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BSE Auto Index Witnessed the Highest Gains Since Financial Crisis
Aug 7, 2017

S&P BSE Auto index is the best performing sectoral index since the global financial crisis. Auto index has surged by a mammoth 823% since November 2008. This is way ahead as compared to the benchmark index returns of 230% during the same period.

Within the auto index, Tata Motor's stock has appreciated the most since November 2008. The stock has posted a gain of 1180% since November 2008. Other stocks too such as Maruti Suzuki, Bajaj Auto, Mahindra and Mahindra have gained more than 1000% since then.

The main reason leading to this surge is the booming consumption story. Driving aspirations of the rising middle class have pushed up car sales in the world's second most populous country. Further, benign interest rates and lower oil prices too have supported this consumption boom.

Not only this, value migration is pretty much evident in the auto sector. First time car buyers generally interested in entry level cars such as Alto and WagonRs, are now hooping into the costlier Swifts and Dzires. Five years ago, one out of three (33%) first time buyers purchased these costlier models. Now, one out of every two (50%) first times buyers purchase these costlier models.

Value migration creates opportunity. We are firm believers of this structural change and love to look out for industries going through these changes.

Having said that, valuation too plays a big part in the trajectory of the stock prices and currently the valuations of the auto majors appears to be a bit stretched. Past performance is no validity of the stocks performing well going ahead and hence investors should pay utmost heed to the valuation before investing in the auto majors.

Data Source: Ace Equity

This Chart Of The Day was published in The 5 Minute WrapUp - Smart Money Update: Super Investor Activity Picks up Some Pace

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