The Indian auto sector witnessed a gloomy business day as the shares of top car makers dropped on March 21, 2013. Tata Motors, the country's largest automobile manufacturer, led the way and its shares tanked by a massive 4.2 per cent, amid concerns that China's new tough fuel economy norms could impact the profits of its subsidiary Jaguar Land Rover. It is interesting to note that the Chinese auto market contributes around 40 per cent of Jaguar Land Rover's global operating profits.
As per reports, BSE, or Bombay Stock Exchange's auto index dropped by 2.23 per cent, whereas the Sensex fell by about 0.5 per cent on March 21, 2013. Further, the shares of Bajaj Auto Limited, the country's largest exporter of two wheelers, dropped by 4.6 per cent in light of the recent political tension between Indian and Sri Lankan government. Evidently, Bajaj Auto has business operations in Sri Lanka, which could be impacted by the fallout between the two governments.
Maruti Suzuki India Limited, the country's largest passenger car maker, saw its share plunging by 2.5 per cent, whereas the shares of Hero MotoCorp also dropped by 1.8 per cent. Further, the shares of Mahindra and Mahindra Limited, India's leading utility vehicle manufacturer, stayed buoyant and recorded a small 0.6 per cent surge. The stock market analysts and fund managers affirmed the idea that investors are becoming more and more aware of the auto sector's prospects, and are quick at taking actions in light of a potential danger.
Expressing his views on the single day 4.2 per cent drop witnessed by the Indian auto sector, Anand Shah, Chief Investment Officer, BNP Paribas Asset Management, was quoted as saying, “People are cutting on discretionary spending. Few are hurrying up to make auto purchases at this juncture”, he further added, “Also, margins for companies will be under pressure due to the competitive environment.”
Speaking on the same issue, Bank of America Merrill Lynch (BofA-ML) said in a report, “Investors were most concerned about the demand environment.” It added, “Investor fervour around JLR’s (Jaguar Land Rover) new launches seems justifiable with Tata Motors’ increasing dependence on JLR. However, we believe the Street is ignoring the aggressive line-up by competition (34 products vs JLR’s 10 in four years). For JLR, sustaining the volume growth and incremental market share gains will be an uphill task.”