Fund Managers Adopt Cautious Stance Amid Trump’s Auto Tariff Announcement

Minimal Immediate Impact Expected Despite Market Volatility

Fund managers remain in wait-and-watch mode following US President Donald Trump’s decision to impose a 25% tariff on automobile and auto component imports. While the announcement triggered a decline in auto stocks on March 27, investment professionals indicate that they do not foresee a major long-term impact on most Indian automakers, except Tata Motors, which has a 30% export exposure.

With over 300 mutual fund schemes, including active funds and ETFs, holding Tata Motors shares, the announcement has garnered significant attention. However, fund managers believe that domestically focused auto companies will not experience substantial effects from the new tariffs, making immediate portfolio adjustments unnecessary.

• Tata Motors is the most impacted auto stock, with around 30% export exposure.

• Over 300 mutual fund schemes, including ETFs, own Tata Motors shares.

• Auto component manufacturers like Samvardhana Motherson, Bharat Forge, and Sona BLW may face supply chain disruptions.

Tata Motors Dominates Mutual Fund Holdings in the Auto Sector

Among mutual fund schemes, thematic transportation and logistics funds have the highest exposure to Tata Motors. The Aditya Birla Sun Life Transportation and Logistics Fund and ICICI Prudential Transportation and Logistics Fund hold 8.54% each in Tata Motors, making it a key stock within their portfolios.

Other significant fund allocations include:

• UTI Transportation and Logistics Fund – 6.51% exposure

• Bandhan Transport and Logistics Fund – 6.38% exposure

This widespread mutual fund participation in Tata Motors highlights the stock’s importance in the Indian equity market, explaining why fund managers are closely monitoring developments before making portfolio adjustments.

Fund Managers Assess Risks for Auto Component Makers

While Original Equipment Manufacturers (OEMs) like Tata Motors and Eicher Motors are expected to face moderate effects, auto component manufacturers that supply directly or indirectly to US markets could witness greater margin pressure.

Daylynn Pinto, Senior Fund Manager at Bandhan AMC, noted that while Indian OEMs are largely insulated from US tariff risks, auto ancillary companies with 30-45% sales exposure to the US market could encounter challenges. These firms depend on exports, and tariff-related price escalations could impact order volumes and profitability.

Key component makers with significant US exposure include:

• Samvardhana Motherson International Ltd

• Bharat Forge

• Sona BLW Precision Forgings

Stock Market Reaction and Sector Volatility

Following Trump’s announcement, the Nifty Auto Index slipped 1% on March 27, with major stocks like Tata Motors, Eicher Motors, and Mahindra & Mahindra (M&M) among the biggest losers.

Despite short-term volatility, fund managers argue that the broader domestic auto sector remains stable due to strong local demand, government incentives, and a growing preference for electric vehicles (EVs).

Market Trends:

• Tata Motors declined due to concerns over Jaguar Land Rover (JLR), which exports to the US.

• Auto ancillary stocks fell due to their high US exposure.

• Domestic-focused auto firms remained relatively stable.

Fund Allocation Strategies Remain Steady

Despite concerns, fund managers are not rushing to make major portfolio changes. They believe that the tariff announcement does not warrant immediate exits from auto stocks, particularly since Indian automakers have limited direct US exposure.

Experts also highlight valuation metrics, noting that the auto sector is currently trading at a price-to-earnings (P/E) ratio of 18-25x, with many stocks below historical valuation levels.

Investment Outlook in Auto and Transportation Sector

While some transportation and logistics funds posted short-term losses, fund managers remain confident in the long-term growth trajectory of the Indian auto industry.

Industry experts are also tracking macroeconomic factors, including:

• Slowing demand in global markets

• Fluctuating commodity prices impacting input costs

• Potential countermeasures from global automakers to mitigate tariffs

Long-Term Outlook for Auto Sector Amid Global Trade Tensions

Market analysts agree that Indian auto companies are better positioned than their global peers due to:

• Strong domestic sales growth

• Government initiatives boosting EV adoption

• Limited direct exposure to the US market

While Trump’s tariff decision adds uncertainty, fund managers emphasize the importance of focusing on earnings growth and sector fundamentals rather than reacting to short-term market swings.