The Nifty Auto Index has declined by almost 10% in the last three months, compared to a 4% drop in the benchmark Nifty. The auto sector in India has seen mixed performance over the past three months, with declining stock valuations, particularly in the two-wheeler segment, though recent December sales figures offer a glimmer of hope. While passenger vehicles and tractors recorded growth driven by festive demand and rural recovery, two-wheelers and commercial vehicles continued to face slower demand and cost pressures. Analysts predict a mixed bag of third-quarter results, with passenger vehicles expected to outperform other segments.
Auto shares downfall
The Nifty Auto Index has declined by almost 10% over the last three months, compared to a 4% drop in the benchmark Nifty. This contrasts with the index's nearly 3% rise since the start of 2025, fueled by better-than-anticipated December sales.
Two-wheeler companies such as Hero MotoCorp and Bajaj Auto have suffered the most, with share declines exceeding 20% over the past three months. The segment has experienced sluggish growth since the year's first quarter, a trend that continued into the second quarter. Bajaj Auto's projection of lower two-wheeler sales growth for the second quarter further dampened market sentiment.
Mahindra & Mahindra, with its presence in the comparatively stronger commercial vehicle market, has been an exception to the downward trend. However, other automakers like Maruti Suzuki and Tata Motors have seen their shares fall by 6% and 16%, respectively, during the same period.
2025 initial auto stocks
The first few days of 2025 have shown positive momentum for auto stocks, thanks to stronger December sales numbers. This optimistic start to the year has partially offset the negative trend of the previous three months.
Indian auto original equipment manufacturers (OEMs) anticipate varied performances in the third quarter, with differing trends across two-wheelers, passenger vehicles, and commercial vehicles.
Demand for passenger vehicles has been primarily driven by festive purchases and a stable supply chain. Rural recovery has positively influenced tractor sales, while two-wheelers and commercial vehicles continue to be affected by subdued demand and inventory adjustments.
Tractor and passenger vehicle growth
Tractors have seen a significant recovery, with a 14% year-over-year volume growth, signaling an improvement in rural demand. Mahindra & Mahindra (M&M) is expected to perform well in this sector, with its tractor segment projected to drive a 30% year-over-year earnings growth, supported by higher realizations and ongoing rural recovery.
Future outlook
The two-wheeler segment is anticipated to post modest 3% year-over-year volume growth, hindered by inventory adjustments and weak urban demand.
Commercial vehicles are expected to experience flat growth due to weak replacement demand and high financing costs. Tata Motors, a major player in the commercial vehicle market, is anticipated to achieve modest revenue growth but may encounter challenges in maintaining margins.
While commodity prices have generally stabilised, marketing expenses during the festive season and increased input costs in specific segments are anticipated to impact margins for some OEMs.
Looking ahead, market attention will focus on management commentary regarding rural recovery and pricing strategies, which will significantly influence investor sentiment in the coming quarters.
