As the markets show signs of correction, auto stocks have taken a hit, raising concerns among investors about what’s next for this sector.

Once again, the auto sector is feeling the pressure as stock prices fall amid a broader market correction. But does this mean it’s time to abandon ship, or could this be an opportunity for long-term investors to find value? Let’s dive into the factors behind this downturn and the potential upsides in six auto stocks that analysts believe could rebound with gains of up to 37%.

What’s Causing the Drop in Auto Stocks?

In recent trading sessions, the auto sector has been hit hard by a wave of foreign institutional investor (FII) selling. Auto stocks have traditionally attracted substantial FII investments, and with global market conditions shifting, it was inevitable that FIIs would look to book profits. Auto stocks, which saw impressive gains over the past year, are now feeling the squeeze.

Moreover, the current sell-off reflects broader market correction tendencies rather than specific concerns within the auto industry. It’s important to look beyond the immediate price action and consider the underlying fundamentals.

Should You Worry? Key Factors to Consider

Here’s why panicking over the recent dip may not be the best strategy:

1. Long-Term Gains Still Hold
   If an auto stock doubled in value over the past year but has lost 20% recently, it’s not necessarily a reason to worry. Stock markets operate in cycles, and what goes up often has to stabilize or correct. If the company’s fundamentals remain strong, this dip could simply be a temporary pullback.
2. Industry Transformation is On Track
   The shift from internal combustion engines (ICE) to electric vehicles (EVs) is well underway, and nothing has derailed this transformation. Recent high-profile EV launches signal that auto manufacturers are committed to the future of electric mobility, which remains a key growth driver for the sector.
3. Cyclical Slowdowns are Normal
   Minor slowdowns in the auto sector aren’t unusual. In fact, the industry has experienced such cycles even during growth phases. Some players are predicting a slowdown in the coming months, but this is generally seen as cyclical, rather than a long-term concern.

Watch Out for Headwinds: Metal Prices & Global Conditions

While the industry’s fundamentals remain sound, investors should keep an eye on potential headwinds, including fluctuating metal prices and global economic conditions. Rising metal costs could temporarily compress margins, as we saw in 2021 and 2022 with supply chain disruptions. However, the sector has navigated such challenges before and emerged resilient.

So, Should You Sell or Hold?

The short answer: Hold steady. Panic-selling during periods of market correction can lead to missed opportunities. Instead, consider the broader growth story within the auto sector—especially with the EV transition gaining momentum. As FII selling stabilizes and volatility eases, auto stocks could offer long-term upside potential.

Auto Stocks with Promising Upside Potential

If you’re considering a selective approach, here are six auto stocks with a “Buy/Hold” recommendation from analysts and the potential for upside:

1. Hero MotoCorp Limited
   India’s largest two-wheeler manufacturer, Hero is focusing heavily on its EV lineup to tap into the green mobility wave. Despite recent declines, the company’s product diversification and extensive market reach make it a strong contender.
2. Ashok Leyland Limited
   Known for its commercial and defense vehicles, Ashok Leyland has a broad portfolio that includes trucks, buses, and power solutions. As India’s infrastructure spending increases, demand for commercial vehicles is expected to rise, which could boost Ashok Leyland’s growth.
3. Bajaj Auto Limited
   Bajaj’s diversified portfolio includes motorcycles, three-wheelers, and electric vehicles like the Chetak. With a significant presence in both domestic and international markets, Bajaj is well-positioned to benefit from global EV trends.
4. TVS Motor Company Limited
   TVS, a major player in two-wheelers, has been expanding its EV lineup with offerings like the TVS iQube. Its continued innovation and strong brand positioning make it a resilient choice for investors looking to ride the EV wave.
5. Mahindra and Mahindra Limited
   Mahindra’s diverse range of products—spanning SUVs, farm equipment, and electric vehicles—provides stability through multiple revenue streams. The company’s aggressive push into the EV market, coupled with strong performance in the SUV segment, makes it a promising pick.
6. Eicher Motors Limited
   The parent company of Royal Enfield, Eicher Motors continues to dominate the premium motorcycle segment. As it expands its footprint globally and diversifies its product lineup, Eicher offers solid growth potential, especially for fans of iconic motorcycle brands.

Key Takeaways for Investors

• Short-term volatility is expected, but long-term fundamentals of the auto sector remain strong, especially with the shift toward EVs.
• Hold your investments through market turbulence, and avoid rash decisions based on immediate price movements.
• Diversify within the auto sector to capture potential gains from both ICE and EV segments, as well as domestic and international markets.

Final Thoughts

Auto stocks may be down, but they’re far from out. If you’re invested in this sector, think long-term and view the current dip as a chance to reassess rather than react. While short-term challenges like FII selling and cyclical slowdowns may create turbulence, the broader transformation towards EVs and sustained demand for mobility solutions keep the auto sector’s growth story intact.

Disclaimer: This article is for informational purposes only and not a substitute for professional financial advice. Please consult a financial advisor before making investment decisions.