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Selective Investing: FIIs Bet on Indian Auto Growth
23 Oct
Summary
- Foreign investors withdrew a record ₹3.12 lakh crore from Indian equities in 2026.
- Two auto stocks, Sedemac Mechatronics and SML Mahindra, saw FII holdings double.
- Sedemac's proprietary tech drives growth; SML Mahindra eyes scale via acquisition.
Foreign portfolio investors (FPIs) have exited Indian equities at an unprecedented rate in 2026, with withdrawals reaching ₹3.12 lakh crore by mid-October. This marks a significant increase from the previous year's ₹1.66 lakh crore. Despite this broad selling, foreign investors are exhibiting increased selectivity, focusing on companies demonstrating robust growth or potential for re-rating.
Within the auto sector, two companies, Sedemac Mechatronics and SML Mahindra, have attracted substantial FII interest, with holdings doubling quarter-on-quarter. Sedemac Mechatronics, founded at IIT Bombay, differentiates itself with proprietary sensorless control technology for electronic control units (ECUs), leading to significant revenue and profit growth. Its return on capital employed (ROCE) rose to 40% in FY26.
SML Mahindra's investment case is driven by its acquisition by Mahindra & Mahindra in August 2025, which is set to integrate M&M's commercial vehicle division. This integration is expected to nearly double SML Mahindra's revenue, enhance its product portfolio, and strengthen its market position, aiming for a ₹12,500 crore business by FY31.
Both Sedemac and SML Mahindra are trading at premium valuations, reflecting high growth expectations. Sedemac's valuation is based on its strong capital efficiency and growth trajectory, while SML Mahindra's premium is linked to the anticipated scale increase from the acquisition. Investors are now closely watching the execution of these growth plans.
