Auto stocks have had a mixed run since the last Budget with a wide variance in their returns. The BSE Auto Index has, however, managed to rally 24 per cent in the last six months, outperforming the broader market indices. Valuations at 20-25 times trailing earnings are already factoring in a turnaround in auto volumes.

While the growth in volumes for the auto industry remained muted at 4 per cent in 2013-14, the two-wheeler segment continued its strong run, primarily led by the scooter segment, which grew 23 per cent. Honda Motorcycle and Scooter India recorded the highest growth in this segment—35 per cent. Hero MotoCorp saw volumes grow 2.8 per cent, while Bajaj Auto reported an 8.7 per cent decline. Improvement in economic growth, along with new product launches and capacity expansions, will drive volumes in this segment in the coming year.

The passenger cars segment, on the other hand, could do with some cuts on excise duty as volumes dropped 4 per cent in 2013-14. Maruti Suzuki India, which saw sales dip 1.4 per cent this year, may see some benefit on the raw material front as the rupee appreciates against the Japanese yen. For Tata Motors, while JLR volumes continue to drive growth, languishing domestic passenger vehicles sales can pick up with new launches planned for the coming year.

Worst hit

The worst hit was the commercial vehicle (CV) segment, which saw volumes decline 20 per cent, as industrial activity remained sluggish. Sales of Tata Motors and Ashok Leyland can improve only if the new Government makes policy changes for the revival in the infrastructure and mining sectors, which in turn will lead to a pick-up in CV sales.

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