TaMo, Maruti, SMIL tumble up to 23% in one month; analysts say 'buy dips'

Analysts say with the recent correction, downside risk is now limited, giving an opportunity to long-term investors

Shares of leading auto majors and auto component firms are struggling on the bourses for a while now. In last four weeks, some of these stocks have plunged up to 23 per cent. During this period, Samvardhana Motherson International (SMIL) has slipped 22.8 per cent, Exide Industries by 21.1 per cent, Bajaj Auto by 20.3 per cent, Hero MotoCorp by 17.1, and Tata Motors by 16.5 per cent.

 

Others such as Bosch, TVS Motor Company, Maruti Suzuki India Ltd (MSIL), Bharat Forge, and MRF have plummeted in the range of 15-8 per cent in the last two weeks of October and first two weeks of November.

 

 

Meanwhile, Nifty Auto has crashed 13.4 per cent in the same period, as compared to Nifty50’s drop of 6.3 per cent. The downturn has come due to fears of a sustained (weak) demand outlook for passenger and commercial vehicles.

 

Analysts believe that the correction has taken place due to weak monthly sales, high inventory levels at dealerships, and a slowdown in production as manufacturers are adjusting to lower demand. “Although some of the inventory was cleared during the festive season, we don’t yet know the full picture of how much stock remained at dealerships at the end of October," said Deepak Jasani, head of retail research at HDFC Securities.

 

In a recent interview with Business Standard, MSIL Chairman R C Bhargava had said that the pent-up demand for cars that emerged post-pandemic, combined with supply constraints like non-availability of semiconductors affecting production, has now dissipated.  Also Read: Pent-up demand for cars now over; growth will be only 3-4%: Maruti Chairman

 

“This year, we are seeing negative growth in the sub-Rs 10 lakh car segment, which represents two-thirds of the market. Only the over-Rs 10 lakh segment is growing, so overall growth is muted,” Bhargava had said.

 

According to the Federation of Automobile Dealers Associations (FADA), in the first half of the current financial year (H1FY25), the Indian auto retail sector saw overall growth of 6.55 per cent. 

 

In September this year, the auto retail sector saw a 9.26 per cent year-on-year (Y-o-Y) decline in overall sales, with two-wheelers (2Ws) down 8.51 per cent, passenger vehicles (PVs) down 18.81 per cent, and commercial vehicles (CVs) down 10.45 per cent. For October, there was seasonal improvement in growth due to festive demand, where 2Ws saw an 11 per cent Y-o-Y growth, tractors surged by 29 per cent, and PV sales grew by 4 per cent, while three-wheelers (3Ws) declined by 3 per cent.

 

According to analysts, growth of the pre-owned vehicle market, higher interest rates, and less parking infrastructure are suppressing the overall auto demand.

 

“The pre-owned vehicle market is growing in double digits, while the new car market is seeing single-digit growth. This shift reflects changing consumer preferences for more affordable options. Also, since more than 85 per cent of vehicles are bought on EMI, high interest rates are a key factor limiting demand. India’s monetary policy is working counterproductively, particularly affecting consumer spending on discretionary items like cars," said Deven Choksey, managing director at DRChoksey FinServ.

 

Investment strategy

 

Despite weakening demand, analysts say that with the recent correction in auto stocks, the downside risk is now limited, giving an opportunity to long-term investors.

 

According to Jasani, auto stocks may still face challenges in the short term, but he expects a recovery in a few weeks due to the kick-start of the harvest season in rural areas. He prefers the 2W segment, due to attractive valuations, as the PV space may take more time to recover.

 

Meanwhile, Choksey said that Tata Motors remained a favourite due to its strong CV business, growing JLR portfolio, and focus on electric vehicles (EVs), though the stock is priced in for now. Maruti and Hyundai, on the other hand, are less attractive, according to him, due to slower growth from a larger base.

 

“In the two-wheeler segment, Bajaj Auto stands out for its strong export business, which contributes 50 per cent of sales, and its expanding portfolio of new models, including flex-fuel and electric vehicles," Choksey said.