Slowdown Effect: Out of 15 stocks on Nifty Auto index, 14 have fallen 14-40% this year

The auto sector is facing its worst crisis in two decades with reports suggesting thousands of job losses in the automobile and ancillary industry. Consumption slowdown along with the upcoming shift to BS-VI standards might further decelerate production and result in job losses.

According to the recent data released by Society for Indian Automobile Manufacturers, the sector slashed production by over 11 percent in July. Commercial Vehicle production came down by 26 percent and Passenger Vehicle production came down by 16.5 percent.

With such pressure in the auto industry, 8 out of the 15 stocks from the Nifty Auto index have wiped off more than 30 percent gains since the beginning of this fiscal year. Bajaj Auto is the only stock that has continued to be in the green, with marginal returns of 0.06 percent this year.

The maximum fall was witnessed by Motherson Sumi Systems which fell over 40 percent. Among other stocks that dipped more than 30 percent are Tata Motors, Apollo Tyre, Bosch, Exide Industries, M&M, Ashok Leyland and TVS Motor. MRF declined 13.78 percent this year.

Six other stocks including Eicher Motors slipped between 14 and 29 percent this year.

According to Edelweiss, domestic factors, rise in regulatory cost, stiff competition from burgeoning pre-owned vehicle segment and substantially higher margin pressure are the key reasons behind the auto sector slowdown.

The brokerage said, “Prefer stocks that have the ability to capture the market share, power to pass on the cost pressures and strong product cycle. Companies that have strong financials, as well as stock returns, are Bajaj Auto, TVS Motors and Maruti Suzuki.”

The best time to invest in the sector is to look out for free cash flow yield support. Analysis of past trends indicates that auto stocks bottom out at FCF yield of 6 percent, added the report.