Domestic mutual fund managers have started moving to the auto sector in the wake of good earnings prospects in run up to the new product launches, possibility of margin improvement and value unlocking in the electric vehicle segment, reported The Economic Times.
The sector weight in domestic fund portfolios reached a 42-month high of 7. 6% in June 2022 according to the data compiled by Motilal Oswal Financial Services. This was the fourth month in a row when the weight increased on a month-on-month basis.
In comparison, local funds cut down weight in the metals sector to a 26-month low of 2. 6% amid choppy commodity prices. Based on the sector weight, auto is the third largest sector in their portfolio after private banks and technology. Local funds are currently 160 basis points overweight compared with the auto sector weight in the benchmark BSE 200 index, the report said.
Of the top 20 asset management companies (AMCs), 16 are overweight on auto. The Nifty Auto index has outperformed the Nifty 50 by 18% since the beginning of the year. In June, auto was the only sector to deliver return while the Nifty 50 fell by 5%.
Maruti Suzuki and Mahindra and Mahindra (M&M) were top gainers among the Nifty 50 stocks in the month.
The raw material basket price of the automakers has fallen close to December 2021 level. This and a consistent rise in prices of vehicles are expected to boost the profit margin of the sector.
In June, the wholesale passenger vehicles volume was 3.2 lakh unit. If annualised, it would cross the pre-Covid level of around 36-38 lakh units reflecting strong demand momentum.