The sector index has more than doubled in 2009, outperforming the main index that has climbed 56 percent. Top utility vehicle and tractor maker Mahindra & Mahindra has led the rally by nearly trebling.
Analysts are upbeat on the outlook for Maruti Suzuki India Ltd, which sells every second car in the country, but are cautious on leading motorcycle maker Hero Honda Motors Ltd as poor monsoon rains could hurt rural income and dent demand in its main market.
GAS IN THE TANK
Maruti, 54.2 percent owned by Japan's Suzuki Motor Corp, remains popular with brokers after it posted a 25 percent jump in quarterly profit. Eighteen of 31 brokers rate it buy or strong buy, according to Reuters data, versus six with a sell or underperform rating.
Shares in Maruti, which has a market value of $7.6 billion, hit Rs 1,515 earlier this month, their highest since the company went public in 2003 and almost tripling from the close of 2008. They have, however, shed 15 percent in the past five days on a broad-based profit taking.
The sector index has also shed 9 percent this month.
"We are advising investors to buy Maruti. After the recent correction, it is looking good," said Gaurav Dua, head of research at brokerage Sharekhan. "Also, it is the market leader and its new launches are getting a good response."
Maruti's A-Star has found strong demand in European markets such as Germany, the UK, France, the Netherlands and Greece and has sold more than 50,000 cars since it started exports in January.
Bajaj Auto, the No. 2 motorcyle maker, is being sought after the company made a re-entry into the popular 100cc bikes and has announced plans
"We are recommending buy on declines," said Dua. Bajaj shares have fallen 18 percent in the last five days, but are up 173 percent on the year.
Demand for automobiles in India usually rise during the festive season that begins in August and runs till October, when most companies give annual bonuses to staff.
Vaishali Jajoo, analyst with Angel Broking also recommended Mahindra, though the weak monsoon rains could have an impact on the company, which depends on the rural market for more than 50 percent of its sales.
"That is the only thing which will affect it and the impact will be delayed for some months," she said.
TOO PRICEY?
Hero Honda Motors, in which Japan's Honda Motor Corp has a 26 percent stake, which has gained 77 percent this year after shedding 12 percent in the past five days could be pricey because of its reliance on rural customers for its sturdy bikes.
"It is the most expensive stock among autos," said Dua.
"They have a heavy dependence on rural sales and the lack of monsoons can hit them hard. Also with their fast pace of growth in the last few months, it will be difficult for them to sustain double-digit growth," said Jajoo.
"We see muted growth numbers for them," she said. "Investors can sell Hero Honda and switch to Bajaj Auto."
Shashi Nigam at Antique Stock Broking suggested investors book profits in top truck maker Tata Motors, which hit a 52-week high of 468 rupees early this month.
The company, which began delivering Nano, billed as the world's cheapest car, in July also makes the hatchback Indica and Indigo sedans.
While the company's Indian operations look good, its UK-based Jaguar Land Rover unit was a drag on its performance, Nigam said.
Both its Indian shares and ADRs in New York have gained more than 150 percent this year.
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