INVESTMENT IDEAS IN INDIAN AUTOMOBILE SPACE FOR ASSET MANAGEMENT COMPANIES

The Indian automobile sector contributes to 7.1% of the Gross Domestic Product (GDP). Between the facts that India is one of the fastest growing economies in the G20 and India?s under-developed public transportation system, the industry is expected to grow rapidly and offer multiple investment opportunities in both the private and public markets. This paper follows a top down approach to find investment opportunities in the publicly traded equities from the automobile sector. This paper examines 2-wheelers, passenger vehicles and auto-ancillary sub-industries to identify the most attractive sectors. On finding the most attractive sub-industry, a comparative analysis is performed on the major stocks in the given space to look for under-valued stock(s) in the given industry while staying wary of value traps. A fundamental approach is taken while studying the financial performance as opposed to a technical approach. Once an under-valued stock is identified, the paper studies the company?s prospects, cause for undervaluation and comparison of financial performance with its peers. Based on this data, projections are made for the company and accordingly 3 cases of valuation using Residual Income valuation model to evaluate the attractiveness of the investment.