Why FIIs more than doubled their stakes in 2 auto stocks amid record outflows

In the auto segment, FII holdings have more than doubled quarter-on-quarter in two stocks: Sedemac Mechatronics and SML Mahindra. Increasing FII Holdings March 2026June 2026September 2026Sedemac Mechatronics2.52%4.27%10.30%SML Mahindra0.77%1.24%3.65%Source: Screener.in At Sedemac Mechatronics, FII ownership increased from 2.52% in March 2026 to 4.27% in June and 10.3% in September. At SML Mahindra, holdings rose from 0.77% in March to 1.24% in June, before climbing to 3.65% in September 2026.

Let's analyze why FIIs have doubled down on these businesses and what they are doing differently FE Stock Insights on WhatsApPGet instant alerts on high-conviction investment themes and fundamental deep dives—direct from Financial Express.Join now #1: Sedemac Mechatronics: Proprietary Technology is Driving Growth Sedemac Mechatronics was incubated on the IIT Bombay campus in 2007 by its faculty and alumni.

The company develops electronic control units (ECUs) for two- and three-wheelers and industrial generators. These units control critical functions such as engine starting, electronic fuel injection, and motor operation. Its key differentiator is proprietary sensorless control technology. Conventional engines use physical sensors to detect piston position before restarting. This increases component complexity, as the sensors have to function in high-thermal and greasy conditions.

That increases failure risk over time. Sedemac’s software algorithms calculate this position from electrical signals, eliminating the need for these sensors. The technology also creates higher switching costs and customer stickiness. ECUs are closely integrated with a vehicle’s engine architecture. Replacing them is not easy, as it requires engineering changes, testing, and recalibration. Growth is Translating into Higher Profitability The financial performance suggests that Sedemac's technology is finding commercial traction.

At the end of Q1FY27, the company had sold more than 13 million control-intensive ECUs to major vehicle & industrial manufacturers in India, US, and Europe. SEDEMAC Mechatronics: Financial Performance MetricsFY24FY25FY26Revenue from Operations (₹ crore)5306581,058YoY Change (%)-24.15%60.79%EBITDA Margin (%)15.7%19.0%21.0%Net Profit (₹ crore)5.947.1103.6YoY Change (%)-698.31%119.96%Source: Company Presentation Revenue increased 61% YoY to ₹1,058 crore in FY26 and EBITDA margin increased to 21%.

Net profit more than doubled to ₹103.6 crore. SEDEMAC Mechatronics: Quarterly Performance MetricsQ1FY26Q1FY27YoY Change (%)Revenue from Operations(₹ crore)217.4309.842.5%Net Profit (₹ crore)17.133.394.7%Source: Company Presentation The momentum continued in Q1FY27 with revenue up 42.5% to ₹310 crore and net profit up 95% to about ₹33 crore. Capital efficiency adds to the investment case. Return on capital employed (ROCE) was at 40% in FY26 compared to 17% in FY23.

If Sedemac can grow volumes without a proportionate increase in fixed assets, it could maintain robust returns as the business grows. New Applications Could Extend the Growth Runway Sedemac is looking beyond its existing market. Its expansion plans include power tools, commercial vehicle applications, including after-treatment control units and electric light commercial vehicle drives. These opportunities could expand its addressable market.

For foreign investors, the attraction is a technology-led business that has demonstrated strong growth and improving returns, with opportunities to expand into new applications. Sedemac Mechatronics: 1 Year Stock Chart Source: Screener.in SML Mahindra: Acquisition Could Transform Its Scale SML Mahindra's investment case is less about proprietary technology and more about a potential change in business scale.

Mahindra & Mahindra’s acquisition of SML Isuzu in August 2025 gave the commercial vehicle maker a stronger parent and access to engineering and distribution capabilities. In the next step, M&M is selling and integrating its commercial truck and bus division into SML. The deal brings together two businesses of comparable size. Mahindra & Mahindra’s truck and bus division generated ₹2,989 crore in FY26 revenue, against SML Mahindra’s ₹2,838 crore.

Combining them could nearly double SML Mahindra’s revenue base, expand its product portfolio and strengthen its position in the commercial vehicle segment. Management aims to build a ₹12,500 crore business by FY31 and increase market share to 10-12%, from around 6% currently. FIIs May Be Betting on SML Mahindra’s Next Phase of Growth The acquisition comes at a potentially favourable point in the commercial vehicle cycle.

First, the reduction in GST on commercial vehicles from 28% to 18% in September 2025, which improved vehicle affordability. Second, India's medium and heavy commercial vehicle fleet is aging, with an average age of nearly 10 years. Replacement demand, supported by vehicle scrappage measures and bus-replacement programmes, could provide an additional growth driver. Growing Average Age of CV Fleet in India Source: Ashok Leyland SML Mahindra is already growing faster than the industry.

In FY26, its overall growth was 17%, compared with industry growth of 13%. The combination of a broader product portfolio, parent-level capabilities and favourable demand conditions could help the company gain market share. However, the acquisition is not a growth guarantee. SML Mahindra must integrate the businesses effectively, manage costs and convert the additional scale into sustainable earnings.

SML Mahindra: 1 Year Stock Chart Source: Screener.in Valuation: Growth Expectations Are Already High Both stocks trade at a premium to the industry, suggesting investors are already pricing in strong earnings growth. P/E Trend Trailing P/E5-yr Median P/EIndustry P/ESedemac Mechatronics116-28.17SML Mahindra50.133.623.3Source: Screener.in (As of 22nd October 2026) Key Financial Metrics Financial MetricsSedemac MechatronicsSML MahindraReturn on Equity27.53%35.40%Return on Capital Employed40.43%31.30%Debt-to-equity Ratio0.160.54Inventory Turnover Ratio3.993.5Source: Company Presentation Sedemac is trading at 116 times trailing earnings, over four times the industry P/E of 28.2.

Its ROCE of 40.4%, 27.5% return on equity (ROE) and low debt-to-equity ratio of 0.16 reflect its strong capital efficiency. But the valuation doesn’t allow for earnings growth to slow or margins to weaken. SML Mahindra trades at 50.1 times earnings, against its five-year median of 33.6 and an industry average of 23.3. Its ROE of 35.4% and ROCE of 31.3% are healthy, but its debt-to-equity ratio of 0.54 is higher than Sedemac’s.

The premium appears to reflect expectations of a step-up in scale following the truck and bus division acquisition. The key valuation test is execution. Sedemac must sustain growth and high returns, while SML Mahindra must translate its expanded portfolio into profitable growth. At current multiples, neither stock offers much room for disappointment. But the more important signal is what attracted the money.

Sedemac offers proven technology, rapid earnings growth, and high capital efficiency. SML Mahindra offers a potential step-change in scale through the integration of Mahindra’s truck and bus business. For investors, the takeaway is to track the milestones behind the buying. At Sedemac, that means earnings growth, margins, and product expansion. At SML Mahindra, it means acquisition integration and profitability.

Rising FII ownership may signal confidence in a business’s prospects, but at these valuations, the real test is whether the promised growth shows up in the financials. Add these stocks to your watchlist and monitor how they execute their growth plans. Disclaimer: Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.

The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only. Deepan Datta has spent over a decade studying stocks and mutual funds. His passion is to uncover interesting stories in the financial markets and share them through his writings with investors at large.

He is focused on delivering clear, easy to understand and research-backed insights. Deepan began his career as a Research Associate at S&P Global, where he developed a strong foundation in financial research and data analysis. Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, their employees (s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein.

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