Indian auto companies witnessed a significant downturn in their share prices following the Reserve Bank of India's (RBI) recent decision to raise the repo rate by 25 basis points. This move, the first such hike in nearly four years, pushes the repo rate to 5.50% from 5.25%, creating headwinds for interest-rate sensitive sectors like automotive.
Two-Wheeler Segment Hit Hard
The two-wheeler sector felt an immediate impact. Shares of TVS Motor Company Ltd and Bajaj Auto Ltd each tumbled by nearly 3% on Wednesday. Hero MotoCorp also declined by more than 2.25% during the trading day. Other companies like Ather Energy and Royal Enfield maker Eicher Motors Ltd saw drops of 2% and 1% respectively, while Wardwizard Innovations & Mobility also traded in the red.
Market analysts, including Harshal Dasani, Business Head at INVasset PMS, attribute the corrections in auto stocks to muted domestic sales in September. Dasani highlighted that a monsoon deficit, the weakest in over a decade, combined with a developing El Niño, has distressed the rural economy, which significantly impacts sales of entry-level cars and two-wheelers. The rate hike further exacerbates the situation by increasing financing costs, while crude oil prices near $100 simultaneously raise vehicle running costs.
Commercial and Passenger Vehicles Also Under Pressure
The commercial vehicle segment also experienced declines. Ashok Leyland Ltd led the laggards with a drop of over 3%, while Tata Motors (TMCV) fell by nearly 2%. Atul Auto and Escorts Kubota also weakened by approximately 1% each.
In the passenger vehicle space, Hyundai Motor India tumbled nearly 3%, and Tata Motors Passenger Vehicle declined 2%. Maruti Suzuki, Mahindra & Mahindra, Force Motors, and Olectra Greentech each saw their shares fall by around 1%.
Mixed Outlook Amidst Headwinds
Despite the immediate challenges, the industry outlook for fiscal year 2027 (FY27) remains largely positive, driven by healthy demand momentum, improving rural sentiment, premiumisation trends, rising EV adoption, and new model launches. However, growth is expected to moderate in the second half of FY27 due to a high base from the previous year. Rising input costs, higher vehicle prices, and uneven monsoon conditions could also temper the pace of demand recovery, according to an analysis by Axis Direct.
BNP Paribas noted strong year-on-year growth in September 2026 wholesale dispatches, partly due to a low base effect from the previous year. However, their proprietary commodity cost index showed an increase for passenger vehicles and two-wheelers, with steel prices rising in high-single digits, implying an incremental margin headwind for the industry.
"In the long term, we prefer TVS Motor and Eicher Motors in 2W, and M&M (non-coverage) as a play in the PV/LCV/Tractor segment. We also like Ashok Leyland and Tata Motors (non-coverage) in the CV space, followed by a close watch on Eicher (VECV) for any market share gains," Axis Direct stated.