Prime Auto++ smallcase will be closed. What next?

We are closing our Auto++ smallcase, after running it for almost 23 months since its inception in June 2022.  With a return of 42% CAGR (94% absolute returns, which is close to doubling your money), we believe we have helped you ride the best part of the auto turnaround phase – building on the sector’s recovery in FY23 and a full-fledged performance in FY-24. The closure will be done on May 31, 2024.

Prime Auto++ smallcase will be closed

In our previous update on February 28, 2024, where we mentioned we were stopping fresh subscriptions, we had written about the sector journey, our portfolio performance, and valuations. Now, we have decided to close the Auto++ smallcase. That means, you will no longer receive any updates/rebalancing on the same. You may choose to sell the stocks in the portfolio or hold them (some light on this later in this report).

We detail below, the performance of the portfolio till date, the rationale for closing Auto++ and a new alternative that you can consider.

Auto++ smallcase performance

The 94% return of the Auto+smallcase is a 49 percentage-point outperformance over the large-cap index of smallcase and about a 30 percentage-point outperformance over the broad market index Nifty 500 (as of May 21, 2024). If we had missed some further upside, that would be because of the weight to automobile stocks like Bajaj Auto and Tata Motors that took off unexpectedly well. Our portfolio was an auto ancillary heavy one and while we did have key auto stocks, they did not carry high weights as the index.

We made very less churn over the last 2 years as we maintained some of the stocks throughout this period.  Out of the 14 stocks that we have in the portfolio, 11 were held since inception. This includes M&M, Eicher Motors and Ashok Leyland from OEM, SKF, ABB and LTTS from technology products and services and Sundram fasteners, Asahi, Lumax, Motherson Sumi Wiring India and Endurance Technologies from the ancillaries.

We had few great exits with high returns such as Ramkrishna Forgings, Pricol and Bharat Forge. We also had outsized returns, of 90-270%, from the ones we continued to hold –  M&M, ABB, Lumax and Pricol. All of these helped clock robust returns overall.

Why we are closing the portfolio

  • First, the auto sector is a highly cyclical space, especially in categories such as commercial vehicles and tractors.
  • Second, the volume growth expectation for FY25 on all categories of vehicles have come down sharply after a stellar performance in FY23 and FY24.  For example, passenger car makers are looking at single digit volume growth in FY24 while commercial vehicle makers are staring at a a decline in volume.
  • Third, the earnings recovery, margin recovery and valuation re-rating (to historical levels, even excessive in some) have all happened in most of the stocks during FY23 and FY24.  

In this backdrop, we think it will be difficult for us to replicate our past returns over the next 12 months. While few stocks may still deliver such returns, it appears unlikely at a broad-based portfolio level.  Hence the decision to close the portfolio.

The only other way to deliver past returns in the coming year is by maintaining a highly concentrated portfolio, comprising few stocks, which also means taking higher risk for the same returns. That is best done by holding individual stocks rather than a portfolio.

Should you hold some stocks?

What if you wish to hold a few stocks from the Prime Auto ++ smallcase? Hypothetically, if we were to maintain this portfolio with few stocks for a longer-term, those could be  M&M, Eicher Motors, Asahi India glass, Motherson Sumi Wiring, Endurance and Lumax Industries.

Let’s share our quick thought process around them:

  • M&M and Eicher are leaders in their space with significant market share and are beneficiaries of structural long-term trends on people migrating to aspirational/ higher value products.
  • On the ancillary side, Asahi, M Sumi wiring and Lumax are power train agnostic players (be it ICE or EV) where their products are seeing more demand with premiumisation. Sunroofs and LED lighting are two of the visible drivers in premiumisation.
  • Motherson Sumi wiring would benefit from increasing demand for high quality wiring harness (with more content per vehicle) if domestic manufacturing of EVs were to happen in India and for that reason, Endurance also for its capability and scale in aluminium die-casting components.

We leave these ideas with you for you to dig deeper into these stocks, if you wish to retain them. The above should not be construed as a recommendation to buy or continue to hold.

 As far as we are concerned, we are closing the portfolio – which means you can sell the holdings and pocket the gains and capital. Some of the stocks here are part of Prime Stocks. In such cases, you will of course continue to get updates on them.

Where to reinvest?

If you decide to reinvest the sum from your Auto++ smallcase, where would it be? Our Prime Trends – Consumption smallcase of course 😊

We have recently launched our new thematic smallcase, Prime Trends – Consumption.

We have launched this at a time the sentiment towards consumption is not that upbeat in the market. Many companies are going through a bit of a volatile phase in demand despite the secular growth trend being intact.

At $3.5 trillion GDP today, we are already talking a lot about premiumisation, and luxury consumption and we must be talking more about such things at a $7 trillion economy. And if our portfolio companies tap the opportunity, which we believe they will, and become bigger and the stock market sentiment turns favourable towards consumption, we hope the compounding would work very well in this smallcase.

Please note that this smallcase will be available for a short period. We will close fresh subscriptions once we think the theme is taking off. So hurry up and enter the theme now before the market picks it!

We have a 15% discount now on the new Consumption smallcase. Avail it with coupon code PRIMESHOP.

Subscribe now to Prime Trends – Consumption with coupon PRIMESHOP

We thank you for being with us through this journey. We are hopeful that you will be part of our future financial journeys as well, benefitting along the way.

Happy Investing!

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2 thoughts on “Prime Auto++ smallcase will be closed. What next?”

    1. Bhavana Acharya

      We see that you have raised a ticket with us with the same query – we have responded there. For NRIs, the broker needs to allow smallcase investments. Please check with your broker. – thanks, Bhavana

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