Nifty Auto skids 2% in August, snaps 9-month winning streak; 13 stocks end lower

The Nifty Auto index ended August on a negative note, declining by nearly 2% and breaking a streak of nine consecutive months of gains. Out of the 15 stocks in the index, 13 finished the month in the red. Among the biggest decliners were Balakrishna Industries, which saw its stock drop by 14%, while Apollo Tyres and Bharat Forge fell by 11.30% and 9% respectively. 

Similarly, shares of passenger vehicle manufacturers Tata Motors, Maruti Suzuki, and Mahindra & Mahindra (M&M) all closed the month in the red, with losses ranging from 3% to 5%. In contrast, only two stocks in the index—Bajaj Auto and TVS Motor—managed to finish the month in the green, recording gains of up to 13%.

The decline in passenger vehicle (PV) stocks has been primarily attributed to a slowdown in sales in July, which saw a 2.5% drop—the first decrease in two years. This slowdown, coupled with muted growth during the first quarter of the current fiscal year, has contributed to a significant increase in inventory levels at auto dealerships nationwide, creating challenges for manufacturers and dealers alike.

According to the Federation of Automobile Dealers Associations (FADA), vehicle inventory at dealerships has surged to an unprecedented high of over 700,000 units, valued at ₹73,000 crore. The stockpile has increased from 65–67 days' worth of inventory in early July to 70–75 days now.

In response to these elevated inventory levels, car manufacturers have ramped up discounts to clear their stock. For instance, Maruti Suzuki’s average discount per vehicle rose to ₹21,700 in Q1 FY25, compared to ₹14,500 in Q4 FY24. Additionally, Tata Motors and Mahindra & Mahindra have introduced discounts of up to ₹2 lakh on their top-selling models.

Looking ahead, car makers are hopeful that sales will normalise within the next one to two months, driven by better monsoon conditions and the onset of the festive season.

While the PV sales experienced a downturn, 2-wheeler sales posted good numbers in July and for the first quarter of the current financial year, driven by a rebound in demand within the replacement segment in rural markets, robust performance in the premium motorcycle category, and a lower base effect.

However, the decline in market share for Hero MotoCorp and rising competition in the premium bike segment for Eicher Motors have put pressure on their stocks.

Can August bring a rebound for PV sales?

According to domestic brokerage firm Nuvama Institutional Equities, PV industry volumes are likely to be marginally negative in August. It projects a total volume growth of 1% for M&M, which includes PV, commercial vehicles (CV), and three-wheelers (3W), reaching 71,000 units.

Within the PV segment, the brokerage projects M&M volumes to grow robustly by 13%, surpassing the growth rates of Maruti Suzuki and Tata Motors.

In contrast, Nuvama forecasts a 6% decline in Maruti PV sales to 152,500 units and a 2% decrease for Tata Motors PV sales to 44,850 units. The brokerage also noted that vehicle discounts are currently higher compared to the previous year.

For the two-wheeler (2W) sector, the brokerage expects industry volumes to grow in the high single digits, approximately 8% year-over-year in the domestic market. This growth is attributed to strong rural demand and sustained urban demand, with rural sales benefiting from improved sentiments due to favorable monsoon conditions.

Wholesales are likely to exceed retail sales as dealers build up inventory ahead of the festive season. The brokerage projects 10% total volume growth for TVS Motor, reaching 380,000 units; a 7% growth for Bajaj Auto, reaching 365,000 units; and a 4% growth for Hero MotoCorp, reaching 510,000 units.

In comparison, Eicher Motors is expected to see flat growth at 77,500 units. For the commercial vehicle (CV) sector, Nuvama anticipates a slight decline of approximately 4% year-over-year in domestic volumes due to a high base for cargo vehicles.

However, increased e-way bill generation indicates improved freight availability for transporters. It estimates a 7% total volume growth for Eicher Motors-VECV to 6,900 units, flat growth for Ashok Leyland (AL) at 15,600 units, and a 4% decline for TTMT CV to 30,650 units.

In the tractor industry, volumes are expected to see a marginal increase of about 4% year-over-year in the domestic market. This growth is supported by positive farmer sentiment due to normal monsoon conditions.

Nuvama projects total volume growth of 8% for Mahindra & Mahindra-Farm and 2% for Escorts, reaching 23,400 and 5,700 units, respectively.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.