity, inventory turnover, operating margin, production utilization rate, and return on equity can provide deeper insights into a company’s financial health. A company burdened with excessive debt or poor financial metrics can be a risky investment.

Understanding Company Performance

Evaluate how the company stacks up against its competitors. Is it leading in innovation, or is it struggling to keep up? The growth trajectory, market share, and sales trends of a company can be indicative of its future performance. A company that consistently outperforms its competitors is often a safer investment choice.

Staying Abreast of Market Trends

The automotive sector is particularly sensitive to trends such as the rising popularity of electric vehicles (EVs) and a shift towards sustainable practices. Keeping a finger on the pulse of these trends can help in identifying companies that are likely to thrive in the changing landscape.

Economic and Global Factors

The performance of automotive stocks is closely tied to the overall economy. Factors like consumer spending, economic growth, and interest rates, both domestically and globally, can significantly impact the sector. Additionally, in times of economic downturn, luxury and non-essential spending, such as new cars, might decrease, affecting the industry’s performance.

Regulatory Landscape

Automobile companies operate within a framework heavily influenced by government policies and regulations. Changes in emissions standards, safety regulations, and other policy shifts can significantly impact a company’s operations and, in turn, its stock performance.

Innovation and Technology

In a sector that’s rapidly evolving, companies investing in new technologies like autonomous driving, connectivity, or eco-friendly solutions might offer a competitive edge. These innovations not only cater to evolving consumer demands but also position the company as a forward-thinking player in the market.

Risks and Challenges

It’s crucial to acknowledge that the automotive sector’s performance is directly linked to the nation’s overall economic health. Understanding the inherent risks and challenges of the sector, including market cycles and volatility, is essential for informed investment decisions.

Diversification Strategy

While automotive stocks can be a valuable addition to your portfolio, diversification is key. Balancing your investments across different sectors can help mitigate risks associated with market fluctuations.

Evaluating Cash Flow

One of the primary indicators of a company’s health is its cash flow. Positive cash flow signifies a company’s ability to sustain operations, invest in growth, and weather economic downturns. Assessing the cash flow statements gives you a clearer picture of the company’s financial robustness and potential for long-term success.

Handling Market Cycles

The automotive industry is cyclical and heavily influenced by economic conditions. Understanding these cycles is crucial for timing your investment. During a market upswing, automotive stocks might offer substantial returns, whereas during downturns, they can be particularly vulnerable. Recognizing these patterns can help in making informed investment decisions.

Managing Volatility

Stocks in the automotive sector can be volatile, affected by various factors from global supply chain disruptions to technological advancements. Developing a strategy to manage this volatility – such as diversifying your portfolio or opting for long-term investments over short-term gains – is crucial in safeguarding your investments.

Identifying Clear Growth Prospects

Investing in companies with clear growth prospects, whether through innovative technologies, expansion into new markets, or strong product pipelines, can offer promising returns. Look for companies that demonstrate a vision for future growth and have a plan to achieve it.

Focusing on the Domestic Market

The domestic market’s health can be a strong indicator of an automotive company’s performance. Factors such as consumer demand, economic policies, and the regulatory environment within the home country can significantly impact a company’s sales and profitability.

Export Potential

Companies with a strong export presence can diversify their revenue streams and reduce dependence on domestic markets. Assess the company’s global footprint and its ability to compete in international markets, as this can be a strong growth driver.

Reducing Carbon Footprint

In today’s environmentally conscious world, companies focusing on reducing their carbon footprint can attract more investors and customers. Companies that invest in sustainable practices, such as developing electric vehicles or improving manufacturing processes, are not only contributing to environmental preservation but are also aligning with future market trends.

Features of Automobile Sector Stocks

When delving into the world of automobile sector stocks, it’s essential to have a comprehensive understanding of various factors that can significantly influence their market performance. As an industry analyst, here’s my perspective on the critical aspects to consider:

Keeping Up with Market Trends

The automotive sector is continually evolving, impacted by global and regional trends. It’s important to stay abreast of advancements, particularly in areas like electric vehicle technology, changing consumer preferences, and regulatory developments. These trends not only shape the future of the sector but also play a crucial role in determining the performance of the best stocks in the automobile sector in India.

Economic Indicators and Their Impact

Economic factors such as interest rates, inflation, and GDP growth are pivotal in shaping the demand for automobiles. These indicators often directly influence consumer spending power and, consequently, the sales and profitability of automotive companies. Keeping a tab on these economic indicators helps in understanding the broader market context in which these companies operate.

Analyzing Company Performance

A deep dive into the financial reports of individual automotive companies can reveal much about their health and potential. Key aspects to analyze include revenue growth, profit margins, and market share. These factors are indicative of a company’s operational efficiency, market position, and overall financial health.

