Nifty Auto index fell 2-3% dragged by most of the OE stocks
Auto OE stocks have fallen 10-20% in the last couple of months
Mumbai: Weak sales and subdued quarterly results by most auto original equipment manufacturers (OEM) had set the stage for a fall in auto stocks. A 24 July notification proposing higher vehicle registration fees for new and old vehicles, has fuelled the fall.
Nifty Auto index fell 2-3%, dragged down largely by OEM stocks. OEM stocks have declined 10-20% in the last couple of months, with most of them trading below or close to their 52-week lows.
A report by Nomura Research on the proposed vehicle registration fees said “if the notification goes through, it will hurt sales of the already struggling auto sector. Two-wheelers will be hit harder due to higher cost increase for them of about 2.5% followed by cars and medium and heavy commercial vehicles of around 1%."
This would further dent demand for automobiles.
Higher insurance cost, road tax, and registration fees are all ex-showroom costs which are not financed. Hence, they have a direct impact on the buyer’s cost. All this comes in the backdrop of June quarter being one of the worst in terms of auto sales across segments.
Meanwhile, April-June results reflect the stress in auto industry. Revenue was flat or lower for most companies, while weak sales volumes and the resultant poor capacity utilisation with production cuts, led to pressure on margins. Cost of raw material as a percentage to sales rose, in spite of softer commodity prices. Passenger car leader Maruti Suzuki India Ltd may have weathered the headwinds, but its profitability was hit.
Tata Motors Ltd margins slipped into single digit as weak luxury car sales globally along with falling commercial vehicle sales in domestic markets hit performance. Two-wheeler firms such as Bajaj Auto Ltd and TVS Motor Company Ltd also reported a fall in their respective margins, but were largely in line with market forecast.
As the market and industry incessantly hanker for sops from the government to boost near-term demand, the government’s thrust is clearly on encouraging the adoption of electric vehicles. If anything, all depends on how the monsoon pans out, and hope that the festival season will boost demand in the short term.