Auto index skids 2% on tepid July sales; Maruti, TaMo, Eicher slip up to 5%

Auto stocks update: The overall wholesale volume performance was subdued in July 2024 with some segments like PV, CV and select two-wheeler players' volume reporting weak sales volume.

Shares of automobile and its related companies were under pressure with the National Stock Exchange (NSE) Auto index falling over 2 per cent on profit booking post July sales numbers.

Tata Motors, Eicher Motors and Maruti Suzuki India were down in the range of 3 per cent to 5 per cent. Mahindra & Mahindra (M&M), Hero MotoCorp, TVS Motor Company and Bajaj Auto were down between 1 per cent and 2 per cent.  While, Cummins India and Apollo Tyres slipped 9 per cent and 3 per cent, respectively, in intra-day trade on Friday.

At 12:02 pm; the Nifty Auto index, the top loser among sectoral indices, was down 2.3 per cent, as compared to 0.9 per cent decline in Nifty 50. Despite today’s decline, thus far in the calendar year 2024, the Auto index has outperformed the market by surging 38 per cent, as against 14 per cent rally in the benchmark index. In the past one year, Nifty Auto index has zoomed 65 per cent, as compared to 27 per cent surge in Nifty 50.

Overall, the wholesale volume performance was subdued in July 2024 with some segments like passenger vehicle (PV), commercial vehicle (CV) and select two-wheeler players’ volume reporting weak sales volume.

Domestic passenger vehicle industry volumes are expected to have declined year-on-year (YoY) due to inventory correction amid weak demand trends. The domestic two-wheeler wholesale segment volumes are expected to have grown in high single digit YoY. However, the performance was mixed with few players reporting volume decline YoY, Kotak Securities said on July wholesale volume performance.

With the Nifty Auto index’s valuation rising above the 10-year mean overlooking volume trend & commodity cost rise, we retain our Neutral rating on auto sector, the brokerage firm InCred Equities said.

Meanwhile, ICICI Securities expect 2-W space to achieve double digit volume growth in FY25E, amidst forecast of normal to positive monsoons 2024, increased government spending on rural economy and various state & centre government schemes benefitting the low income strata group.

The recent uptick in rainfall activity across the country bodes well for the domestic tractor market, supported by broader forecast of normal to positive monsoon season 2024. Both the tractor players however have sounded caution on rise in rubber prices impacting near term profitability, the brokerage firm said.

As regards to PV, most of the players have guided for low single-digit volume growth for FY25E (on a high base) with M&M expected to outperform peers amidst healthy orderbook, robust response received to its recent launch XUV 3XO as well as planned rise in production capacity (FY24 exit capacity at ~50k units), it added.

Within CV space, M&HCV buses segment continued to perform better than trucks. With growth-oriented policy continuity at the centre the brokerage firm said it expects industry volumes to fare well in H2FY25. The industry guidance is for neutral to +5 per cent volume growth for FY25E.