The automobile industry in India has been hit by the worst crisis in 20 years. With more than 2.3 lakh jobs lost in the last few months, the situation looks dire. The overall slow growth of the economy, especially the slowdown in consumption, has led to the biggest contraction in auto sales.
Mutual funds, that have a major portion of their total assets allocated to automobile sector has been the most affected in terms of returns. The NIFTY Auto Index traded at a 3 – year low last week, and looking at the market sentiment, the industry is yet to see some more downfall. As far as sectoral allocation of various mutual fund schemes is considered, a huge contraction in automobile holdings has been observed as well. Majority of mutual fund houses have reduced their exposure to automobile sector to contain losses.
The HDFC Mutual Fund and the Axis Mutual Fund houses have significantly lowered their sectoral allocation in the Auto Industry. HDFC Growth Opportunities Fund had a 7.42% allocation in the auto industry in March 2018 which has reduced to 1.21% in July 2019. Similarly, HDFC Focused 30 Fund had 7.67% of total assets allocated to auto industry in March’18, while in July’19 had zero asset allocation to automobile sector. HDFC Hybrid Equity Fund also moved from 9.71% asset investment in auto sector to meagre 0.27% in July’19.
Axis Bluechip Fund has drastically lowered its auto exposure from 10.93% in March’18 to just 1.35% in July’19. Axis Multicap Fund also decreased its auto sector allocation from 9.74% (March’18) to just 1.6% in July’19.
UTI Transportation and Logistics Fund which is a sectoral fund, concentrated around auto industry, delivered returns at the rate of 24.20% in 1-year time horizon in March’18, while the same fund has reported -33.03% losses in July’19. This indicates the grim state that the automobile sector is currently in, with bleak hopes of correction in the near future.
With recent announcements made by Finance Minister Nirmala Sitharaman, the industry is hoping for revival in auto sales during the coming festive season. Some preventive measures to boost the automotive sector include removal of ban on purchase of new vehicles for government use, tax benefit for automakers, allowing BS-IV compliant vehicles to remain operational for the entire period of registration and deferring enhanced registration cost till March’20. Also, efforts to boost liquidity in the market might stimulate auto sales in the long run.
Reduction in Automobile Sector Holdings of Mutual Funds:
| Fund name | March’18 | March’19 | July 19 |
| HDFC Growth Opportunities Fund | 7.42 | 1.52 | 1.21 |
| HDFC Focused 30 | 7.67 | 2.20 | 0 |
| HDFC Hybrid Equity | 9.71 | 0.77 | 0.27 |
| Axis Bluechip Fund | 10.93 | 3.13 | 1.35 |
| Axis MultiCap Fund | 9.74 | 3.31 | 1.60 |
