Auto stocks skid; Maruti Suzuki, Hero MotoCorp, TVS Motor hit 52-week low

With no major direct measure to revive demand growth for the sector being announced in the Union Budget for the financial year 2019-20, stocks of the auto-makers skid to new lows

Shares of automobile manufacturers, including auto ancillary companies, were reeling under pressure with the Nifty Auto index hitting 52-week low on Monday after no major direct measure to revive demand growth for the sector was announced in the Union Budget for the financial year 2019-20 (FY20).

At 09:30 am, the counter was the biggest loser among sectoral indices and was trading 2.6 per cent lower at 7,646 mark, In comparison, the benchmark Nifty 50 index was down 1.1 per cent. The auto index hit a 52-week low of 7,634 during intra-day trade today. It has fallen below its previous low of 7,723 touched on June 20, 2019 on the NSE.

Among individual stocks, Maruti Suzuki India, TVS Motor, Hero MotoCorp, and Bosch dipped more than 2 per cent each to hit their respective 52-week lows on the NSE. Besides this, Motherson Sumi Systems, Bajaj Auto, Ashok Leyland and Apollo Tyres were down in the range of 3 per cent to 4 per cent.

“We have turned underweight in automobiles and have removed Ashok Leyland from model portfolio. We are now equal weight on M&M due to likely pressure on tractors, limited success of new SUV launches and higher exposure to diesel than other players," analysts at Prabhudas Lilladher said in their post-budget report.

The emphasis on electric vehicles supported by investments in creating infrastructure for the same is in contrast to the government's  push in BSVI and current state of auto industry, the report said.

The government, under Union Budget 2019, pitched to make electric vehicle affordable to consumers and proposed to provide additional income tax deduction of Rs 1.5 lakh on the interest paid on loans taken to purchase electric vehicles. This amounts to a benefit of around Rs 2.5 lakh over the loan period to the taxpayers who take loans to purchase such green vehicles.

Meanwhile, the demand across the automobile industry continued to remain subdued in June and witnessed a double-digit decline for the third consecutive month. Most of the original equipment manufacturers (OEMs) were forced to take production cuts in order to correct channel inventory.

Analysts at Reliance Securities expect the automobile industry to report muted volume performance in 1HFY20E, though it could improve in 3QFY20 with pre-buying ahead of BS-VI implementation. The brokerage firm expects marginal growth for FY20 across segments, while the industry is expected to witness cyclical downturn in FY21E.