Likely selling by Foreign Institutional Investors (FII) ahead of the Christmas holidays resulted in a sharp fall in automobile stocks on Friday. Further, a sell-off in the overall market also had a spill-over effect on auto stocks.

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At 14:11 pm, Nifty Auto fell 1.8 percent to 10,745.10 points. In the past month, the sectoral gauge has tanked 11 percent. This is in comparison to Nifty50 that has fallen 5 percent.

Shares of Tata Motors, TVS Motor Company, Bharat Forge, Maruti Suzuki India, Ashok Leyland, Hero MotoCorp, Bajaj Auto and Mahindra & Mahindra were down nearly 1-4 percent.

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Several market participants believe, now is not the time to add auto stocks to one's portfolio.

“Automobile stocks have been underperforming for quite some time. This is due to several factors like chip shortage, inventory build-up, uneven monsoon, lower discretionary spending, huge product price hike and uncertainty about the third COVID wave,” said Awanish Chandra, Head - Institutional Equities at SMIFS.

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Chandra considers it best to avoid auto stocks for now but sees Ashok Leyland as a good bet in the commercial vehicle space and believes Eicher Motors to be better placed among two-wheelers.

Meanwhile, Purvesh Shelatkar, Head of Institutional Broking at Monarch Networth Capital, also suggested avoiding auto stocks for another one or two quarters.

This is simply because of the chip shortage issue that will take time to resolve and secondly because Shelatkar awaits more clarity on the Electric Vehicle (EV) front as to who could clock higher EV sales.

Also Read | Ashok Leyland, M&M, Hero MotoCorp, Eicher Motors in focus; Nov auto sales indicate mixed trend

A report recently said that the Indian passenger vehicles industry will lose about 500,000 units of sales in FY22 on account of the semiconductor shortage which translates to about Rs 1,800-2,000 crore in lost sales opportunity.

Earlier this week, a note by Jefferies said that the Indian auto industry continues to witness divergent demand trends across segments.

"PVs and 2Ws are down 16-18 percent YoY MTD, although PVs have improved sequentially in a seasonally weak period as chip issues are easing, while

2Ws are broadly in-line with historical seasonality. In electric 2Ws, web analytics data suggests Ola has a lead over peers on website traffic and engagement," the note by foreign brokerage said.

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