Auto Industry’s Gloom and Doom

The Indian auto industry is experiencing a dynamic phase, with varying performances across segments and stock market corrections shaping investor sentiment. Here’s an overview on the current Trends in the Auto Sector.

Strong Growth in Two-Wheelers and UVs
October 2024 witnessed a notable surge in two-wheeler and utility vehicle (UV) sales. Demand during the festive season and positive sentiments in rural and semi-urban areas were key drivers. Entry-level and executive motorcycle sales grew significantly, alongside sustained interest in premium bikes.

Tractor Sales Maintain Momentum
Robust monsoon rainfall, a promising Kharif crop, and higher minimum support prices (MSP) for Rabi crops contributed to a continued positive outlook for tractor demand. Major players like Mahindra & Mahindra (M&M) and Escorts reported solid year-on-year growth in this segment.

Mixed Trends in Passenger Vehicles (PVs)
Despite being October’s highest-ever sales, PV wholesale numbers showed only marginal growth of 0.9% year-on-year to 3.93 lakh units. Rising inventories have led to deeper discounts to boost demand. Sequentially, sales rose by 10%, driven by sustained demand for UVs, especially mid- to high-range models.

Commercial Vehicles Face Challenges
Sales of commercial vehicles (CVs) have been hit by erratic rainfall patterns, leading to uncertainties in economic activities and delays in investments. However, the government’s focus on infrastructure projects may improve the outlook for this segment in the long run.

Electric Vehicles on the Rise
The government’s push under the PM E-Drive Scheme has boosted retail sales of e-two-wheelers, with strong performances by players like Ola. The festive season and promotional discounts further supported growth in the electric segment.

Exports See Steady Growth
Automobile exports have been on an upward trajectory for the last four months, supported by a global economic revival. All major exporters, except Escorts, reported strong year-on-year growth in overseas markets.

Auto Stocks Under Pressure

Auto stocks have been hit hard by a recent market sell-off. Weak urban demand, high inventory levels, and a cautious outlook for FY25 have weighed on investor confidence. The Nifty Auto index, which rose sharply between October 2023 and September 2024, has since corrected by over 17%, eroding ₹5.79 lakh crore in market capitalisation. Key players like Tata Motors, Maruti Suzuki, and Bajaj Auto have seen significant declines in their stock values, reflecting the sector’s vulnerability to macroeconomic challenges and changing consumer sentiment.

Future Outlook for the Auto Sector

Short-Term Catalysts
The upcoming wedding season, with 4.8 million ceremonies scheduled in November and December, is expected to boost vehicle sales, particularly in the two-wheeler and PV segments. Favourable rural conditions, strong crop yields, and continued discounts may further drive demand.

Long-Term Considerations
While tractor and UV sales are likely to sustain their momentum, the PV segment faces challenges, with growth projections for FY25 revised downward to a possible decline of 1% year-on-year. The CV segment’s performance will depend on government spending on infrastructure and economic recovery.

Cautious Optimism for Stocks
The significant correction in auto stock prices has created valuation opportunities for long-term investors. However, earnings downgrades and tepid demand in certain segments suggest that the recovery in stock performance may take time. Analysts remain cautious about the outlook, particularly for urban-focused segments, even as rural demand shows resilience.

In conclusion, the Indian auto industry is navigating a mix of growth and challenges. While some segments like two-wheelers, UVs, and tractors are riding high on festive demand and rural optimism, others like PVs and CVs are grappling with uncertainties. For investors, the current scenario offers a mix of opportunities and risks, demanding a strategic and selective approach to the sector.

Market this week

Source: BSE and NSE

• The market extended losses for the second consecutive week, with sectoral indices showing mixed performance.
• Nifty Metal and PSU Bank indices declined by over 5% each, while Nifty FMCG and Healthcare fell more than 4%.
• Nifty Auto and Oil & Gas indices slipped nearly 4%, but the Nifty IT index gained close to 1%.
• Foreign Institutional Investors (FIIs) continued their selling spree, offloading equities worth ₹9,683.64 crore during the week.
• Domestic Institutional Investors (DIIs) maintained their buying momentum, purchasing equities worth ₹12,508.14 crore.
• In November so far, FIIs have sold equities worth ₹29,533.17 crore, while DIIs have bought ₹26,522.32 crore.
• The Indian rupee hit a fresh record low of ₹84.41 per dollar, ending the week marginally lower at ₹84.40 on November 14, compared to ₹84.37 on November 8.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

Hero MotoCorp, the world’s largest two-wheeler manufacturer, is optimistic about surpassing industry growth in the upcoming quarters. The company reported record festive season retail sales of 16 lakh units, driven by strong rural demand and new product launches. It expects a good monsoon and favourable economic conditions to sustain this momentum in the two-wheeler segment.

SpiceJet shares surged over 4% on November 14 after resolving a USD 90.8 million dispute with Export Development Canada for a settlement of USD 22.5 million. This agreement allows the airline to take ownership of 13 Q400 planes, resulting in cost savings of USD 68.3 million (₹574 crore).

Zomato and Jio Financial Services gained sharply on November 14 following their inclusion in the NSE’s futures and options (F&O) segment. Domestic brokerage JM Financial predicts that these stocks could be added to the Nifty 50 index in March 2025, potentially replacing Eicher Motors and BPCL, which may exit the benchmark.