It is the sector which has led the rally which the market has seen in the last one year. However today when newspaper headlines are talking about India witnessing sales of 4 million cars in 2023, all these major auto stocks are trading with a cut. This is a very simple example of the market discounting the news much before it comes out. The question is whether this correction is just a minor phase of cooling down and the next phase of up move will depend on their EV products.
It is the sector which has led the rally which the market has witnessed in the last eight months and rightly so. If one looks at the history, the rallies which are led by the transportation and auto sector are more durable as sales of LCV and certain other auto segments is an indication of the economic situation on the ground. But given the fact too much liquidity is floating in the markets, some of the stocks have seen a sharp run with valuations moving upward sharply. That is probably the reason why analysts, while being bullish, are more cautious. So at a time when the desire to own stocks and invest is very high, it would be worthwhile to be slightly more watchful.
There has been a lot of talk about startups taking the space in the EV, but the fact is the old companies have also been working towards their EV plans. Given the amount of cash they are sitting with in their balance sheet, there is high probability that they will be able to launch a number of models out of which some would be successful and become the cash cows and deliver growth. So, don t write off the ability of big players, especially in two wheeler space as they might be close to getting their mojo back.
There have been lots of reports on how the EV policy will focus on bringing TESLA to India. While one single player will get the limelight, more important will be on building an ecosystem, where EVs are made in India not only for the Indian market, but over a period of time they are exported from India. It is very likely that over the next couple of quarters, there would be some re-rating of select auto stocks. Of the ones which have put their system in place to move into EV space.
It is very likely that a new EV policy is on its way. Will it have financial incentives for existing players or will it focus on building an ecosystem, where EV are made in India not only for the Indian market, but over a period of time they are exported from India needs to be watched. The reason, if it is about building an ecosystem, it would have a long term positive impact on the auto ancillary industry. It is very likely that over the next couple of quarters there would be some re-rating of select auto stocks.