Bajaj Auto wheels in caution, drags festive mood, its stock & peers

Mumbai: Two-wheeler companies fell out of investors' favour on Thursday after Bajaj Auto guided for lower two-wheeler sales growth in its second-quarter results. Shares of Bajaj Auto - India's largest two-wheeler maker - plunged 13.1% on Thursday, the largest single-day fall since March 2020. The pessimism rubbed off on its peers Hero MotoCorp and TVS Motor, which fell over 3% each.

"Bajaj Auto has lowered its estimated growth for the two-wheeler motorcycle industry in the fiscal year 2025 to 5% YoY, down from the previous estimate of up to 8%," said Shridhar Kallani, research analyst-auto at Axis Securities. "This cautious outlook has unsettled investors and also affected other major two-wheeler manufacturers."

The Nifty Auto index fell 3.5% while the benchmark Nifty ended 0.89% lower. All 15 stocks constituting the index closed lower on Thursday. Analysts said higher sales volumes typically mark the festival season for automobile manufacturers, but Bajaj Auto's lower-than-expected growth estimates surprised investors.

"Two-wheeler stocks have outperformed significantly in the last year and given the higher valuations and muted growth expectation by the largest two-wheeler player, marginal disappointment leads to major falls," said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.

In the last year, the auto index moved 51.25% higher against an up move of 24.93% in the Nifty 50 index.

"The valuations of most of the two-wheeler stocks already capture most of the positives," said Arun Agarwal, vice president-fundamental research at Kotak Securities. "The Diwali sales at the tail end of the festive season will be key for near-term performance of these stocks."

Analysts said gains in auto stocks will be capped as sales volumes remain a challenge in the near term and the valuations are high with subdued growth expectations. "While investors can consider this decline as a buying opportunity from a long-term view, the near-term prospects are likely to be subdued with any recovery depending on the sales in the festive season," said Khemka.