Why automobile industry is going down? Should i invest in it?
Answer 
Follow
The automobile industry in India is going through a bad phase for a number of reasons. Let me highlight a few of them for your benefit. The GST rates on automobiles are currently charged at 28% which is too high by global standards and it is hard for auto companies to be profitable and grow sales with that kind of tariffs.
Consumption demand has been weak in India for the last year and that has rubbed off on auto demand. That is showing up in the quantum of inventory stacking up with dealers; so much so that manufacturers are now cutting down on production.
The sharp rise in fuel costs last year led to a sharp decline in auto demand and that is yet to revive in the current year.
In the previous year, the IRDA allowed insurance companies to sharply increase their premiums charged on auto insurance. That has also dampened the purchases of cars.
One of the key reasons was the liquidity tightness that was evident after the IL&FS crisis in mid-2018. Post the crisis, the liquidity crunch in the markets made buyers wary. But more importantly, the auto funding business almost became unviable due to the sharp increase in the cost of funds.
However, you surely can buy into high-quality auto stocks that have corrected sharply in the last one year. Stocks like Maruti and Eicher have already corrected by nearly 50% and at current prices, they do offer long term value. But, you will need the patience to wait for 2-3 years to get some real returns on the stocks.
33 Views
Abuse Report
Follow
Yes, You can invest there is no news about the the Down of the Automobile industry.
Follow
you surely can buy into high-quality auto stocks that have corrected sharply in the last one year.