US President Donald Trump’s announcement of a 25 percent tariff on autos and auto components weighed heavy on the market on March 27 but fund managers with exposure to these stocks say that they are not rushing to make changes to their portfolio, watching out for the space instead as they don’t see major impact.
This assumes significance as Tata Motors, which is expected to see the maximum impact, is owned by more than 300 schemes (active and ETF/Index funds), according to data from ACE MF. Further, around seven auto/transportation and logistics thematic funds have significant exposure to the stock.
Amongst thematic funds (active), the highest exposure is for Aditya Birla Sun Life Transportation and Logistics Fund and ICICI Prudential Transportation and Logistics Fund, each with around an 8.54% weightage in Tata Motors.
Other transport and logistics schemes from fund houses like UTI MF and Bandhan MF also have substantial allocations at 6.51% and 6.38%, respectively. Meanwhile, other stocks thatfund managers expect to see impact include component manufacturers like Samvardhana Motherson International Ltd, Bharat Forge, Sonal BLW etc.
Fund managers that Moneycontrol spoke to see minimal impact from the tariffs on grounds that most automakers have minimal global exposure, except for Tata Motors, which has around 30 percent export exposure.
Daylynn Pinto, Senior Fund Manager - Bandhan AMC says, “the Indian auto industry, particularly OEMs (Original Equipment Manufacturers), remains largely insulated from US tariffs, as most domestic companies have minimal direct exports to the U.S. Even where exports exist, the impact is likely to be negligible.”
He, however, acknowledged that certain players, particularly in the auto ancillary space, could face disruptions. “Auto ancillary companies, which supply parts both directly and indirectly to the US, may face challenges. Some firms have significant exposure, with 30-45 percent of their sales linked to the US market,” he added.
Stocks brace for volatility
On March 27, the Nifty Auto Index closed around 1 percent lower with auto stocks like Tata Motors, Eicher Motors and M&M amongst the biggest losers. But despite potential short-term volatility, fund managers suggest the need to look at the segment from a long-term perspective.
Experts agree that market sentiment may stay weak for stocks with high export dependence, but domestically focused auto companies are unlikely to see a major impact as investors will continue to evaluate earnings performance without the uncertainty of tariffs weighing on them.
Impact on fund allocations
Fund managers see limited impact on the way they will approach their portfolio management on the back of this announcement. While some stock allocations may be adjusted based on pre-existing views on tariffs, the overall portfolio structure remains largely unchanged, they said.
Overall sector outlook
While funds in the transportation and logistics segment have shown negative returns on the short-term, the long-term opportunities and growth prospects persist.
Fund managers are keeping an eye on broader challenges facing the auto industry, including slowing demand and rising input costs. Commodity prices could also potentially impact margins. Experts believe that while immediate reactions may be negative, they do not believe in taking knee-jerk decisions to their funds. "Historically, overreactions in the short term tend to misjudge the true long-term effects," an expert added.
Valuations within the segment they added was also fair valued, with one expert noting that on average the sector has seen valuations of around 18-25x, with many of them trading below their historical average.
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