Auto Stocks Fall: Why are Bajaj Auto, Maruti Suzuki, Hyundai Motor India & others falling?

Auto stocks declined on Wednesday, with the Nifty Auto index falling 1.61 per cent, as investors assessed the impact of the Reserve Bank of India's repo rate hike and continued pressure from higher raw material costs.

Among individual stocks, India-listed auto companies came under selling pressure, with Tube Investments of India falling 4.11 per cent, Ashok Leyland 2.57 per cent, Bajaj Auto 2.23 per cent and Hyundai Motor India 2.15 per cent.

Here are the key reasons behind the fall in auto stocks.

The RBI on Wednesday raised the policy repo rate by 25 basis points to 5.50 per cent from 5.25 per cent, marking a shift towards tighter monetary policy.

The Monetary Policy Committee also changed its stance to calibrated tightening by a majority.

RBI Governor Sanjay Malhotra said the decision followed an assessment of evolving macroeconomic and financial conditions and the outlook. The MPC voted unanimously to increase the policy repo rate by 25 basis points.

The SDF rate now stands at 5.25 per cent, while the MSF rate and Bank Rate are at 5.75 per cent.

The rate hike can weigh on interest-sensitive sectors such as automobiles as higher borrowing costs can affect vehicle financing and consumer demand. The impact is particularly relevant for passenger vehicles and two-wheelers where financing plays an important role in purchases.

According to Motilal Oswal, demand across the auto industry remained encouraging in the second quarter, but higher commodity prices are putting pressure on margins.

The brokerage expects auto original equipment manufacturers under its coverage to report 31 per cent year-on-year revenue growth in the quarter, helped by higher volumes.

However, prices of key inputs have been rising since the third quarter of FY26. Even after price hikes by manufacturers, there could be some under-recovery because of the sharp increase in input costs.

Motilal Oswal expects aggregate EBITDA margin for its auto OEM coverage universe to remain flat year-on-year at 9.8 per cent.

Two-wheeler companies are expected to see a 60 basis point decline in margins, while commercial vehicle companies could see a sharper 250 basis point decline.

Passenger vehicle companies could see pressure on profitability despite healthy demand. Motilal Oswal expects passenger vehicle OEMs to report around 30 per cent revenue growth. However, excluding the impact of Tata Motors Passenger Vehicles, PV OEMs could see a significant margin decline.

Hyundai Motor India and Maruti Suzuki are expected to be among the worst affected, with estimated margin declines of around 430 basis points and 390 basis points, respectively.

Hyundai Motor India's earnings are expected to decline around 22 per cent year-on-year in the second quarter, according to the brokerage.

In contrast, two-wheeler companies with significant export exposure are expected to be relatively less affected. Motilal Oswal expects Bajaj Auto and TVS Motor to see year-on-year margin improvement.

Investors are also watching the impact of the ongoing West Asia crisis on commodity prices and the broader cost environment.

Motilal Oswal said margins could remain under pressure in the third quarter as well, after earlier expectations of easing commodity prices and a gradual recovery in margins did not materialise.

The brokerage has consequently cut its FY27 and FY28 earnings estimates for several companies. Major cuts include CEAT, MSWIL and Ashok Leyland, among others.

At the same time, the brokerage said underlying demand remains strong and regular price hikes could gradually offset commodity inflation.

The latest decline comes after a sharp correction in auto stocks over the past few weeks. The Nifty Auto index has fallen 9.31 per cent in one month and 11.80 per cent so far this year. It is also down 8.14 per cent over three months.

On Wednesday, Tube Investments of India was the biggest loser among the stocks listed, falling 4.11 per cent. Ashok Leyland declined 2.57 per cent, Hyundai Motor India 2.15 per cent, Bajaj Auto 2.23 per cent, and Maruti Suzuki 1.95 per cent.

M&M fell 1.63 per cent, while Tata Motors Passenger Vehicles declined 1.54 per cent. Hero MotoCorp, TVS Motor, Uno Minda and Bosch also traded lower. The broad-based selling indicates that investors are factoring in both macroeconomic and company-level earnings concerns.