New Delhi, April 3 The cost pressures facing Indian auto companies are being systematically underestimated by the market, even as investor sentiment on India has taken a distinctly more cautious turn, according to a report released on Friday.
A BNP Paribas analysis found investors reluctant to take a clear directional position on the market. Hedge funds were largely removing tilts and factor exposures from their portfolios, with several actively reducing gross exposure.
The rapid reversal of US tariff trade seen last year has made investors inclined to view the current energy crisis as potentially short-lived, it said.
The broader view on India has turned more negative. A key concern centres on LNG availability; investors fear it could prove a longer-lasting issue for India, distinct in nature from oil price volatility.
Unlike crude -- which is seen as a transient price shock -- LNG supply disruptions are viewed as potentially delivering a prolonged hit to corporate earnings.
The report also highlighted that Hong Kong-based investors were found to be somewhat less bearish on India than their Singapore-based counterparts, partly a function of HK investors operating as regional allocators who are simultaneously navigating elevated volatility in other Asian markets.
Investor conversations skewed heavily toward demand impact rather than cost.
There is a broad consensus that commercial vehicles face the sharpest demand headwinds, tied to a slowdown in government capital expenditure.
Moreover, two-wheelers are generally seen as better positioned relative to passenger vehicles on the demand side, though BNP cautions that historical macro cycles do not clearly support this conclusion.
Tractor demand is also under watch, with investors worried about a potential diesel price hike, again a concern BNP says is not well-supported by historical demand data.
More significantly, the bank flags that cost inflation is receiving relatively little attention and could be a source of incremental negative earnings surprises.
On positioning, investors favour two-wheelers over passenger vehicle names and are most bearish on commercial vehicles.
The report also noted that there is considerable divergence in single-stock views within each segment.
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