This Trend Reinforces A Weak Outlook For Auto Sector
The NSE Nifty Auto Index has become cheaper compared to the benchmark Nifty 50 Index for the first time, reinforcing a weak outlook for the sector.
The Bloomberg estimated price-to-earnings multiple for the 16-stock gauge is at 18.08—for the first time since its inception in 2011—compared with 18.22 times of the benchmark Nifty Index.
That’s because the Nifty Auto Index slumped 19 percent in more than three months on account of rising interest rates and weak festive sales despite record discounts. Shares of Eicher Motors Ltd., Tata Motors Ltd. and Maruti Suzuki India Ltd. tumbled between 20 percent and 35 percent since September.
Research firm CLSA said weaker sales in November and December and increasing raw material costs indicate a gloomy outlook for the automobile sector this year.
December, however, is a seasonally weak month for the auto sector as buyers tend to hold off purchases till new year.
Motilal Oswal Research said a weak demand and contraction in earnings before interest, tax, depreciation and amortisation margin for the second half of the ongoing financial year will remain a key overhang.
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