The automobiles sector has always outperformed the broad market across all short, medium and long term horizons by over 200 bps except the 10 yr time horizon where it underperformed by barely 65 bps. This superior performance Tanmaya points out is due to the superior growth trajectory of the automobiles sector – a trajectory he believes will only accelerate from hereon.
SBI MF has launched its Automotive Opportunities Fund to harness the growth potential of this alpha-generative sector which has multiple growth levers that play into discretionary consumption (passenger vehicles, auto components), rural and urban middle class consumption (2 wheelers), agriculture (tractors), cyclical economic recovery (commercial vehicles and auto components) and exports (auto components).
Tanmaya discusses each of these segments in some detail and spells out the opportunities in each as well as the notes of caution for each. In casting his initial portfolio for the new fund, he is likely to be overweight auto components, neutral on passenger vehicles (though total exposure to PVs will be overweight if you include auto components), neutral on2 wheelers and marginally underweight on commercial vehicles.
Export prospects are bright for auto component players and some are already on their way to becoming global leaders. Equally promising are export prospects for MNCs that are now leveraging their local subsidiaries as sourcing hubs for different global markets.
Tanmaya believes unlike many other sector funds where you need to time your entry into and exit from the sector to catch its cycle correctly, the auto sector warrants a long term exposure in investor portfolios due to its superior alpha generation capabilities that have been proven across market cycles.