Auto stocks take a breather as FIIs, MFs lighten positions: Are most positives factored in?

Sector Awaits Clear Demand Signals Post-GST 2.0

Auto stocks have eased over the past month, cooling after the sharp rally sparked by the goods and services tax (GST) rate cuts and strong festive buying. The sector had climbed to a 3-month high, prompting mutual fund (MF) houses and foreign institutional investors (FIIs) to trim exposure after several counters delivered solid double-digit gains over six months.

With most of the big news already factored into prices, analysts say the next leg of the move now hinges on how sales shape up in the final two months of the year.

In the past six months, shares of Maruti Suzuki, Eicher Motors, Bajaj Auto, TVS Motors, M&M and Hero MotoCorp advanced up to 34 percent. But the momentum faded in the last month, with most names either slipping or posting low single-digit returns. Fresh data reinforces this cooling: MFs cut auto sector weights by 40 basis points month-on-month (MoM) in October, while FII exposure declined from 8 percent to 7.7 percent, according to a Motilal Oswal report.

Ambareesh Baliga, independent market analyst attributes this recent softening, largely to profit-booking after a sharp run. He, however, maintained that the sector’s long-term fundamentals remain sound. “We saw most stocks rally ahead of the GST rate cuts announcement, and the festive season gave them an added boost,” he said.

The focus now shifts to November and December, which will offer a clearer read on core demand. Sales numbers for September and October were muddied by the overlap of festive purchases and GST changes, making it harder to isolate underlying growth.

With festive season behind and GST 2.0 in effect, auto firms will be able to assess whether the rate cuts have genuinely lifted affordability and whether this demand momentum is sustainable, said an auto analyst who requested anonymity.

At the start of this fiscal, the Street expected passenger vehicle growth of about 2 percent and two-wheeler growth of 3-5 percent. Those estimates have since doubled for passenger vehicles and tripled for two-wheelers for FY26 after the policy shift. Investors are now closely watching VAHAN registration trends for confirmation that these upgraded expectations are on track, the analyst added.

Mixed Q2FY26 for automakers

Q2 performance offered a mixed picture across automakers. Maruti Suzuki reported stronger-than-expected revenue but saw margins contract as commodity costs rose and promotional spending increased during the festive buildup. Hyundai Motor India delivered healthy margins and profit but missed on revenue. M&M, meanwhile, posted a broadly steady quarter with strength across both top line and bottom line.

Auto sales patterns also reflected the GST transition. Car sales dipped slightly in Q2FY26 as buyers waited for GST 2.0 to roll out on September 22. The impact was fully visible in October 2025, when factory dispatches jumped 17.2 percent year-on-year (YoY) to 4.6 lakh units, as automakers stocked up for robust demand. Two-wheeler dispatches rose 2.1 percent to 2.1 lakh units, while retail sales on the VAHAN portal hit an all-time high. Whether this momentum holds will become clear only in the coming months.

For the moment, FIIs and MFs have trimmed their positions, but brokerage sentiment remains upbeat. Bloomberg data showed M&M commanded 40 "buy" calls for the September quarter, Maruti Suzuki has 38, Ashok Leyland has 34, and Hero MotoCorp has 24 - signalling sustained institutional confidence despite the sector’s recent breather.

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