Stock Market

Covid-19 Impact: Auto stocks lose wheels as virus disrupts supplies

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Mumbai: For a year and a half, auto stocks in India have fallen out of the shopping list of D-Street investors, mimicking the industry’s downhill sales charts.

But this year has been singularly brutal, with the Covid-19 outbreak pummelling an industry that relies on supply chains in East Asia to run its factories. The Nifty Auto index has fallen 26.9 per cent this year to date, as against a 21.2 per cent decline in the benchmark Nifty-50.

The auto index closed at 6,033.4 on Thursday – the lowest since April 2014 – after falling 8.15 per cent over the previous close.

“There were expectations in the market that one will start seeing an uptick in volumes for automakers in the next couple of quarters but that hope seems to be lost now,” said Gaurav Dua, head of capital market strategy at Sharekhan. Dua said that the falling demand and a possible halt in production lines can eat into the margins of automotive companies.

The country’s largest carmaker Tata Motors’ stock has fallen 52 per cent in 2020.

It closed at Rs 88.95 per share on the NSE on Thursday after declining by more than 10 per cent.

Tata Motors’ subsidiary Jaguar Land Rover’s sales fell over 80 per cent in February in China – its single largest market.

The British company accounts for over 80 per cent of Tata Motors’ consolidated revenue.

Other big value losers were Motherson Sumi Systems, Apollo Tyres, Amara Raja Batteries, Bharat Forge, and Ashok Leyland – all of them falling over 25 per cent since the start of this year. Stocks of automotive companies had fallen due to a sustained demand downturn in the domestic market since October 2018. Margins of automakers were under pressure since plants were running much below full capacity.

When macroeconomic cues are not good, sectors like automobile and real estate tend to not do well, said Chokkalingam G, founder of Equinomics Research - Advisory.

This resulted in a value correction for these stocks.




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