Exide Industries, Tata Motors, M&M, and 7 other auto stocks drop up to 24% from recent highs

Auto stocks are experiencing significant selling pressure for the second consecutive month in September, with passenger vehicle (PV) manufacturers bearing the brunt of the decline. This extended downturn in the auto sector is primarily driven by mounting concerns among PV manufacturers over reduced consumer spending, which has led to a substantial buildup of inventory.

Dealers are reportedly struggling to clear existing stock, prompting automakers to introduce discounts on popular models in an effort to offload unsold inventory. While these price cuts are aimed at boosting sales, there is growing concern that offering such hefty discounts could negatively affect their profit margins, exerting more pressure on the stocks. 

Industry experts warn that if this trend continues, the combination of lower sales and reduced margins could place additional pressure on automakers' financial performance in the coming quarters.

FADA is raising SOS signals as PV retail sales fell by 3.46 percent MoM and 4.53 percent YoY in August. Even with the arrival of the festive season, the market remains under significant strain due to delayed customer purchases, poor consumer sentiment, and persistent heavy rains.

FADA President, Mr Manish Raj Singhania, said that inventory levels had reached alarming levels, with stock days now stretching to 70-75 days and inventory totalling 7.8 lakh vehicles, valued at an alarming ₹77,800 crore. Rather than responding to the situation, PV OEMs continue to increase dispatches to dealers on a MoM basis, further exacerbating the issue, he added. 

For the first time in two years, passenger vehicle (PV) sales dropped by 2.5 percent in July, with the decline continuing into August. While automakers have seen an increase in utility vehicle (UV) sales, sedans and hatchbacks have taken a backseat as consumers continue to prefer SUV vehicles.

Maruti's domestic passenger vehicle (PV) wholesale volumes saw an 8 percent year-over-year (YoY) decline in August. The entry-level segment remained weak, dropping 19 percent YoY, partially offset by a 7 percent YoY rise in utility vehicle (UV) sales.

Tata Motors total PV sales stood at around 44,500 units, reflecting a 3 percent YoY decrease and a 1 percent MoM decline. Hyundai's domestic PV sales reached about 49,500 units, down 8 percent YoY but up 1 percent MoM.

Toyota reported total PV sales of around 28,500 units, marking a 37 percent YoY increase but a 3 percent MoM drop, led by strong demand in the SUV and MPV segments. 

MG Motor posted PV sales of roughly 4,600 units, up 9 percent YoY with flat MoM growth, with more than 35 percent of sales coming from New Energy Vehicles (NEVs).

While PV sales continue to drag, two-wheeler sales have seen an uptick in August as two-wheeler OEMs reported double-digit YoY volume growth, led by recent launches. Near-term two-wheeler demand also remains contingent on response to new launches and rural sentiments. 

JM Financial's recent note said E2W momentum is also expected to gradually pick up, led by OEMs’ focus on new affordable launches, production, and distribution expansion. 

10 auto stocks fell up to 24 percent from their recent highs.

The Nifty Auto Index closed the first week of September with a 2.47 percent decline, marking its biggest weekly drop since March 2024. The index is now trading 5.5 percent below its recent peak, with all 15 constituents trading below their highs. Exide Industries led the losses, dropping 24 percent.

Similarly, stocks of passenger vehicle (PV) manufacturers like Tata Motors, Maruti Suzuki India, and Mahindra & Mahindra have declined between 10 percent and 13 percent from their recent peaks.

Bharat Forge, Balkrishna Industries, MRF, Samvardhana Motherson, and Apollo Tyres are also trading up to 13 percent below their recent highs.

Should you invest in auto stocks?

In its latest report, InCred Equities maintained a ‘neutral’ rating on the auto sector. It noted that the sharp rise in the NSE Auto index has pushed forward P/E valuations above the 10-year average while volume growth remains selective. The recent underperformance of the Nifty Auto Index compared to the broader market aligns with the brokerage's expectations.

Their stock preferences are ranked with Maruti Suzuki, Hero MotoCorp, and Ashok Leyland receiving an ‘add’ rating. The brokerage reiterated its ‘reduce’ rating on Tata Motors and TVS Motor Company, citing that the weakness in their sales volumes is not fully reflected in their high valuations. Mahindra & Mahindra (M&M) holds a ‘hold’ rating, while Escorts Kubota in the tractor segment is rated ‘reduce’ due to the gradual recovery in tractor demand.

In the two-wheeler segment, InCred favours Hero MotoCorp and Bajaj Auto over Eicher Motors and TVS Motor Company. They believe Hero’s market share losses are at a seasonal low and expect a recovery during the festive season, particularly against Honda.

In the auto ancillary sector, the brokerage has an ‘add’ rating on Bharat Forge, Endurance Technologies, and Balkrishna Industries but a ‘reduce’ rating on Bosch, Apollo Tyres, and Exide Industries. 

InCred has given Samvardhana Motherson International (SAMIL) a ‘hold’ rating.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.