In 2024, the Nifty Auto index is poised for a continued upsurge, driven by sustained volume expansion, an advancing margin trend, and the successful launch of new models.
The Nifty Auto index performed well in 2023, emerging as the second-best performer among sectoral indices with a gain of nearly 48% compared to the 20% gain in the Nifty 50 index. Investors were encouraged by volume growth, new product launches, and the strong margin performance of the original equipment manufacturers.
Specifically, the two-wheeler segment exhibited promising prospects, finishing the year on a high note. Although volumes did not meet expectations, the segment continued to outpace the automobile industry in December. Bajaj Auto Ltd and TVS Motor Co. Ltd reported approximately 15% and 27% year-on-year growth, respectively, in their two-wheeler wholesale volumes.
At the time of writing, Hero MotoCorp Ltd had yet to report December volumes, but the general expectation was for a strong performance, driven by robust demand in the company’s strong markets in the northern regions.
Conversely, Eicher Motors Ltd’s Royal Enfield experienced a disappointing 7% decline in volumes, partly due to sluggish exports. However, with increasing deliveries of the new Himalayan model, volumes are expected to improve in the near future.
Looking ahead to 2024 or FY25, two-wheelers are anticipated to experience improved growth rates. Alongside a gradual recovery in demand, a favorable base also provides support.
According to channel checks by Antique Stock Broking, there are indications of a pickup in demand for entry-level segment two-wheelers. The Antique report stated, “Dealers are closely monitoring the entry level segment and expect the months of January and February to be crucial in assessing demand.”
In 2024, the passenger vehicle (PV) market in India is expected to experience a growth in volumes. However, it is crucial to monitor the pace of this growth. Maruti Suzuki India Ltd anticipates a gradual impact of repo rate hikes and a decrease in pent-up demand following the pandemic. Additionally, the company has successfully addressed significant pending bookings as a result of improvements in the supply chain. Meanwhile, Hyundai Motor India foresees a modest growth of 3-4% for the PV industry in 2024.
Companies offering utility vehicles (UV) in their product lineup are likely to maintain a competitive edge due to the ongoing trend of premiumization. Notably, UVs accounted for 58% of total PV sales in the fiscal year 2024, representing an increase from 51% in the previous year. Key players in the UV segment, such as Mahindra & Mahindra Ltd (M&M) and Tata Motors Ltd, are well-positioned to capitalize on this trend. However, Maruti faces challenges in the lower-end segment, which constitutes the largest portion of its portfolio, despite its efforts to leverage the trend through the launch of models like Fronx and Jimny.
In December, Maruti experienced a 1.3% year-on-year decline in volumes, while Tata Motors and M&M reported increases of 8% and 24% in PV volumes, respectively.
Turning to electric vehicles, the subsidy cut in 2023 posed challenges for electric two-wheelers, resulting in a share of 5% compared to 4% in 2022. In the PV segment, the share of electric vehicles was nearly 2% in 2023.
Commercial vehicle volumes are expected to face volatility in 2024 due to upcoming elections. Tractors were particularly affected in December due to weak rural sentiments; however, government support is anticipated to drive volumes in the future.
Regarding margins, current indications suggest minimal concern. According to a report from BNP Paribas Securities (India) dated 2 January, the proprietary commodity cost index remained relatively flat in December. Many original equipment manufacturers implemented price hikes in the previous month to offset the rise in commodity prices and do not foresee a significant impact on margins. The potential for a further rally in the Nifty Auto index in 2024 would be driven by consistent volume growth, an upward margin trajectory, and the success of new models.
