Nifty Auto stocks lose nearly ₹6 lakh crore in market cap amid recent selloff

Indian auto stocks have been among the biggest casualties of the recent market sell-off. A combination of factors, including weak demand from urban consumers, rising inventory levels, a drop in UV sales, ongoing weakness in the entry-level car segments and a cautious outlook for FY25 from car manufacturers, has shaken investor confidence.

Earnings downgrades by brokerages have intensified the uncertainty, prompting investors to lock in profits following the relentless rally in auto stocks from October 2023 to September 2024.

Adding to uncertainties is the flare-up in retail inflation, which hit a 14-month peak in October. It has raised concerns of a further slowdown in urban sales and diminished hopes for RBI rate cuts in FY25, pressuring the rate-sensitive auto sector.

Consequently, the Nifty Auto index tumbled 13% in October, and the fall extended into November, with the index shedding another 2.6% so far. From its peak of 27,696, attained in late September, the index is down 17.24%.

Among the 15 constituents in the index, 14 stocks are currently trading with declines ranging from 13% to 34.3% from their one-year peaks, with Tata Motors and Exide Industries leading the pack of losers.

This significant correction in stock prices has resulted in a sharp erosion of the market capitalisations of these companies. For instance, Tata Motors has seen its market capitalisation shrink by ₹1.48 lakh crore, as the stock has fallen 34.33% from its recent high.

At its peak, the market capitalisation of Tata Motors stood at ₹4.33 lakh crore when the stock reached an all-time high of ₹1,179 per share. Similarly, Bajaj Auto's market capitalisation touched ₹3.56 lakh crore when its stock hit a record high of ₹12,774 apiece in late September.

However, the stock has failed to sustain its momentum and is now trading 26% lower from that peak, leading to a loss of ₹92,000 crore in market value for the company. In a similar trend, Maruti Suzuki India’s market capitalisation has dropped from ₹4.3 lakh crore to ₹3.46 lakh crore, marking an erosion of ₹84,000 crore.

Overall, the combined market capitalisation of all Nifty Auto companies has fallen from a peak of ₹26.74 lakh crore to ₹20.95 lakh crore, marking a decline of ₹5.79 lakh crore.

PV sales grow marginally in October despite festival demand

After three consecutive months of decline, wholesale passenger vehicle (PV) sales saw a marginal recovery in October, rising by 0.9% year-on-year to 3.93 lakh units, according to SIAM data, despite two major festivals during the month. This was still the highest October sales on record.

To stimulate demand amid rising inventories, automakers have announced larger discounts on their top-selling models. However, the modest growth in sales highlights the continued weakness in urban consumer spending.

Sequentially, PV sales rose 10% from 3.57 lakh units in September 2024. In contrast, two-wheeler (2W) sales showed stronger momentum in October, driven by sustained demand from rural areas.

Two-wheeler wholesales recorded robust growth of 14.2% year-on-year, reaching 21.64 lakh units, as per SIAM data.

The retail passenger vehicle sales experienced growth of 32% YoY and 75% MoM in October. However, despite strong sales, PV OEMs continue to heavily stock dealers, resulting in inventory levels decreasing by only five days, with overall inventory still at a high of 75–80 days.

This may thus result in the season of substantial discounts continuing until the end of the calendar year, said FADA.

Following the COVID-19 pandemic, PV sales saw significant growth, largely fueled by the rising demand for utility vehicles (UVs), leading to double-digit growth in FY22 and FY23. However, growth moderated to 8% in FY24, with projections now suggesting sales growth may fall below 5%.

Kotak Institutional Equities in its latest report has revised its forecast for domestic PV wholesale volumes in FY25, with the brokerage now expecting a 1% year-on-year decline as against an earlier estimate of 3% growth.

Wedding boom expected to fuel sales

With an estimated 4.8 million weddings scheduled nationwide in November and December 2024, the auto sector is bracing for an unprecedented surge in demand for wedding-related goods and services. Vehicle purchases, which traditionally see an uptick during the wedding season, are also expected to benefit. 

FADA anticipates this will drive strong sales in both the two-wheeler and passenger vehicle segments in the near term. In the 2W category, positive factors like good crop yields, favourable rural sentiment, and the upcoming marriage season are expected to boost demand. 

For PVs, the marriage season and ongoing promotional offers are likely to sustain interest. However, FADA remains cautious, as customers might delay purchases in anticipation of more attractive year-end discounts.

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.