 |
|
The Indian auto sector is experiencing a downturn, with stocks of major players like Bajaj Auto, Mahindra & Mahindra, and Hero MotoCorp facing significant pressure in the market. This decline comes after Bajaj Auto's recent financial results, which revealed a weak festive season demand, leading to a 13% drop in the company's stock price. The sentiment in the auto sector has been bearish ahead of the results, with the Nifty Auto index declining by 9% since its peak on September 27.
Bajaj Auto's stock has witnessed its largest decline since March 2020, losing nearly ₹35,000 crore in market capitalization. This decline has made it the top loser on the Nifty 50 index. All constituents of the Nifty Auto index are down on a weekly and monthly basis, with Bajaj Auto leading the losses followed by Hero, Eicher, and Maruti.
The decline in auto stocks can be attributed to several factors, including the subdued festive season demand. Bajaj Auto's management has acknowledged that the festive season demand has been below expectations, with retail registrations indicating muted demand in the first half of the season. This has caused concerns regarding inventory build-up and rising raw material costs, which are likely to impact margins.
Additionally, the muted response to Hyundai's initial public offering (IPO) could be adding to the pressure on auto stock prices. India's largest IPO to date has only been subscribed by 51% on the final day of bidding. This suggests that investors are becoming cautious in their investments in the auto sector, potentially due to concerns about future growth prospects.
Despite the recent correction, most auto stocks are still trading above their five-year average price-to-earnings (P/E) ratio, indicating that they remain relatively expensive. This highlights the concerns about the sector's valuation, particularly considering the recent weak demand and potential margin pressures.
Bajaj Auto's results, while in-line with expectations, may have already been priced into the market due to the stock's significant run-up in the past. The company's management acknowledged the weak festive season demand, indicating that two-wheeler industry growth in the first half of the season is only 1% to 2%. This is significantly lower than the 5% to 6% growth anticipated by the company and the 8% to 10% growth predicted by brokerages.
The decline in auto stocks is a significant development, particularly considering the crucial role that the sector plays in the Indian economy. The factors contributing to this downturn, including weak demand, rising costs, and valuation concerns, suggest that the auto sector is facing a challenging period. It remains to be seen how the sector will navigate these challenges and whether it can regain its momentum in the coming months.
Source: Auto stocks from Bajaj to Maruti and Hero under pressure — Five things to know