Nifty Auto plunges 7.7% in just 5 sessions; TVS Motor, Bajaj Auto fall up to 11%

Indian auto stocks have emerged as one of the biggest casualties of the recent sell-off in the stock market, triggered by escalating tensions between Iran and Israel. Moreover, a slowdown in automobile sales in September and a weak outlook by major global car manufacturers are other factors exerting pressure on auto stocks.

Against this backdrop, the Nifty Auto index extended its losing streak to the fifth consecutive trading session on Monday, declining 1.50% to 25,544. From its peak of 27,696, scaled on September 27, the index has fallen 7.7%. 

TVS shares have emerged as the biggest index laggards during this period, falling 11.3%. They are closely followed by Bajaj Auto and Eicher Motors, both of which lost 10% each. Hero MotoCorp and Samvardhana Motherson International also experienced notable drops of 8% and 10%, respectively.

Maruti Suzuki India stock declined by 9%, while shares of Ashok Leyland and MRF recorded a fall of 10% each. Tata Motors dropped by 8.5%, Bharat Forge by 8%, Mahindra & Mahindra by 7%, and Bosch by 5% in the last five trading sessions.

Automobile sales decline 9.26% YoY in Sep

The latest data released by the Federation of Automobile Dealers Association (FADA) indicated persistent challenges in the automobile sector, with sales declining continuously amid waning consumer demand. Even the festive occasions of Ganesh Chaturthi and Onam failed to stimulate demand. 

The 2-wheeler retail sales declined by 10% month-on-month (MoM) and 8.5% year-on-year (YoY) due to low consumer sentiment, poor inquiries, and reduced walk-ins. Seasonal factors like the Shraddh period, Pitrapaksha, and heavy rains further played spoilsport, resulting in delayed purchases and a subdued market environment.

In the passenger vehicle (PV) category, retail sales plummeted by 10.8% MoM and 18.81% YoY, the FADA data showed. 

"Seasonal factors such as Shraddh and Pitrapaksha, coupled with heavy rainfall and a sluggish economy, have exacerbated the situation, leaving dealers with historically high inventory levels of 80-85 days—equivalent to 7.9 lakh vehicles worth ₹79,000 crore," said FADA President, C S Vigneshwar.

"Given the critical festive season around the corner, FADA urges OEMs to take immediate corrective measures to avoid a financial setback. FADA also calls on the Reserve Bank of India to issue an advisory to banks, mandating stricter channel funding policies based only on dealer consent and on actual collateral, to prevent dealers from facing additional financial pressure due to unsold stock. This is the final opportunity for PV OEMs to recalibrate and support market recovery before it's too late," Vigneshwar added.

Overall, September saw a decline 9.26% YoY decline in retail sales.

The PV industry has been facing challenges due to low consumer demand and rising inventory levels. To clear their stock, manufacturers have increased discounts, but these are yet to translate into a significant improvement in sales.

This surge in discounts has also raised concerns among investors, as it is likely to have a direct impact on the company's profit margins. After witnessing robust double-digit growth in FY22, FY23, and FY24, primarily fueled by the post-COVID demand recovery, PV sales have significantly slowed down, particularly in the last three months.

Analysts have projected a growth of 5% in PV sales in FY25, in contrast to over 8% improvement recorded in FY24.

The decline in PV sales is not limited to India; major global automotive giants are also experiencing significant challenges. All three major German automakers—Volkswagen, Mercedes-Benz Group AG, and BMW AG—have adjusted their sales forecasts for 2024 downward.

Volkswagen is reportedly considering plant closures in Germany, marking a potential first in the company's history.

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