Auto pain spreads: Stocks bleed after May sales plunge to 18-year low
The BSE Auto index was among the worst performers in Wednesday’s trade.
The slump, attributed to weak demand amid national elections and distress in rural income, has forced auto manufacturers to sharply cut production.
The BSE Auto index was among the worst performers in Wednesday’s trade, even as the benchmark Sensex traded some 250 points down around midday.
Out of 16 auto index stocks, 14 traded with deep cuts. At 1:10 pm (IST), Maruti Suzuki traded lower by 1.52 per cent, Bajaj Auto 1.48 per cent, TVS Motor Company 1.41 per cent, Hero MotoCorp 1.09 per cent and Mahindra & Mahindra 0.81 per cent.
On a month-on-month (MoM) basis, May sales grew 4 per cent to 20,86,358 units, but on a year-on-year basis, they were down 9 per cent.
All segments of the market reported drop in monthly volume; PV and commercial vehicle (CV) segment witnessed the highest decline of 21 per cent and 10 per cent, respectively.
Among commercial vehicles makers, shares of Ashok Leyland traded 1.21 per cent lower at Rs 90.10 and those of Tata Motors traded 0.50 per cent down at Rs 169.80.
Auto inventories continued to remain high despite de-stocking and production cuts by carmakers.
PV sales declined for a seventh straight month in May to 2,39,347 units against 3,01,238 units in the year-ago month. Barring October last year, when sales grew 1.55 per cent, PV offtake has been in the negative for 10 months now.
The auto sector has also been facing the heat globally due to the US-China trade war and concerns over global economic slowdown.
In China, auto sales fell 16.4 per cent in May against the corresponding month a year ago, marking the 11th consecutive month of decline in the world's largest vehicle market.
“We expect the slowdown to continue, as rural demand is not picking up due to the liquidity crisis in NBFC space and various rural markets are showing the brunt of last year’s monsoon deficit," said Reliance Securities.
The industry faces multiple challenges including a spike in prices in select segments because of new safety norms, higher insurance costs and the forthcoming shift to BS-VI emission norms.
India's largest two-wheeler maker Hero MotoCorp Tuesday said the plan to shift towards electric mobility at a time when the manufacturers are trying to upgrade their models to comply with BS-VI emission norms could have a serious impact on the industry.
The comments come in response to media reports that the government was considering a proposal to ban the sale of internal combustion engine (ICE) three-wheelers by 2023 and two-wheelers with less than 150 cc capacity by 2025.
The clamour for government's intervention to stem the slowdown in the auto sector is growing louder. The industry has been seeking a cut in the GST levy and corporate tax rate.
The industry’s hopes now hinge on the progress of monsoon. Some analysts say the forthcoming festival season may revive some demand as will the pre-buying expected just before the shift to costlier new emission standards.