SBI Securities' Sunny Agrawal on why auto ancillary is the best way to play the auto sector rally

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The auto ancillary space presents the most effective strategy to capitalise on the current momentum in the broader automobile sector, according to Sunny Agrawal of SBI Securities. Speaking with CNBC TV18, Agrawal detailed the multi-faceted growth drivers that make auto components a more attractive bet than original equipment manufacturers (OEMs) directly.

Agrawal noted that post-GST rationalisation, there has been a significant uptick in volumes across all auto sub-sectors, including passenger vehicles, two-wheelers, three-wheelers, commercial vehicles (CVs), and tractors. He specifically highlighted that while the first half of fiscal year 2026 was subdued for CVs and tractors, the second half is expected to deliver robust volume growth.

"We believe ultimately the best way to write this story is through auto ancillary companies because they have an added advantage," Agrawal explained. He pointed out that these companies not only cater to domestic OEMs but are also benefiting from a trend where many international players are establishing India as an export hub, providing another significant avenue for growth. Furthermore, many auto ancillary firms have proactively diversified their product offerings through organic expansion, acquisitions, or partnerships with international players.

From a valuation perspective, Agrawal sees compelling opportunities, particularly in the mid-cap segment. "Most of the companies in the range of ₹5,000 to ₹15,000 crore market cap band are well-placed to deliver a kind of 20-25% earnings CAGR (Compound Annual Growth Rate) over the period of next two to three years," he projected.

Delving deeper into the ancillary space, Agrawal expressed a bullish view on tyre manufacturers. He agreed that factors like lower crude prices, which reduce the cost of carbon black, and the platform-agnostic nature of tyres (required for both internal combustion engine and electric vehicles) make the segment attractive. Adding to these points, he cited the recent stability in rubber prices as a key positive. "Whatever the price action most of the tyre companies had to take, that has been taken care of during the first half of FY26," he stated, suggesting margin pressures have eased.

As auto sales volumes pick up, the subsequent rise in both OEM and replacement demand will further bolster the tyre sector. Among the tyre players, Agrawal specifically recommended CEAT. "CEAT, which is more of a two-wheeler, passenger vehicle, and with a strong brand presence, is one of the stocks which we are recommending to our clients," he concluded.