Auto has enough horsepower to race on high-way and overtake

"The upmove in most is a reaction to the previews of auto players which indicate a good set of results for Q4," said Aditya Welekar, senior research analyst at Axis Securities. "A significant inflation in commodity prices is also not expected in the upcoming quarters."

The rose 2.16% to record levels on Monday, compared to a 0.68% up-move in benchmark Nifty, which also closed at an all-time high. Out of the 16 stocks in the Nifty Auto Index, 15 advanced and 1 declined.

"When the broader market was in a corrective phase recently, the didn't see a price correction and this relative strength of the sector is driving further buying interest," said Ruchit Jain, lead research analyst at 5paisa. "The broader trend in the sector has also been positive in the last few months."

In the past month, the auto index has advanced 5.07% while Nifty gained 1.49% in the same period. It has gained 20% in the past three months as against 5.3% gains in the Nifty.

"A strong build-up of long formation in many auto stocks such as Exide, M&M, Eicher and Maruti Suzuki India is also supporting the bullish momentum in the sector," said Jain. "The relative outperformance of auto is likely to continue since the index is performing well in a rising market."

Jain said Exide witnessed breakout with good volume, while Eicher Motors is nearing a fresh breakout. The rally in Maruti Suzuki India and Mahindra & Mahindra is expected to continue. Analysts said that despite high valuations, the auto sector is poised for growth and strong momentum.

"Although the auto index is already trading at all-time high levels, having crossed 22,000 levels for the first time on Monday, the market expects the index to be at 23,000 in the April series," said Jain.

Due to competitive intensity, a large up-move in shares of passenger vehicle makers seem unlikely, said Welekar. Two-wheeler shares could perform better due to pick-up in exports and better valuations, he said. TVS Motor, and Maruti Suzuki India are his top picks in the sector.

"While a consolidation might happen, a correction in the auto sector can be ruled out since the growth drivers for the sector remain robust," said Welekar. "However, the valuations are factoring most of the positives, so a stock specific approach is advised."