AUTO STOCKS AS WEALTH CREATORS

MUMBAI: A ₹1,000 investment in Tata Motors Ltd shares made during the dark days of the global financial crisis would have grown 15-fold by now, as India’s largest automaker went on to gain the most in the BSE Sensex’s post-2008 surge.

Since the Sensex tumbled to 8,509.56 points on October 27, 2008 — which was then a two-year low — the index has gained 278.84% in the years that followed. In the same period, Tata Motors has gained a whopping 1458.50%.

Tata Motors tops the list of Sensex gainers in the period, but it is not the only automaker in the group. Auto stocks have been the biggest wealth creators since the financial crisis. The BSE Auto index has been the best performing sectoral index since then, posting returns of 954.89%.

Among Sensex constituents too, four of the top six performing stocks during the period have been auto stocks — Tata Motors, Maruti Suzuki India Ltd, Bajaj Auto Ltd, Mahindra & Mahindra Ltd. Each of them has gained more than 1000% since then.

A consumption boom and a growing middle class have pushed up car sales in the world’s second-most populous country. New model launches, higher disposable income, benign interest rates and lower fuel prices have combined to drive up auto sales every year in the last decade.

“The domestic market is expanding,” said Mark Mobius, executive chairman at Templeton Emerging Markets Group, Franklin Templeton Investments. “With per capita incomes going up – more people can afford a motorcycle, more people can afford automobiles.”

“And then, Indian companies have been particularly good at exporting — both the small twowheelers as well as the automobiles.” Mobius also pointed to Tata Motors’s 2008 acquisition of Jaguar Land Rover, that bode well for the company.

For the Tata group flagship, the acquisition of Jaguar Land Rover from Ford Motor Co in July 2008 for $2.3 billion has been the cash-cow. It accounts for over 80% of revenue and almost all of profits for the consolidated entity.

According to data from industry body Society of Indian Automobile Manufacturers (Siam), domestic sales across vehicle categories for the automobile industry at large have risen for all the six fiscal years to 2016-17, while exports rose in five of six fiscal years to 2016-17. Also, from 2007-08, aggregate sales across vehicle categories – including domestic sales and exports-- rose 133.77% to 23.45 million units.

“Collapse of the oil prices in recent years has also helped the automobile industry immensely. That had led to better affordability of automobiles,” said Raamdeo Agrawal, joint MD of Motilal Oswal Financial Services Ltd.

Brent crude traded at a record high $147.5 per barrel in July 2008. Since then, it has eroded 64.49% to trade at $52.38 per barrel.

“Even interest rates have come down, bringing down the EMIs,” added Agrawal.