Auto Stocks Fall After RBI Rate Hike; Ashok Leyland, Bajaj Auto, Hyundai Drop Up To 3.5%

Auto stocks fell sharply on Wednesday, October 7, after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points to 5.50%, putting the spotlight on borrowing costs and vehicle financing.

The Nifty Auto index fell more than 1% after the policy announcement and emerged as the worst-performing sectoral index, with all its constituents trading in the red. Ashok Leyland shares fell as much as 3.5%, while Bajaj Auto, Tube Investments of India, Bharat Forge, Hyundai Motor India and Hero MotoCorp declined between 2% and 3% during the session.

Some of the stocks recovered from their lows later in trade. Bajaj Auto and Ashok Leyland were down around 2.5%, while Hyundai Motor India and Bharat Forge traded about 1.5%-2% lower.

The selloff followed the RBI's first repo rate hike since February 2023. The central bank raised the policy rate from 5.25% to 5.50% and changed its stance from neutral to calibrated tightening.

Why Are Auto Stocks Falling Today?

The RBI rate hike brought financing costs back into focus for automobile companies, as a large part of vehicle purchases in India is funded through loans.

Higher policy rates can feed into vehicle loan rates if banks and other lenders pass on the increase. That can make car and two-wheeler loans costlier for buyers and increase monthly repayments.

The selling was spread across the sector. Apart from Ashok Leyland, Bajaj Auto, Hyundai Motor India, Bharat Forge and Hero MotoCorp, shares of Maruti Suzuki, Mahindra & Mahindra and Bosch also traded more than 1% lower.

The weakness in auto shares came as other rate-sensitive pockets of the market also reacted to the RBI decision. Realty stocks remained under pressure, while banking and financial shares recovered from their earlier losses.

The Nifty 50 and Sensex also remained lower after the policy announcement, even as the benchmarks trimmed some of their earlier losses.

RBI Rate Hike Puts Vehicle Financing In Focus

The MPC unanimously voted to raise the repo rate by 25 bps to 5.50%, marking the first increase in more than three years. The RBI also moved to a calibrated tightening stance as inflation risks increased.

For automobile companies, the focus now shifts to how banks and other lenders respond to the policy change. Any increase in auto loan rates would determine the eventual impact on financing costs for vehicle buyers.

The rate decision has come during the festive quarter, an important period for automobile sales.

Dealer sentiment, however, remains positive. Saharsh Damani of the Federation of Automobile Dealers Associations (FADA) told CNBC-TV18 that 78% of dealers surveyed expect growth over the next three months despite a high base.

Passenger vehicle inventory is higher than desired, according to Damani, although this was attributed mainly to inventory being built ahead of the festive season.

Auto shares had also faced pressure after September sales at some companies came in below expectations. Wednesday's RBI decision added interest rates and vehicle financing costs to the factors being tracked by the sector.

With the repo rate now at 5.50%, investors will watch for changes in auto loan rates and the extent to which higher financing costs affect demand during the festive quarter.

Also Read - RBI Raises FY27 Inflation Forecast To 5.2% As Oil, Food Prices Add Pressure