Short Call: Passenger vehicles in driving seat as two-wheelers hit the brakes; Signature Global, Eicher Motors in focus

Auto stocks surged on January 2, driving the Nifty Auto index to its biggest single-day gain in six months, with major players rising up to 7 percent.

The auto market is shifting gears, and two-wheelers—the darling of the year so far—seem ready to take a backseat. Analysts now expect passenger vehicles (PVs) to shine for the rest of the year, driven by strong sales momentum and favourable industry trends.

December sales data paints a telling picture: Maruti Suzuki and Mahindra & Mahindra (M&M) reported a sharp uptick in numbers, signalling robust demand. Maruti recorded a remarkable 20 percent year-on-year increase in sales, underscoring its dominance in the passenger car segment. M&M, riding high on SUV demand, also posted solid growth, while Tata Motors managed a marginal increase, outpacing Street expectations of flat or negative growth.

Motilal Oswal sees Maruti as the top pick among auto OEMs, crediting its strong rural recovery play and attractive valuation. The brokerage also favours M&M for its SUV momentum and a resurgence in tractor sales. Hyundai, too, appears to be in pole position, benefiting from the industry's pivot toward utility vehicles.

Even Citi maintains a buy call on Maruti Suzuki with a target price of Rs 13,500 per share, noting a strong 30 percent year-on-year growth in December volumes. Domestic sales, excluding those to Toyota, rose 24 percent, driven by a surprising 29 percent jump in small car sales. Citi emphasized that an extraordinary festive inventory build-up didn’t fuel the robust performance. For M&M, Citi applauds its sustained volume momentum throughout 2024. Domestic UV sales benefited from new models, while tractor volumes surged 22 percent year-on-year. Citi believes a good harvest season ahead could further bolster the stock, providing an additional boost to tractor sales.

In contrast, the two-wheeler segment hit speed bumps. Barring Eicher Motors, which fared relatively well, sales for major players lagged. Bajaj Auto saw a 4 percent decline, and Hero MotoCorp—the world’s largest two-wheeler manufacturer—suffered a 17 percent drop in December sales. TVS Motors managed a modest 7 percent increase, but the segment as a whole is struggling to keep pace.

Meanwhile, Citi issued a sell call on Bajaj Auto with a target of Rs 7,800 per share, citing weak domestic two-wheeler volumes that may reflect inventory clearance. However, export three-wheeler volumes offered a silver lining, growing 50 percent year-on-year.

Citi also maintains a sell rating on TVS Motors, setting a target price of Rs 1,700 per share. While domestic two-wheeler volumes remained flat, exports delivered a robust 29 percent year-on-year growth, marking an 11 percent sequential increase. Scooter sales grew a healthy 30 percent year-on-year but declined 19 percent month-on-month. Meanwhile, the electric two-wheeler segment, led by the iQube, saw a 79 percent year-on-year rise, albeit from a weak base.

The year ahead seems poised for a shift in priorities. As passenger vehicles cruise into the spotlight, fueled by urban demand and a recovery in rural markets, two-wheelers may have to take a breather.

Auto stocks hit the fast lane on January 2, with heavyweights like Eicher Motors, Bajaj Auto, Hero MotoCorp, M&M, Maruti Suzuki, and Tata Motors roaring ahead by up to 7 percent. The rally fueled the Nifty Auto index's biggest single-day gain in six months.

Signature Global (Rs 1,392, 2.9%)

Motilal Oswal shared it as the top pick for 2025.

Bull Case: With a projected 35% CAGR growth in pre-sales over FY24-27, the company is set to cumulatively collect Rs 28,500b crore Its strategic shift from the affordable to mid/mid-premium segment is expected to drive a strong cumulative OCF of Rs 9,500 crore. This will enable the company to turn net cash positive and reinvest in land to fuel future growth.

Bear Case: The brokerage noted that some key risks include a slowdown in residential absorption, a delay in the monetization of forthcoming projects, and a slower BD convergence.

Eicher Motors (Rs 5,307, 8.6%)

Strong Royal Enfield sales figures in December

Bull case: Eicher Motors' strong December volume performance and favourable inventory levels post-festive season suggest clear upside risks to FY25 volume forecasts, positioning the company for continued growth.

Bear case: Despite solid growth in bus volumes, Volvo Eicher Commercial Vehicles' more modest performance in goods CV volumes could point to potential challenges in sustaining broader commercial vehicle growth, affecting Eicher's overall performance.

(With inputs from Lovisha and Zoya)