Visible trends of recovery bring the auto sector on investors' radar; should you buy?

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

Thanks to the visible trends of recovery, most analysts and brokerages are positive on the auto sector.

Markets have come a long way after the outbreak of COVID-19 triggered a massive selloff in March 2020 and most sectors are now at pre-COVID levels.

While there are pockets of opportunities in many sectors, the auto has come into focus owing to the positive outlook on the rural economy and a shift towards personal mobility.

Brokerages point out after witnessing a severe impact from the COVID-19 pandemic, demand is returning at a pace faster than originally expected.

Global brokerage firm CLSA, as per CNBC-TV18, expects the passenger vehicle (PV) segment to outperform in FY22. It has increased FY21-23 PV forecasts by 7-9 percent and for two-wheelers (2Ws) by 1-3 percent.

The brokerage underscored that PV outperformance has resulted in healthier inventory levels.

However, the brokerage flags concerns of rich valuations of auto stocks at this juncture.

CLSA believes the current valuations limit the potential upside. It has downgraded Hero MotoCorp and Bajaj Auto to 'outperform' from 'buy'.

It has raised the target price for Bajaj Auto to Rs 3,750 from Rs 3,575 while for Hero MotoCorp, it has raised the target price to Rs 3,600 from Rs 3,500.

CLSA has maintained outperform on TVS Motor and 'sell' on Maruti and Eicher. For TVS Motor, it has raised the target price to Rs 530 from Rs 460.

The target for Maruti is raised to Rs 7,120 from Rs 6,300 by the brokerage. CLSA has raised the target price for Eicher to Rs 2,255 from Rs 2,000.

Brokerage firm Motilal Oswal Financial Services is overweight on plays on rural markets and global PVs.

Motilal Oswal expects demand momentum to sustain in the foreseeable future, driven by normalisation of supply-side factors (finance, supply chain, systemic inventory, etc) as well as improving rural markets and recovery in urban markets.

However, the brokerage firm empahsised that the divergent stock performance vis-à-vis the NSE Auto index highlights the need for an active stock selection strategy, especially considering the numerous sub-segments within the sector with highly varied driving forces.

"We have an overweight stance on auto as we believe we are just at the start of the recovery cycle following the last two years of unprecedented weakness," said Motilal Oswal.

"With a good performance post the restart, we prefer companies with higher visibility on volume growth, external as well as internal drivers for earnings, and reasonable valuations."

The brokerage firm is overweight on plays on the rural economy (Mahindra & Mahindra, Hero MotoCorp) and global PV segment (Tata Motors, Motherson Sumi).

The brokerage is underweight on India PV (Maruti Suzuki) and 2Ws (Bajaj Auto, Eicher Motors and TVS).

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.