Technological Innovation as a Competitive Edge

In a sector that’s rapidly advancing, companies that are at the forefront of technological innovation often have a competitive edge. Developments in areas like autonomous driving, digital connectivity, and sustainable manufacturing processes are reshaping the automotive landscape. Evaluating how companies adapt and innovate in these areas can offer insights into their future growth potential.

Navigating the Regulatory Environment

The automotive industry is heavily regulated, with policies focusing on emissions, safety standards, and trade. Changes in these regulations can have a significant impact on the operational and financial aspects of automotive companies. Staying informed about these regulatory changes is crucial for understanding both the challenges and opportunities they present to the industry.

Global Supply Chain Dynamics

The automotive industry’s supply chain is complex, encompassing everything from raw material acquisition to manufacturing and distribution. Factors like raw material costs, labor practices, and logistical efficiencies play a vital role in a company’s profitability. Understanding these supply chain dynamics can help in assessing the potential risks and opportunities that may affect the sector’s stocks.

Potential Risks in Automotive Stock Investments

Investing in automobile stocks, while potentially lucrative, comes with its own set of challenges and risks. As an experienced market observer, I’ve seen how these risks can impact investment decisions and outcomes. Let’s explore some of the key risks associated with investing in this sector:

Cyclical Nature of the Automotive Market

The automotive industry, particularly in the context of the National Stock Exchange (NSE) of India, is notably cyclical. This means that the sector’s performance is closely tied to the broader economic climate. During periods of economic growth, automobile sales tend to increase, leading to a rise in stock prices. Conversely, in economic downturns, demand for new vehicles often declines, which can negatively impact the stock prices of companies in this sector. This cyclical nature requires investors to be vigilant and responsive to economic trends.

Impact of Regulatory Changes

Automobile manufacturers operate in a heavily regulated environment. Stringent environmental regulations, such as those targeting emissions and fuel efficiency, can significantly influence a company’s operations. Changes in these regulations might necessitate costly adaptations in manufacturing processes or product designs, potentially affecting the profitability and stock performance of these companies.

High Competition

The automobile industry is marked by intense competition. Numerous players, including well-established brands and innovative new entrants, are continuously vying for market share. This competition can lead to pressure on profit margins, as companies might need to invest heavily in marketing, research and development, and technological advancements to maintain or grow their market position.

Supply Chain Vulnerabilities

The automobile sector is highly dependent on complex and often global supply chains. Disruptions in these supply chains, which can occur due to a variety of factors like component shortages, geopolitical tensions, or natural disasters, can significantly impede production. For instance, the recent semiconductor chip shortage has had a profound impact on the automotive industry worldwide, demonstrating how supply chain issues can directly affect automobile companies’ ability to meet demand and maintain stock prices.

Mitigating the Risks

For investors, it’s crucial to conduct thorough research and consider diversifying their investment portfolio to mitigate these risks. Staying informed about industry trends, technological advancements, and macroeconomic conditions can also aid in making more informed decisions about investing in automobile stocks.

Future Prospects of Automotive Sector Stocks

As we examine the trajectory of the auto sector stocks in India, it’s not just optimism driving our forecasts; it’s a series of strategic policies and market trends underpinning this positive outlook. Let’s delve into the specifics that make this sector’s future particularly promising.

The Production Linked Incentive (PLI) Scheme’s Impact

At the forefront is the Indian government’s PLI scheme, a pivotal policy designed to invigorate the auto sector. This initiative offers incentives to manufacturers, encouraging them to ramp up production. Such incentives are crucial for boosting the sector’s growth and, in turn, enhancing the appeal of auto stocks. The PLI scheme is not just a temporary stimulus but a strategic move to position India as a global manufacturing hub. This push is likely to have a ripple effect, elevating the sector’s performance and stock appeal in the coming years.

The Drive Towards Electric Vehicles (EVs)

The National Electric Mobility Plan (NEMP) is another game-changer. This policy underscores India’s commitment to embracing electric vehicles, a rapidly growing segment globally. With the world pivoting towards sustainable transport solutions, Indian companies investing in EV technology are poised to capture a significant market share. As consumer preferences shift towards greener alternatives, companies that align with this trend are likely to witness a surge in demand, potentially translating into stronger stock performance.

The Influence of the National Auto Policy

The National Auto Policy serves as a strategic blueprint for the sector’s growth, guiding companies towards innovation and market responsiveness. When auto companies align with this policy, it often results in enhanced strategic planning, product innovation, and market competitiveness, factors that are essential for robust stock performance.

Market Dynamics and Growth Projections

Beyond these policies, the sector’s growth is also fueled by robust market dynamics. India has witnessed a strong demand for cars and motorcycles, bolstered by rising disposable incomes and government incentives, especially in the EV segment. This robust demand, coupled with the aforementioned policies, lays a solid foundation for the sector’s growth. In fact, the auto sector is projected to grow at a Compound Annual Growth Rate (CAGR) of 10% over the next five years, signaling potent opportunities for stock returns.

