Nifty Auto index was trading over 2% lower. Shares of Bajaj Auto and Hero Moto fell around 3% each while Maruti Suzuki and Mahindra & Mahindra were trading around 2% lower.
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. 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,” said Krishna Appala, senior research analyst, Capitalmind Research.
Also read | Diwali sale or trap? 12 stocks crash at least 40% after giving multibagger returnsIn a weak consumer environment, analysts see the risk of more earnings downgrades rather than upgrades for the next couple of quarters.“Partly our view has been that demand will not be as strong, which is unfortunately, that is what has happened and you are also seeing disruption from the EV players as far as the two-wheeler segment is concerned. As far as four-wheelers are concerned, it is more a valuation concern we have wherein we will still see single-digit volume growth. We are not expecting too much,” said Pratik Gupta of Kotak Institutional Equities.The brokerage firm is cautious on most auto stocks but likes M&M where, he said, the valuation is still reasonable.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 10% 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.
