Moneycontrol Pro Panorama | Automakers’ outperformance story, unplugged!

Auto stocks are on a roll for over a year now backed by stellar performance across various segments.

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Auto stocks are on a roll for over a year now backed by stellar performance across various segments. The Nifty auto index mirrors the investor euphoria with its power-packed return of 27 percent, which is more than double the return of Nifty 50 at 12 percent.

What’s fuelling the rally?

Auto original equipment makers (OEMs) have been showcasing healthy production numbers and showroom sales. Monthly sales data by the Federation of Automotive Dealers Associations (FADA) is flashing green across vehicle categories for January, with year-till-date (FY26) retails accelerating by 10-12 percent. This comes from a culmination of several factors -- sharp GST rate cut, improved rural cash flows, festive demand for discretionary items and better freight rates.

During Q3 FY26, car makers such as Maruti and Hyundai saw the benefits of the GST rate cut fuelling demand for small cars and also for electric vehicles (EVs) and hybrids. Mahindra & Mahindra, as is the case with its home-bred peers, is scaling up capacity proactively to cater to rising demand. MCPro’s Kanchi Shah writes why demand continues to be strong underscoring robust FY26 targets.

Two-wheelers such as TVS Motor Company, Hero Motocorp and Bajaj Auto are steering well on both rural and urban roads to capture the mass market consumer as well the premium motorcycle riders.

As for commercial vehicles that mirror the health of an economy, results of Ashok Leyland, Eicher Motors and Tata Motors announced recently leave little to be desired by investors. Stocks of CV makers are revving up on the back of not just domestic sales to cater to replacement demand but large export orders for trucks as well as buses, reinforcing faith in Make-in-India brand.

The obvious question then is, will demand continue to grow? If one has to go by company announcements, all OEMs, be it incumbents or new kids on the block such as Ola Electric, Ather Energy, etc. are seeing demand acceleration. Ambitious expansion plans have been pencilled in with at least three to five models planned every year by OEMs for the next five years!

What does this euphoria tell us? To be sure, domestic demand is vibrant, with customers also lapping up premium products.  Importantly, Indian automakers have arrived in international markets -- not just in two-wheelers as was the case for many decades but across vehicle categories as seen in strong export growth. Indian vehicles are compliant with global technology and emissions norms. Global shipments are rising.

Note that the auto sector is an integral part of India’s bilateral trade deals with most developed markets. One cannot negate the positive impact of the timely Production-Linked-Incentive scheme that not only boosts Brand India, but also makes the vehicles competitive in international markets.

Of course, investors must be cautious before jumping on the auto bandwagon. The skyrocketing stock prices of most OEMs price in the medium term earnings growth for most companies. It remains to be seen how cost pressures -- more pronounced in electric vehicles due to mineral prices rising -- are handled by companies. The story of rare earth magnets and critical components being in short supply due to shifting trade relations, is well-known.

Q3 FY2026 operating margins, therefore, show wide variations between OEMs even within similar vehicle categories. The silver lining, however, is that all incumbents have strong cash and bank balances, with a proven track record of resilience to steer clear in rough weather. Given the present favourable macroeconomic conditions on home turf and international trade and tariff tensions in the rear view mirror, Indian auto companies are set for a cushy ride. 

Investing insights from our research team

Titan Company: The market leader has a bright outlook

Britannia Q3 FY26: Sustained growth recovery, stable margins on the cards

Ashok Leyland Q3 FY26: Strong volumes drive the show

Twin engines propelling M&M’s growth

Apollo Hospitals Q3FY26: Scaling up with profitability discipline

GRSE: Strong order book to fuel future growth

Lenskart Q3 — Execution is clear, valuation still demanding

Divi’s Lab: Getting ready for peptide opportunity

Jyoti CNC Q3 FY26 – Execution strong; financial leverage in focus

What else are we reading?

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Chart of the Day | Rubber prices ease, tyre firms breathe easy

Apollo Hospitals outperforms in Q3, focus turns to capacity expansion

Export surge fuels domestic CV makers’ earnings prospects

How AstraZeneca shot for the moon — and hit (republished from the FT)

India’s Parliament embodies form over substance as distrust and bitterness prevail

AI Impact Summit 2026: India at the centre of a changing AI world

BNP may be the pre-poll favourite in Bangladesh’s election, but don’t write off the Jamaat

Disclosure requirements under India’s commercial laws are tricky to navigate

Markets

Pick your companies right and it should not be difficult to deliver reasonable returns; this is a year for stock picking: Kenneth Andrade

Technical Picks: TORNTPOWER, RBLBANK, LUPIN, NATIONALUM, BIOCON 

Vatsala Kamat Moneycontrol Pro