Advantages of Investing in Automobile Stocks

As an industry with a significant footprint in the global market, the Indian automobile sector presents several compelling advantages for investors. Here’s a closer look at why dipping your toes into automobile stocks could be a savvy move:

Opportunity for Long-Term Growth

The Indian automobile industry, known for its robustness and adaptability, offers investors a viable avenue for long-term growth. Historically, this sector has weathered various market fluctuations and technological shifts. For instance, despite the challenges posed by the COVID-19 pandemic, the Indian auto industry has shown signs of recovery and growth, with a forecasted compound annual growth rate (CAGR) of around 10% over the next five years. Investing in established companies within this sector can open doors to sustained growth, fueled by a steady global demand for vehicles, both traditional and electric.

Steady Dividend Returns

Many companies in the Indian automobile sector are known for rewarding their shareholders with regular dividends. This aspect makes them particularly attractive to income-focused investors. These dividends can provide a stable source of passive income, an appealing prospect in a market that is often subject to fluctuations. For example, well-established firms like Maruti Suzuki and Tata Motors have a history of offering dividends, reflecting their financial stability and commitment to shareholder value.

Riding the Wave of Innovation

The automobile sector in India is at the cutting edge of innovation, especially in areas like electric vehicles (EVs), autonomous driving, and enhanced connectivity. Companies actively investing in these technologies are not just contributing to the industry’s evolution but are also positioning themselves to tap into new market opportunities. For investors, this means a chance to be part of a sector that is shaping the future of mobility. With the Indian government’s push towards EVs and sustainable transportation, companies leading in these areas might offer lucrative investment prospects.

Leveraging Global Exposure

Indian automobile giants often boast a significant international presence, transcending domestic boundaries to tap into global markets. This international footprint offers investors a chance to diversify their portfolios beyond regional economies, potentially cushioning against local economic downturns. The global reach of these companies means exposure to a wider market, often leading to more robust financial performance and, consequently, a more stable investment.

FAQs

1. Which is the best automobile stock in India?

Identifying the “best” automobile stock can vary based on individual investment goals and market conditions. However, companies like Maruti Suzuki, Tata Motors, and Mahindra & Mahindra often come to the forefront due to their solid market presence, innovative approaches, and consistent financial performance.

2. How to invest in the car market in India?

To invest in the car market, you can buy stocks of listed automobile companies through stockbrokers or online trading platforms. Additionally, investing in mutual funds or ETFs that focus on the automotive sector is another way to gain exposure to this market.

3. What are the top 3 automobile industries in India?

The top three segments in India’s automobile industry typically include passenger vehicles, commercial vehicles, and two-wheelers. These segments are represented by leading companies like Maruti Suzuki in passenger vehicles, Ashok Leyland in commercial vehicles, and Hero MotoCorp in the two-wheeler segment.

4. Why should I invest in the automotive sector?

Investing in the automotive sector can be beneficial due to the industry’s potential for growth driven by technological innovation (like electric vehicles), expanding global markets, and increasing demand in emerging economies. The sector’s diversity offers opportunities for various investment styles and risk appetites.

5. What are the risks involved in investing in automobile stocks?

Investing in automobile stocks involves risks related to market cycles, regulatory changes, intense competition, and supply chain vulnerabilities. Understanding these risks and conducting thorough research is crucial for making informed investment decisions.

6. What is the growth outlook for India’s automobile sector?

India’s automobile sector is projected to grow robustly, with expectations of a Compound Annual Growth Rate (CAGR) of around 10% over the next five years. This growth is fueled by rising disposable incomes, an expanding middle class, and a shift towards sustainable vehicle options.

7. How does government policy impact India’s auto sector?

Government policies, such as the Production Linked Incentive scheme and initiatives promoting electric vehicles, significantly impact the sector. These policies aim to enhance manufacturing capabilities and environmental sustainability, boosting the sector’s global competitiveness.

8. Is it a good time to invest in auto sector stocks?

The decision to invest should be based on current market analysis and personal financial goals. The industry’s ongoing shift towards electric vehicles and sustainable technologies presents potential growth opportunities, making it an attractive sector for long-term investment.

9. How can I ensure a diversified investment in the automobile sector?

Diversification within the automobile sector can be achieved by investing across different market segments (like passenger cars, commercial vehicles, and auto components) and considering global exposure. Mutual funds and ETFs focusing on the automotive sector can also offer diversified investment options.

10. What factors should I consider before investing in India’s auto stocks?

Before investing, evaluate the company’s financial health, market position, innovation capabilities, and adaptability to market trends and risks. Consulting a financial advisor for a strategy that aligns with your investment goals is also recommended.