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Maruti Suzuki, Eicher shares down 3%, Bajaj Auto slips 2%; what's fuelling decline in auto stocks?

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Auto stocks decline: The shares of most automobile companies including Maruti Suzuki, Tata Motors, Bajaj Auto and Eicher Motors, witnessed correction on Tuesday amind a negative trend in the market.

Maruti Suzuki, Eicher shares down 3%, Bajaj Auto slips 2%; what's fuelling decline in auto stocks?
Shares of automobile companies such as Maruti Suzuki, TVS Motor Company, and Ashok Leyland among others slipped in the red on Tuesday amid a negative trend in the market. The sectoral gauge was down almost 1.5 percent on the Bombay Stock Exchange (BSE) with Eicher Motors, Maruti Suzuki, and Bajaj Auto being the top laggards.
Maruti Suzuki shares slipped 3.2 percent to an intraday low of Rs 7,992.20 following negative commentary by CLSA. The brokerage said safety norms in Maruti cars need to be tightened as its models lag peers like Tata Motors and M&M in global NCAP safety ratings.
Also, Transport Minister Nitin Gadkari on Friday made it compulsory for private vehicles carrying up to eight passengers to have six airbags. This implies the four-wheelers that fit the bracket must have two side torso airbags and two side curtain airbags, covering all outboard passengers. The driver seat and co-passenger seat airbags were made mandatory in July 2019 and January 2022, respectively.
Meanwhile, the government has issued a draft notification to make six airbags compulsory for all cars from October 1, 2022.
According to CLSA, this is likely to increase the cost of cars by Rs 16,000, as the average cost of an airbag is Rs 4,000. If the notification goes through, Maruti Suzuki would be the most impacted as 70 percent of its domestic volume comes from hatchbacks and entry-level sedans, the brokerage firm said. It maintained its ‘sell’ rating on the stock with an unchanged target price of Rs 6,420.
At 12:50, the stock of India’s largest carmaker was down 2.75 percent to Rs 8037.80 on BSE and the shares slipped 2.65 percent to Rs 8,046.25 on NSE.
Eicher Motors shares also corrected nearly 3.5 percent to an intraday low of Rs 2744.65 on BSE. The Bajaj Auto stock on the other hand slipped 2 percent whereas Ashok Leyland shares were down over a percent.
Tata Motors shares too remained in the negative territory, except for briefly rising following the announcement of a hike in prices of cars in the passenger vehicles segment. The auto major has announced an average price increase of 0.9 percent, depending on the variant and model, from January 19 onwards.
The stock slipped over a percent intraday and was down 0.11 percent to Rs 524.40 on BSE at the time of writing.
The downtrend in the auto stocks came a day after they surged on the back of the government’s decision to make it compulsory for private vehicles carrying up to eight passengers to have six airbags.
Rupen Rajguru, Head-Equity Investment and Strategy at Julius Baer, said autos is a rotation call for the private banking company. While all are cognizant of the fact that this industry is in for disruption, the stocks can probably give good returns over the next one year, he said.
According to Rajguru, the base effect will come into play, the commodity prices are kind of softening and most importantly, the chip shortage also will get resolved. Given these three factors, probably from a tactical perspective, next three to six months, Julius Baer believes auto as one that will bounce back.
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