Demonetisation: Slump in Automobile Stocks

Recent Demonetization has left most Industries in a lurch bringing a crunch and dip due to lower liquidity in the market. The winners in an unforeseen charge against black money, are the e-wallet segment, online payment portals as well as e-service providers which are complimenting the banks to keep the economy afloat by aiding major business transactions. Sectors like Pharma,Hospitals,Government Institutions are prepped for the challenge but some cash heavy sectors are seeing a sudden slide. Demonitisation has been done for the second time in India since 1978. Nexensus explores the recent effect of demonetisation on stock performance of automobile industry.

Stock Prices Plunge

We analyzed the performance of  top ten players the in auto segment (2/3/4 wheelers) during the last two weeks since demonetisation came into effect on 8th November to find stock prices of all automotive players have plunged.

Top Ten Auto PlayersStock Price Before DemonetisationStock Price Last CloseFall in Stock price
Eicher Motors Ltd

23951.95
21765
2186.95
Maruti Suzuki India Ltd
5714.65
4960.2
754.45
Hero Motocorp Ltd
3282.95
2940
342.95
Bajaj Auto Ltd.
2813.35
2574.6
238.75
Mahindra & Mahindra Ltd
1372.45
1239.05
133.4
Atul Auto Ltd
477.45
413.55
63.9
Tata Motors Ltd
512.1
471
41.1
Tvs Motor Company Ltd
392.45
361.5
30.95
Majestic Auto Ltd
116.55
99
17.55
LML Ltd
15.3
11.02
4.28

The stocks of top ten listed players in Automobile sector have slided by -12.47% on an average between 4th November to 18th November 2016 with the political move to demonetize and clean India of Black money. Automobile sector players like Majestic Auto Ltd, Eicher Motors Ltd, Atul Auto Ltd, Mahindra & Mahindra Ltd, Maruti Suzuki India Ltd, Hero Motocorp Ltd have all responded negatively to the market.

Drop in share price can be noted prominently in three of the largest players Eicher Motors,Maruti Suzuki and Hero Motocorp whose investors suffered a major blow when share prices dropped by Rs.2186.95, Rs.754.45 and Rs.342.95 respectively.The share price dived to lowest for Eicher Motors at Rs.20284.35 from Rs.23951.95 within the two-week duration.

Demonetisation :Dip-in-stock-prices-of-auto-sector
Change in stock price between 4th Nov-18th Nov 2016

By Percentage change Lohia Machines Limited (LML Ltd) the U.P based scooter and motorcycle manufacturer has witnessed a dip of -27.97% within the past two weeks.

Percentage dip in stock price of auto sector-Nexensus
Percentage change in stock prices of Top 10 Auto stocks over past two weeks

Incidentally, the change in stock price for TVS Motors and Tata Motors Ltd were comparatively less affected amidst automotive sector. Cushioning cautiously amongst the lowest dip of -7.7% has been Tata Motors Limited, despite the Cyrus Mistry vs. Tata group dishevels.

A visionary view is needed to sustain SMEs, Farmers, Foreign investments, Manufacturing and Capital intensive Businesses bringing the equilibrium back soon. While the general public is supportive of the demonetisation move, many industry experts regard this move to be detrimental to the growth of the country.

Meera Sanyal, former CEO and Chairman of the Royal Bank of Scotland in India, responded to the move through insights on Finance 101. She quoted “Business and Companies become bankrupt not due to lack of Assets but rather due to the loss of Liquidity. If 80% blood is drawn out a sick entity in a hope to revive, only 20% lifeforce would not be able to sustain for long causing irreversible damage, thus consequences need to be anticipated to hedge risks.”

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