Auto stocks slide up to 27% in 3 months despite strong demand

The selloff has been widespread across OEMs and ancillary companies, with major players witnessing sharp corrections.

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Auto stocks have taken a sharper knock than the broader markover the past three months falling up to 27 per cent despite a good quarter where vehicle demand remained healthy on the back of GST-led push. As the geopolitical risks pose challenges on the margins front, investors weigh-in higher input costs, crude volatility and potential supply-side disruptions. Should they invest?The selloff has been broad-based across original equipment manufacturers (OEMs) and ancillary players. Among major laggards, Maruti Suzuki India has declined 27 per cent, followed by UNO Minda (-21 per cent), M&M (-20 per cent) and Ashok Leyland (-20 per cent). Exide Industries has slipped 18 per cent, while Tata Motors PV (TMPV) is down 17 per cent. Bosch and Hero MotoCorp have each corrected 15 per cent, with Eicher Motors shedding 12 per cent. Mid-tier names like Somvardhana Motherson and TVS Motor are down 10 per cent each while Bajaj Auto has shown relatively better resilience with an 8 per cent decline.However, select pockets have bucked the trend. Tube Investments has remained flat with marginal gains, while Sona BLW Precision Forgings has risen 7 per cent and Bharat Forge has surged 13 per cent.

Meanwhile, sector benchmark Nifty Auto index has fallen 16 per cent during the period while Nifty has delivered a 12 per cent decline.

The Iran-Israel war has been a big sentiment spoiler as the Nifty Auto plunged 15 per cent in March after a solid February when the index returned over 5 per cent monthly returns.

Auto stocks have begun April on a positive note just ahead of the Q4 earnings that begins on Thursday (April 9).Sudeep Shah, Vice President & Head of Technical and Derivative Research Desk at SBI Securities expects autos to continue their underperformance in the near term. Decoding the technical charts, Shah said they are trading below their key moving averages with bearish momentum indicators at play.Shah further warns investors against the possibility of rate hike if the Iran-Israel/US war continues and inflation picks-up. A status-quo would trigger a short-term relief rally, he added.

The Reserve Bank of India (RBI) began its three-day MPC meeting on Monday and will announce the policy outcome on Wednesday, April 8. The Central Bank is expected to leave rates unchanged.

Q4FY26 expectations

According to Motilal Oswal Financial Services (MOFSL), demand momentum in Q4 has remained healthy, supported by steady rural recovery and continued traction across segments. However, the brokerage flags emerging headwinds due to geopolitical tensions in West Asia, which have pushed up commodity and freight costs. While companies have so far managed gas supplies and supply chains efficiently, sustainability remains uncertain if the conflict persists.

The sharp rise in input costs across commodities during the quarter is expected to start impacting margins from Q1FY27 onwards, the brokerage said in a note, highlighting that elevated crude prices also pose a risk to India’s macroeconomic growth, particularly affecting the commercial vehicle (CV) cycle. Meanwhile, export-oriented companies are additionally facing rising freight costs, further squeezing profitability.

Reflecting these pressures, MOFSL has cut earnings estimates across its coverage universe, with deeper downgrades for FY27 compared to FY28. Notable cuts have been seen in CEAT (-22 per cent), Hyundai Motor India (-16 per cent) and Apollo Tyres (-14 per cent). That said, the brokerage expects input costs to stabilise in the second half of the next fiscal, which could provide some relief.

Stocks to buy

MOFSL’s top picks among OEMs include Maruti Suzuki, TVS Motor and M&M, while in the ancillary space, it favours names like Motherson Wiring, SAMIL and Endurance Technologies.

Under current circumstances, Emkay prefers 2Ws and commercial vehicles (CVs) over passenger vehicles (PVs) owing to a similar demand trajectory, albeit better pricing flexibility amid commodity pressures. Within 2Ws, its preferred picks are TVS Motors and Ather on structural basis followed by Bajaj Auto, which in its view, offers a better risk-reward and has earned an upgrade from the brokerage.

In CVs, it prefers to play the upcycle with Tata Motors CV while picking Shriram Pistons, Craftsman Automation, JK Tyre, and Pricol in the ancillary segment.

(Disclaimer: The recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times.)