Valuations, weak demand slow auto bull run
vehicle demand. The Nifty Auto index has declined over 11% in the past month as against the 5.7% decline in the benchmark Nifty. Analysts said the Auto index could drop at least 10-15% from the current levels.
«Post-Covid, auto shares have experienced a bull run, and despite some adjustments over the past six months, valuations remain stretched,» said Krishna Appala, senior research analyst, Capitalmind Research. «If earnings growth doesn't hold up, corrections of around 10-15% are likely, as share prices have already surged over the last three years.»
Since April 2020, the Nifty Auto Index has surged 430% as against the 201% up move in the Nifty. Among auto shares, Maruti Suzuki gained 186%, Tata Motors soared 1,250%, Mahindra & Mahindra jumped 892%, Bajaj Auto rose 390% and Hero Motocorp advanced 212%.
The elevated valuations in auto shares after the run-up in the share prices prompted Hyundai Motor India to launch the country's largest IPO of ₹27,870 crore. The mega Hyundai IPO might have signalled a top for auto shares, reflecting in the stock making a weak debut on the bourses on October 22. The stock is currently 7% below its issue price.
«The Hyundai IPO earlier this month marked the peak of valuations in the sector, with Hyundai trading at 27 times price to earnings (PE) ratio, while market leader Maruti Suzuki is trading at 24 times PE,» Appala said.
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