Tata Motors, Bajaj Auto and 12 other Nifty Auto stocks tumble up to 6%. Here’s why

After a brief rally on Monday, auto stocks resumed their downward trend on Tuesday, October 29, with 14 out of 15 constituents of the Nifty Auto index trading in the red. These stocks declined between 1% to 6%, with the index plunging 2.70% to 23,300—a level last seen in early June.

Tata Motors led the decline with a 6% drop, followed closely by Bajaj Auto, Hero MotoCorp, Maruti Suzuki, Mahindra & Mahindra, TVS Motor Company, and Balkrishna Industries, all of which recorded losses between 1.5% and 3%.

What is behind the decline in auto stocks? 

Today's drop in auto stocks can be largely attributed to rising concerns that sales during the Diwali season could fall short of estimates, as urban consumers appear to be holding back on their purchases.

Reports indicate that individuals living in cities are becoming increasingly cautious with their spending due to rising living costs and food inflation, both of which are eroding the purchasing power of the middle class.

The slowdown in consumer spending is already reflected in the disappointing auto sales figures, a decline in FMCG volumes, and sluggish growth among QSR companies for the September quarter.

As the crucial Diwali season approaches, expectations of a surge in sales have been high amid elevated inventory levels, however, current sentiment indicates that this may not materialise as hoped. This year, the festive season has begun with muted sales, raising hopes for increased activity during Navratri and Diwali, with both falling in the same month.

According to recent estimates from the Federation of Automobile Dealers Associations (FADA), auto dealers are currently witnessing historically high inventory levels, averaging 80 to 85 days—equivalent to 790,000 vehicles valued at ₹79,000 crore. 

In response to the rising inventory levels, major automakers have implemented significant measures, including announcing substantial discounts on popular models in recent months. However, these efforts have yet to translate into a noticeable improvement in sales.

Bajaj Auto has earlier expressed caution regarding festive demand, projecting festive sales growth between 3% and 5%, significantly lower than industry estimates of 8%.

Meanwhile, data from the Society of Indian Automobile Manufacturers (SIAM) reveals that sales to dealers declined for the first time in ten quarters during the September quarter. This decline is compounded by an even steeper drop of 4.5% in dealer sales to consumers during the same period, as reported by FADA, reflecting a challenging environment for the auto sector.

Globally, the German auto giant Volkswagen is reportedly planning to close three manufacturing plants in Germany as part of a broader strategy to downsize its remaining facilities and lay off tens of thousands of employees in a cost-cutting initiative amid a slowdown in sales.  

The company has recently reduced its sales and profit forecasts for the year and indicated last month that it is contemplating factory closures in Germany to enhance its competitiveness.

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