Shares of Indian automakers plunged sharply on May 20 as profit booking took hold following a robust four-session rally that had driven sectoral gains. The Nifty Auto index fell over 1.5%, making it the worst-performing sectoral index of the day. Despite hopes of a potential US-India trade deal lifting sentiment earlier this month, Monday’s sharp correction saw key automobile stocks including Hero MotoCorp, Bajaj Auto, and Maruti Suzuki lead the selloff.
The broader weakness in auto stocks mirrored a significant downturn in the overall equity market, with the benchmark Sensex dropping more than 600 points to hover near 81,450, while the Nifty 50 struggled to hold above the psychological 25,000 mark.
Highlights:
Nifty Auto index fell over 1.5%, leading sectoral losses.
Hero MotoCorp, Maruti Suzuki, and Bajaj Auto were among the top decliners.
Profit booking after a four-day rally triggered sharp selling.
Prior Gains Fueled by Optimism Over US-India Trade Talks
The recent surge in Indian auto stocks was driven largely by renewed optimism over a potential trade deal between the US and India. President Donald Trump’s softened rhetoric on tariffs earlier this month had buoyed investor sentiment, especially after he claimed that India had “offered us a deal where basically they are willing to literally charge us no tariff” on exports.
This statement followed months of uncertainty and earlier tariff escalations on foreign automotive imports. The possibility of a bilateral trade agreement, aimed at reducing tariffs and non-tariff barriers, gave auto exporters a short-term boost, leading to a nearly 9% rise in the Nifty Auto index over the past month. However, the gains have now been partially unwound due to a wave of profit-taking amid broader market weakness.
Highlights:
Optimism over US-India trade deal lifted auto stocks earlier in May.
Trump’s statement on tariff-free Indian imports bolstered sector confidence.
Recent surge in Nifty Auto index was driven by potential policy breakthroughs.
Tube Investments Leads Losses Amid Valuation Concerns
Among the worst performers on May 20 was Tube Investments of India, whose stock fell over 3% after rallying nearly 17% over the last month. The decline appears to be a result of valuation fatigue, with investors locking in gains after a steep uptrend. The correction was notable as Tube Investments had been one of the standout performers in the auto sector due to robust financials and strong market positioning in industrial components.
Analysts noted that despite strong fundamentals, the stock had run ahead of its earnings trajectory, prompting cautious investors to trim exposure as market sentiment turned risk-averse.
Highlights:
Tube Investments dropped over 3% after a 17% monthly surge.
Valuation concerns triggered a sharp correction in the stock.
Investors booked profits amid sectoral weakness.
Broad-Based Decline Across Key Auto Majors
The selling pressure extended beyond Tube Investments, affecting several top-tier auto manufacturers. Hero MotoCorp, Maruti Suzuki, and Eicher Motors each fell more than 1.5%. Mahindra & Mahindra, Bharat Forge, TVS Motor, and Balkrishna Industries also saw declines in excess of 1%. Meanwhile, Tata Motors, Bajaj Auto, and Exide Industries lost close to 0.9%, while Samvardhana Motherson dipped marginally by 0.3%.
The correction appeared broad-based, sparing few companies in the sector, although some, like MRF and Ashok Leyland, managed to post marginal gains. Ashok Leyland’s stock showed resilience after it announced that its board will consider a bonus issue during a meeting scheduled for May 23, offering a potential catalyst amid otherwise negative sentiment.
Highlights:
Hero MotoCorp, Eicher Motors, and Maruti Suzuki fell over 1.5%.
Bajaj Auto, Tata Motors, and Exide Industries declined around 0.9%.
Ashok Leyland bucked the trend on bonus issue news.
Global Trade Uncertainty and Domestic Weakness Weigh on Sentiment
Automakers with significant exposure to global markets, particularly the United States, have been sensitive to evolving trade dynamics. Earlier tariff hikes introduced by President Trump had hit sentiment hard, particularly for Indian exporters of cars and auto components. Though recent developments have offered a potential reprieve, the lack of a finalized deal continues to keep the sector on edge.
Meanwhile, domestic headwinds, including tepid rural demand and concerns over high interest rates impacting vehicle financing, have added to investor concerns. The sector also faces cost pressures from rising raw material prices, even as competition in the electric vehicle space intensifies.
Highlights:
Export-focused automakers impacted by trade tensions with the US.
Domestic demand challenges and high financing costs weigh on outlook.
Raw material inflation and EV disruption create near-term uncertainties.
Sector Outlook Hinges on Trade Deal Progress and Domestic Demand Recovery
Market analysts suggest that further movement in auto stocks will likely be dictated by the progress in trade negotiations and signs of recovery in domestic demand. While the recent correction may provide a more attractive entry point for long-term investors, volatility is expected to persist in the short term due to macroeconomic uncertainties and fluctuating global cues.
Sector participants are also keenly watching the upcoming monthly auto sales data and the Reserve Bank of India’s monetary policy outlook, which could influence vehicle financing costs and rural sentiment.
Highlights:
Future performance tied to US-India trade deal progress.
RBI policy, rural demand, and vehicle loan rates will be key indicators.
Sector likely to remain volatile amid macro uncertainty.
