Mutual funds increased the weight of auto stocks in their equity portfolios to 8.5% in August 2025, which is the highest in 10 months. This was a noticeable rise from 7.9% in June and 8.0% in July. The allocation crossed the BSE-200 benchmark weight for the auto sector, which is about 8%.
Why This Rise
Several catalysts are contributing to this increased allocation:
- GST Cuts / Tax Reliefs
- The government reduced GST on many vehicles and segments which makes them more affordable.
- Premium bikes over 350cc and large SUVs still have higher rates, but many smaller/entry-level vehicles saw rates fall.
- Festive Demand
- With Indian festivals coming up (often in September-October), demand tends to pick up for vehicles. Mutual funds are anticipating that trend.
- Better Operating & Earnings Outlook
- Analysts expect the second half of the calendar year (and FY26-27) to show improvements in volumes, margins, and earnings for auto OEMs and ancillaries.
- Valuation & Sector Performance
- The auto sector has delivered strong returns: the Nifty Auto Index rose ~28.7% over the previous six months.
- Some auto names are seen as reasonably valued compared to other consumer/consumer discretionary plays.
Which Stocks & Funds Gained
- Big auto original equipment manufacturers (OEMs) saw increased holdings: Maruti Suzuki, Hero MotoCorp, Bajaj Auto saw mutual funds buying more shares.
- Mid-cap names also saw interest: Ashok Leyland and MRF among them.
- Some fund houses like PPFAS and HDFC Mutual Fund have more than 11% exposure to autos.
Risks & What to Watch
- Demand could disappoint if interest rates rise, fuel costs climb, or inflation pressures persist.
- Vehicle supply chain issues (semiconductor components, raw material costs) might squeeze margins.
- After the festive season, demand often moderates; autos are cyclic and sensitive to economic slowdowns.
- Valuation risk: some auto stocks are trading at relatively high forward P/E ratios, so downside exists if earnings don’t meet expectations. Moneycontrol
Implications
- Investors and fund managers are betting that policy tailwinds (like GST cuts) + favorable seasonal demand will sustain growth in the auto sector.
- Auto stocks may continue to outperform in near term, especially in segments benefiting from tax relief or high replacement demand.
- Mutual funds’ higher auto allocations may affect sector rotation: less in defensive or other cyclical sectors.
Conclusion
In August 2025, mutual funds in India raised their auto stocks exposure to 8.5%, a 10-month high, driven by tax reliefs, festive season demand, and an improving earnings outlook. While the sector looks promising, investors should keep a close eye on valuation, policy consistency, and economic headwinds.
