Aaj Ka Gyaan

Eicher Motors has fallen 40 percent this year. You can blame dhoop and diamonds?

Eicher Motors, maker of motorcycles like Royal Enfield, fell 0.5 percent intraday yesterday and has lost more than 40 percent of its value within this year. Analysts blame a subdued festival season and weak demand for the stock drop, but there is more than meets the eye. Let's dig in.

Reason 1: Dhooooop, i.e. global warming

Yes, you read that right. Global warming, and the measures taken to prevent it, has played a key role in decreasing consumer demand for those vroom vroom bikes.

• Decrease in farm income due to floods: Royal Enfields are super popular in the rural parts of the country. However, due to an onslaught of floods this year caused by global warming, rural India has experienced a significant decrease in farming income compared to last year. Less income means less money to buy the bikes.
• Increase in auto insurance to curb pollution: In early 2019, Delhi became the city with the absolute worst air quality in the world. Since this honour does not provide good bragging rights, the IRDAI (Insurance Regulatory and Development Authority of India) decided to increase insurance premiums on lower engine capacity two wheelers. In simplistic terms, motorbikes with lower engine capacities burn more fuel, thus increasing pollution. This increase in premium is now deterring people from buying motorcycles because of the regular costs associated.

Reason 2: Diamonds, i.e. Nirav Modi

You already are well versed with the whole Nirav Modi scandal (hint: he defrauded Punjab National Bank of $2 billion), but what you may not know is that this case led to deeper investigations into multiple other cases, which eventually revealed that our banks have been exposed to nearly Rs. 71,500 crore in fraud just in the year 2017 to 2018. This has led to a system wide credit crunch, meaning no financial institution is extending loans to businesses or individuals.

Bottomline

A decrease in income (due to global warming), an increase in insurance premiums (to stop global warming) and limited access to loans (due to the credit crunch) has left the end consumer with very little incentive to actually go out and buy a big ticket item like a Royal Enfield.

Disclosures

We do not own stocks of any of the companies listed here. The only association we have with this Gyaan is that we heart Jadoo but definitely disheart Krrish (it's because of the double R in his name. Get your spelling game together, Krrish).