India’s auto sector is in the middle of a slump as high purchase costs, demand slowdown, regulatory pressures, change in emission norms and liquidity crisis bite. To revive sentiment and encourage buying, auto companies are offering higher discounts, which will likely impact their margins in coming quarters.
A dealer survey, global brokerage CLSA has said, showed continued demand weakness and high inventories. Dealers have not seen even the usual seasonal uptick in demand, it added.
Hence, the research firm remains cautious on the sector and says it is crucial that the demand picks up during the festive season.
As a result, CLSA has negative stock ratings on 70 percent of its Indian auto coverage.
Also, dealer United Automobiles told CNBC-TV18 that discount schemes among original equipment manufacturers were double of those during the last festive season.
The persistent slowdown is reflected in the share prices of auto companies. In the last one year, the Nifty Auto index has fallen 34 percent against a 4 percent decline in the Nifty50.
In August, most auto companies reported a double digit year-on-year decline in monthly sales, though two-wheeler manufacturers showed a moderate increase.
Ashok Leyland posted a 47 percent decline in August sales YoY, Tata Motors (domestic) reported 49 percent fall and Mahindra & Mahindra 23 percent, while Maruti Suzuki, the country's largest car maker, showed a 33 percent decline.
Among two-wheelers, Bajaj Auto's sales fell 10 percent, Hero MotoCorp 21 percent, Eicher Motors 24 percent and TVS Motor 16 percent compared to year-ago month.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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