FIIs scale up Investment in Auto Sector

Even as weak cues from global markets have triggered exit alarms, foreign institutional investors (FIIs) have scaled up their investments in domestic automobile companies in the second quarter of the current financial year.

According to data available from the Bombay Stock Exchange (BSE), FII inflows have increased across the board in passenger vehicle, commercial vehicle and two-wheeler manufacturing companies between July and September.

While FIIs’ stake in Hero MotoCorp has increased to 34.8 per cent in the July-September period from 33.7 per cent the previous quarter, in TVS Motor it has risen to 4.7 per cent from 3.5 per cent. For Bajaj Auto, too, FIIs’ stake rose marginally to 15.9 per cent in the quarter.

An analyst with a Mumbai-based brokerage said: “While the overall sales have slowed in the industry, two-wheeler companies have posted strong volume growth in the second quarter.

Additionally, with commodity prices falling, their profitability is likely to improve in the coming quarters. They are proving to be relatively safe bets for FIIs.”

At 17.4 per cent, volume growth in the two-wheeler segment has outpaced that of the industry (14.4 per cent).

While net sales of these three companies have expanded 15-20 per cent, net profit for TVS zoomed 39.5 per cent. Hero MotoCorp and Bajaj Auto saw their net profits rising 19.39 per cent and six per cent, respectively. Higher realisations and stable commodity prices helped Bajaj Auto and TVS Motor expand operating margins.

Data compiled by the Business Standard Research Bureau show FIIs have taken out Rs 10,565 crore between July and September — the highest this calendar year. While FIIs had pulled out Rs 1,038 crore in the April-June quarter, the combined withdrawal had been higher at Rs 7,931 crore in the January-March quarter.

Interestingly, while passenger vehicle sales growth slowed down to a meagre 1.84 per cent between April and September, FIIs continued to raise stake in Maruti Suzuki and Mahindra & Mahindra (M&M).

Industry experts say, low vehicle penetration levels mean that long-term prospects in the Indian market hold good. So, investments have continued to rise in the sector.

Therefore, FII stake in Maruti Suzuki went to 19.2 per cent, while in M&M it increased to 26.4 per cent from 23.6 per cent in the previous quarter. Robust commercial vehicle sales also helped Ashok Leyland scale up FII interest by 20 per cent to 16.2 per cent on a quarter-on-quarter basis.

The Society of Indian Automobile Manufacturers, the industry body, pointed out that despite a sense of market slowdown, India remained the second fastest-growing passenger vehicle market in the world, with 9.9 per cent increase in sales in January-August period.

Germany topped the list, growing by 11.20 per cent in the period. US, Brazil and China followed, reporting growth rates of 9.3 per cent, 7.5 per cent and six per cent growth, respectively.