Short Call: September auto sales could spur correction; slight revival in China not worrying India say experts; Hero MotoCorp, Aurobindo Pharma in focus

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The Nifty Auto index, after speeding ahead with nearly a 50 percent gain this year, might be nearing a sharp curve. Fueled by robust rural and urban demand, the sector's momentum could face a brake, as experts caution a steep correction could be on the cards. An early festive season has driven automakers to offer hefty discounts while slowing sales in passenger and commercial vehicles in September add to concerns that the rally could stall.

UBS points to aggressive discounting in the two-wheeler space on e-commerce platforms—set to continue through the festive season. Adding to the woes, this year’s early festivities, paired with the inauspicious ‘Shradh Paksha’ period, are expected to curb sentiment.

A high base effect, election-related uncertainties, and rising borrowing costs further cloud the outlook for auto stocks.

Looking at the overall picture, the Hang Seng index has had a solid month or so after rallying around 23 percent. FIIs may dial up their selling in Indian markets, but resilient retail investors are ready to seize opportunities in any dip, potentially softening the blow. Even veteran investor Mark Mobius remains bullish on India, noting that China’s recovery may be short-lived if businesses face undue pressure from Beijing.

Aurobindo Pharma (Rs 1,442, -1.3%)

Shares fell after the USFDA issued 10 observations for the arm of Apitoria's API manufacturing unit.

Bear case: UBS Securities writes that high exposure in US and EU generics has resulted in a low earnings growth trajectory at mid-single digit CAGR. New investments into business diversification will be needed to trigger growth on a high base, which would take time to yield significant results. High valuations amid concerns of growth moderation are another risk factor.

Bull case: Growth should be higher in the next two years due to new contributions from the Pencillin G production plant as part of the company's diversification plans. Continued contributions from blockbuster cancer drug Revlimid until January 2026 give Aurobindo room to invest in business diversification without increasing growth.

Muthoot Finance (Rs 197, -2%)

Reserve Bank of India directed gold financiers to review processes, identify lapses and take remedial measures within three months.

Bull Case: While Jefferies does believe that these tighter processes may hamper growth for gold financiers, it feels large gold non-bank finance lenders like Muthoot Finance should be better placed.

Bear Case: RBI's action is a sentimental negative for the gold financiers and will weigh heavy, analysts said. Additionally, despite the surge in gold prices to record high levels, shares of gold financiers have still witnessed muted performances in the near past.

(With inputs from Zoya and Vaibhavi)