"We are not a SEBI registered advisor, and this should be considered as a research case study only."

A few days back, I was engrossed in conducting research to identify the latest investment trends of Foreign Portfolio Investors (FPIs) and Foreign Institutional Investors (FIIs). As I sifted through the data for the last six months, something caught my eye.

What I discovered was truly remarkable - FPIs had been investing heavily in four sectors, with a particular emphasis on the Automobile and Auto Ancillary sector, as well as the Capital Goods sector. This trend was an interesting development, as it is often assumed that FPIs and FIIs are the primary drivers of market liquidity, and their investment behaviour can indicate significant market trends.

In light of this discovery, today we will delve deeper into these two sectors and explore potential opportunities for investors. So, let's buckle up and explore the exciting world of the Automobile and Auto Ancillary sector and the Capital Goods sector! In this report, we have mentioned opportunities in the Automobile sector, and in the next report, we will talk about opportunities in capital goods.

Automobile Sector

This sector has shown a net investment of 17,857Crs. Now the question will be, why a sudden interest? The Indian auto industry has historically traded at lower price-to-earnings (P/E) ratios than other emerging markets such as China and Brazil, which could make it an attractive investment opportunity for foreign investors. According to data from Vahan Vehicle Registration, there has been a notable surge in the registration of two-wheelers in rural areas over the past few quarters, indicating a significant increase in demand for these vehicles.

Another reason for the increased FPI in the auto sector could be the government's recent push towards electric vehicles (EVs) and sustainable mobility.

TVS Motor Company Ltd

Below, we have shown a chart of TVS Motors, one of the fastest-growing Automobile companies in a Daily Chart.

Technicals:-

TVS Motors is exhibiting a clear breakout in its daily chart, with the stock trading above the 200 Exponential Moving Average. This is further supported by a Wedge Pattern breakout and an RSI (Relative Strength Index) trading above 70.

Looking ahead, the stock may experience a retest of the breakout level at 1130. However, the breakout level is expected to hold firm due to the company's strong fundamentals and robust sales data.

Fundamentals:-

• Foreign Portfolio Investors (FPIs) have shown robust buying interest in the automobile sector.
• As a cyclical industry, the two-wheeler segment typically experiences the first uptick when the auto sector rallies due to its affordability. Within the two-wheeler space, TVS Motor has emerged as the fastest-growing company, boasting a 5-year sales growth of 14% YoY and a profit growth of over 8%, surpassing peer companies such as Hero MotoCorp and Bajaj Auto.
• However, the company's dividend payout ratio is lower compared to its peers, as it is reinvesting heavily in new projects.
• The gross margin of TVS is also impressive, with 35.89% in the last quarter with a growing Operating margin. The growing operating margin shows company's focus on cost optimization and efficiency improvements.
• According to Vahan Vehicle Registration data, TVS Motor holds a market share of almost 20% in the two-wheeler EV category, making it the second-largest company in the electric vehicle (EV) space after OLA. OLA is currently in the top spot with a market share of around 25%, but its market cap is declining due to the increasing popularity of TVS's iqube model.
• TVS Motor has witnessed strong demand in the rural sector this year, leading to improved sales numbers in each quarter.
  

Although the stock looks attractive but due to its high sales growth, the stock is trading at a little higher PE multiple of 44.3 than its peer companies.

The curve shows the increasing sales as well as Margin numbers in each quarter.

Disclaimer: Please note that the following information is intended for educational purposes only and should not be construed as a recommendation to buy or sell any securities.

CMP:- 1162

Stoploss:-1027

Target:-1437

Other Opportunities:-

Bajaj Auto

This is a chart of Bajaj Auto in the daily time frame. The stock has been in a tight consolidation for the last two years since February 2021. Now finally, the stock has given a multi-resistance zone breakout on the expectation of strong demand for two-wheelers and the Bajaj-triumph deal.

However, the stock trading at 4288 might give a retest up to the 4100 level, which can be a good entry level. The upside potential seems larger and can move up to the 5000 level soon.

This chart indicates that the return on equity (ROE) has consistently exceeded the stock price change. While ROE reflects a company's profitability, the stock price should ideally follow suit. However, the stock appears to be undervalued over the long term(in 5 to 10yrs view). This suggests that investors may benefit from holding onto Bajaj Auto shares for an extended period.

Eicher Motors Ltd

The company's legacy brand, Royal Enfield, accounts for 88% of its revenue. Since the majority of its business is in the premium motorcycle category, the company generates an impressive gross margin. Additionally, the stock appears to be finding support at its previous breakout level, which has now become a strong support level. A potential entry point for the stock would be around 3050-3100, with a stop loss set at 2800.

4-Wheeler Segment

Maruti Suzuki India Ltd

Investing in the Indian four-wheeler segment can potentially prove to be a lucrative opportunity, given the predicted growth of the sector in the upcoming years. Factors such as an increase in disposable income, a growing middle-class population, and a surge in urbanization are expected to contribute to this growth.

Technicals

The daily chart indicates a descending triangle breakout, which is a bullish signal for the stock of Maruti Suzuki. Additionally, the RSI (Relative Strength Index) is currently attempting to break above 60, indicating a positive trend in the stock.

Notably, all the other stocks in the auto sector are also experiencing breakouts, further highlighting the sector's potential for growth. Maruti Suzuki, being one of them, presents a good risk-reward opportunity for investors who are willing to take advantage of the current market conditions.

Fundamentals

• The chart illustrates a remarkable upward trend in sales for each quarter, surpassing all other four-wheeler automakers in India. This is a testament to the impressive performance of the company in terms of growth.
• Maruti Suzuki is currently the largest car manufacturer in India, holding an impressive 47.4% of the market share. The second-largest player, Hyundai, lags behind with a 17% share, while Tata Motors trails with a 7.5% share.
• Given the revival of the auto sector, it is likely that the company will experience an increase in stock purchases as more consumers may be inclined to invest in the company's growth.

Disclaimer: Please note that the following information is intended for educational purposes only and should not be construed as a recommendation to buy or sell any securities.

CMP:- 8670

Stoploss:-8084

Target:-9706

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