Nifty Auto crashes 2.9% to 10-month low. What’s driving the index lower? | Stock Market News

Indian auto stocks came under significant selling pressure in today’s trading session, February 21, with the Nifty Auto index dropping 2.9% to touch a 10-month low of 21,435. Fourteen out of 15 constituents of the index traded in the red, with M&M emerging as the biggest laggard, dropping 6%, followed by TVS Motor Company, Samvardhana Motherson, and Tata Motors, which were trading with cuts of 2.5% to 4%.

The index has remained in the red for 11 of the last 14 trading sessions (including today), losing 7.71% of its value. To be precise, the Nifty Auto index has been in a downward trend since October, losing 22% of its value as investor sentiment dampened due to poor sales, weak urban consumer demand, and falling margins.

Further adding to concerns, automakers expect another year of moderate performance for the financial year 2025-26, following a similar trend seen in the current fiscal year. The persistent weakness in small car sales—driven by affordability constraints, easing pent-up demand, and the high base effect—is reflected in the sector’s growth rates.

Meanwhile, the Donald Trump administration has been announcing a series of tariffs on incoming goods to the U.S., with its latest move proposing a 25% tariff on automobile imports. Additionally, reports of Tesla’s entry into India have also been weighing on investor sentiment. Citi in a note on Wednesday warned Tesla’s India entry could disrupt local carmakers’ EV plans.

Automakers expect moderate sales growth in FY26

At the SIAM Looking Ahead Conclave held on Wednesday (February 19), which brought together industry stakeholders to discuss market trends for the coming year, major carmakers projected domestic volume growth of 1-4% year-on-year for 2025-26, according to industry sources.

Among individual automakers, Maruti Suzuki and Hyundai Motor India expect passenger vehicle (PV) sales to grow by 1%-1.5%, while Mahindra & Mahindra anticipates 1%-2% overall PV growth, with SUV sales expected to surge by 8%. Mahindra, the maker of the Thar and XUV700 SUVs, aims to outperform industry growth.

Tata Motors projects 2%-4% growth, while Kia India forecasts industry expansion of 2%-3%. “PV affordability has remained constrained, and the benefits of income tax cuts are likely to be limited for the bottom-of-the-pyramid segment. Additionally, currency depreciation may raise costs. Hence, key players believe the premium/SUV segment will continue to perform well, while the mass segment may remain subdued,” said Japanese brokerage firm Nomura.

In FY24, the PV industry in India achieved a significant milestone by surpassing the 4 million vehicle sales mark for the first time, reaching a record 4.2 million vehicles, an 8.6% growth compared to FY23, though still below pre-COVID levels.

In FY22 and FY23, PV wholesale volumes registered strong double-digit growth of 13.2% and 26.7%, respectively, driven by pent-up demand from the COVID-affected years. However, analysts now expect PV sales growth to remain below 5%.

Despite being the world’s third-largest car market, India lags behind China, which is six times its size. Estimates indicate that vehicle penetration in India, currently around 30 vehicles per 1,000 people, remains significantly below global norms and is expected to rise further.

While carmakers expect another year of muted performance, two-wheeler manufacturers were optimistic, with TVS Motor expecting 9-10% YoY industry growth (with the entry-level segment growing at 4-5%), while Hero MotoCorp projects 7-8% YoY growth in FY26E.

In the commercial vehicle (CV) segment, Tata Motors forecasts a 4% YoY growth, while Ashok Leyland anticipates single-digit growth in trucks and double-digit growth in buses in FY26. A revival in government capex spending and interest rate cuts is expected to drive growth.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.