Auto, ancillary stocks hit top gear
Investors flocked to mid-cap and small-cap auto and auto ancillary firms on Monday, setting off a rally in the stocks.
Among the mid- and small-cap firms part of the BSE Auto index, Ashok Leyland surged the most. Shares of the Hinduja flagship firm recorded a 9.8 per cent rise to close at ~74.9 apiece.
A sequential recovery in commercial vehicle sales has driven investor sentiment upward. Ashok Leyland, however, is yet to reach the previous high of over ~100 it had attained during the pre-covid phase. TVS Motor also gained 2.7 per cent to close at ~456.9.
Most auto ancillary stocks — from tyres and batteries to ball bearings — also raced ahead. Notable ones were Balkrishna Industries, Timken, Apollo Tyres, and Endurance Technologies, gaining over 4 per cent.
On Friday, Sebi said multi-cap funds should have a certain percentage of their corpus invested each in large-caps, mid-caps, and small-caps. It has mandated that at least 25 per cent of the fund’s corpus be deployed in large-caps, mid-caps, and small-caps each.
Analysts said the move bodes well for mid-cap and small-cap stocks, at least in the short term. “These are technical factors and any liquidity that is brought in to small-cap and mid-cap stocks will be beneficial. It’s akin to a large-cap being included in the Nifty,” said Aditya Makharia, vice-president at HDFC Securities.
Makharia however, pointed out that not all stocks would gain and at the end of the day; what matters most is the quality and the investor confidence on fundamentals of the company.
The cut-off date to have the mandated 25 per cent corpus invested equally in small-cap, large-cap, and mid-cap funds is January 2021, and may see lot of MFS re-align their portfolios.
Besides the so-called technical factor, analysts have also attributed the current rally in mid-cap and small-cap stocks to an attractive valuation, which is prompting investors to buy these stocks.
A month-on-month recovery and an end of a down-cycle, too, have added to the optimism.
“We re-initiate on the Indian auto sector with a positive bias, based on our expectation of strong volume growth and margin expansion in the initial phase of recovery,” wrote Arya Sen and Indarpreet Singh, analysts at Macquarie Research, in a September 1 report.
Top picks for the company are Bajaj Auto, Escorts, and M&M. It has an ‘outperform’ rating on Maruti, TVS Motors, Ashok Leyland, Endurance, Motherson Sumi, Mahindra CIE, and Sandhar. Further, it has a “neutral” rating on Tata Motors, Hero, Eicher, and Minda Industries.
The BSE Smallcap outperformed the broader market on Monday, surging 4 per cent at the end of the trading session. Yearto-date, it has risen 10 per cent as compared to the 1.8 per cent fall in the auto Index and 6.1 per cent decline in the Sensex.