Why not invest in these Indian auto sector companies in 2019 in the midst of upcoming EV disruptions who are sure to pass making it a risk-free investment?
Do you want to invest in the auto sector in 2019 because of compelling valuations but don’t know which companies will survive the upcoming disruptions of electric vehicles?
You are not alone.
Many of my readers are keen to invest in the auto sector and have asked me the same question.
What are the kind of stocks I recommend or those who know I don’t share stock ideas, they ask what stocks I am accumulating in my portfolio.
The investment in the auto sector is a good idea, but one should also understand the risk.
The way I prefer it is going for a risk-free route to investing in the auto sector and benefit from the valuation as well as future growth.
But first, let us understand the upcoming disruptions so we can invest in the auto sector without taking the undue risk off if the company will make it or not past the disruption.
The Upcoming Disruptions
There have been many disruptions in the past.
However, there is a fresh memory of disruptions about Nokia, BlackBerry, Motorola, etc.
These were big brands at the beginning era of mobile phones. With the evolution of smartphones, they don’t even exist.
New players have taken over in the smartphone category like iPhone, OnePlus, MI Phones, etc.
Auto companies know it. They know, to remain relevant, they have to adapt to the changing technology for sure.
So every company is willing to be part of the game and want to be adopting anything and everything that sounds like an electric vehicle.
In the helm of it, we have Kona from Hyundai.
With the three charging options from under 1 hour to 6 hours and with standard three pin charger can take up to 19 hours. It has an average of 452Km, but some say it only can run 300km with a full charge. In either case, will need a full charge for an office commuter once a week.
The option seems very viable, and adaptability will make sure the charging infrastructure rapidly takes over.
How to Invest in the Auto Sector?
So what I have said above is pretty known to every investor. The question is how to go about investing in the right auto sector company?
- Will Maruti be able to Adopt to EV?
- Can two-wheeler companies?
- What about the Ethanol bikes that are in the making?
- Are three-wheelers a right choice as an investor?
- What about commercial vehicles that were supposed to be going electric first?
- What about the auto-ancillary companies? With the change in engine, which components will become irrelevant?
As an investor, when you have so many questions with answers not known, the best investment opportunity is in the companies that have an answer to them?
The Slowdown
On any business channel, we see a couple of reason for the impact of auto sales, and they are:
- A slowdown in the Indian economy.
- Liquidity crisis and NBFC’s not providing a loan as aggressively.
I don’t buy those views.
My view is, people are delaying the purchase of vehicles because they also have a sense, it is not very long when they will not have any resale value of petrol or diesel cars.
The Disruption is Here to Stay
You want to be investing in the auto sector because you see compelling valuations for a great company and great franchise.
However, Nokia, Blackberry, Motorola were a great company and a great franchise.
So, it is not about the brand but adaptability and willingness to innovate.
It is about the team and the management who are more than willing to adapt to the changing world and that to change ASAP.
The change will not stop anytime soon, either.
There is a change from the Internal Combustion Engine or IC Engine to Electric Engine, but the process will not stop here.
- Solar charging will soon be on.
- The Autonomous driving is coming for sure.
- And Uber and Ola are making sure we download an App instead of buying a car.
So disruption is here to stay for a very long time in the auto sector.
As an investor, first, we need to accept the same.
The Right Stock in the Auto Sector
The way I like to invest is, instead of trying to predict who will make it or not, why not invest in an auto-ancillary company that is sure to exist and pass the disruptions with flying colors.
In other words, disruption proof companies.
Tyre manufacturers like MRF, Balkrishna Industries, etc. They are available at compelling valuation because of the correction in the auto sector, and they are disruption proof.
Similarly, WABCO India, which is into the braking solution, will not become irrelevant because there is a change in the engine technology.
Companies dealing in seating systems will not change based on if the cars are electric or not.
Such lists of companies that are disruption proof in the auto sector are endless.
Why not invest in them?
Final Thoughts
Remember, when you are considering a company, make sure you also opt to choose the company that has the right team and management to bellwether the upcoming changes.
Equations will change and invest in the company that is willing to adapt to the changes though they may not be forced to change.
Good one Shabbir, tyres, batteries, suspensions, brakes etc will be in demand no matter what type of vehicle it is.
I think good time to invest/average in Amaraja / Exide, MRF/Bal Krishna Ind, Motherson Sumi, Nocil etc. Thanks Shabbir Sir.
Yes but not sure about batteries but others definitely an option.
Yes this is good way to invest at much lower risk but what do you think about sip in auto sector fund like JM Auto fund
I think JM auto fund was changed to Mid cap fund a while ago.
True.
You make it so simple to select stocks for investment @Shabbir. This is what I like the most about your blog. Making it really simple.
Glad you like it.