At close, the Nifty Auto
index stood at 7,020.75 levels, down 3.83 per cent, as compared to 1.69 per cent decline in Nifty 50 index. In the last six trading days, between September 4 and 13, the auto index has outperformed the market by surging 8.5 per cent, against a two per cent rise in the benchmark index.
The automobile industry has been facing challenges since past three quarters in terms of additional burden of new insurance policy, constraints on loan disbursement from financial institutions and higher axle load norm impacting commercial vehicle (CV) sales, say experts.
“The decline in Q1FY20 has gotten worse in Q2FY20 and the start of the festival season (Ganesh Chaturthi in Maharashtra and Onam in Kerala) has started on a weak footing. Companies have built-up stock in anticipation of growth in retail YoY during the festival season, which seems unlikely, in our view,” analysts at Elara Capital said in a note.
Owing to the transition of BSIV to BSVI, analysts believe companies could have to take further production cuts post the season, if growth does not come through. The brokerage firm sees downside risks to its FY20E 2W growth assumption of 7 per cent.
“Going forward, we expect slowdown to continue, as rural demand is yet to pick up pace due to liquidity crisis in NBFC space, while several rural markets
are impacted by excess rainfall creating temporary disruption. After inventory destocking, existing inventory continues to remain at higher-than-normal level for most players, which would continue to impact the wholesale dispatches in 2HFY20E, in our view,“ Reliance Securities said in a sector update.