Crude oil surge impact: Auto, metal shares plunge up to 4.5%; Tata Motors PV, M&M, JSW Steel lead losses

Metal, auto shares see profit booking in trade.

• Auto and metal shares fell up to 6 percent as crude prices surged.
• Nifty Metal index fell 4%, all stocks in red.
• Higher crude prices increase costs, squeezing margins and demand.

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Auto and metal shares fell up to 6 percent in Monday’s trade as a surge in crude oil prices dampened investor sentiment.

The Nifty Metal index extended losses for a second straight session, dropping nearly 4 percent during the day. Steel Authority of India led the decline, falling about 6 percent. Jindal Stainless and Tata Steel also slipped 4.39 percent and 3.94 percent, respectively.

All the 15 constituents of the Nifty Metal index were trading in the red.

Shares in the metal pack came under pressure as higher crude prices raised concerns over input costs. Metal production is energy-intensive, and a rise in fuel prices increases expenses related to mining, smelting and refining. Higher transportation costs for moving raw materials and finished products also add to the pressure.

Market participants said that unless companies are able to pass on higher costs to customers, rising energy prices could compress margins and weigh on valuations.

Analysts also noted that persistently high oil prices could slow global economic growth, potentially affecting demand for industrial metals.

Meanwhile, shares of several automobile and auto component manufacturers declined significantly, dragging the Nifty Auto index down to a six-month low of 25,733.50 points. Analysts attributed the drop to growing worries that a potential shortage of natural gas, amid escalating tensions in West Asia, could disrupt production at automobile manufacturing facilities.

On Friday, Informist, citing a senior official from Gujarat Gas Ltd., reported exclusively that Tata Motors Passenger Vehicles is currently facing a severe shortage of natural gas and propane at its Sanand manufacturing plants. The company may have to reduce production by as much as 50 percent. Gujarat Gas supplies fuel to these facilities, where the gas is primarily used to operate paint-shop ovens.

The development has raised concerns that similar fuel shortages could affect other automobile manufacturers as well, potentially forcing them to scale back production.

In addition, analysts warn that prolonged instability in natural gas supply could also affect Taiwan’s energy-intensive semiconductor industry. Such disruptions may lead to chip shortages and higher semiconductor prices. According to a CNBC-TV18 report citing analysts, any renewed shortage of chips in the automobile sector could further constrain vehicle output while pushing up input costs for manufacturers.

Auto stocks also remained under pressure, with all 15 constituents of the Nifty Auto index trading lower. The index has declined about 5.5 percent over the past two sessions.

UNO Minda and Tata Motors Passenger Vehicles were among the major laggards, declining up to 6 percent. Shares of Mahindra & Mahindra and Tata Motors also saw selling pressure.

Auto shares also typically react negatively to rising crude oil prices as higher fuel costs tend to stoke inflation concerns. This can reduce the likelihood of interest rate cuts by the Reserve Bank of India, keeping borrowing costs elevated. Higher loan rates can impact demand for vehicles.

(Inputs from Informist)

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