Auto stocks rally 25–50% in FY26 so far: Is it time to shift gears?

While the broader market advances steadily, the auto sector is shifting into overdrive. The BSE Auto Index has surged nearly 20% so far in FY26, outpacing the Sensex’s modest 5.5% gain. This strong outperformance signals growing investor confidence, led by key players like Hyundai Motor India, Maruti Suzuki India, and Mahindra & Mahindra.

Notably, 11 constituent stocks in the BSE Auto Index have posted double-digit returns, with eight — including Hyundai Motor India, Bosch, UNO Minda, Hero MotoCorp, TVS Motor, Ashok Leyland, MRF, and Mahindra & Mahindra — rallying between 25% and 50% in FY26 so far.

This surge isn’t just momentum-driven. The Indian auto industry is undergoing a major transformation supported by robust export growth, a revival in rural demand, and increasing consumer preference for premium vehicles. The potential GST rate cut on two-wheelers and passenger vehicles could further boost the price-sensitive segments, adding fuel to the rally.

The industry is adapting swiftly to evolving market dynamics and consumer tastes. According to Axis Securities Research’s Q1FY26 report, the sector’s momentum is underpinned by rising exports, growing tractor sales, and premiumization — all pointing to sustainable long-term growth.

The sector posted a respectable 7% year-on-year revenue growth, surpassing expectations. While two-wheeler sales dipped slightly by 2%, tractor and three-wheeler volumes surged 9% and 10%, respectively. Passenger vehicles experienced softness domestically but balanced this with strong export growth.

Margins were pressured by rising input costs, yet profits grew by 10%, helped by forex gains and premium product sales. Ancillary companies like Endurance Technologies and UNO Minda benefited from higher volumes and premiumization trends, the report further stated.

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The automobile sector is witnessing strong momentum across segments. Two-wheelers saw a 23% rise in exports, supported by premium product launches and the possibility of GST rate cuts, which could further boost demand.

Passenger vehicles also posted a robust 34% export growth, while domestic demand is expected to rebound with upcoming model launches and government tax incentives. Commercial vehicles remain stable, driven by steady export performance and ongoing infrastructure investments. Meanwhile, tractors continue to perform well, backed by strong rural demand and a favorable monsoon. Despite ongoing input cost pressures, better product mixes and enhanced operational efficiency are expected to help maintain profit stability.

Key factors include rural demand, export momentum, GST changes, commodity inflation, and passenger vehicle inventory levels—each critical in shaping near-term performance.

For investors looking to ride the auto sector’s growth momentum, Axis Research has identified key stocks with strong upside potential. These companies are well-positioned to benefit from rising exports, improving domestic demand, and favorable industry trends:

Hero MotoCorp (Buy, Target Rs 5,220): Poised to benefit from rural demand recovery, premium launches, and potential GST cuts.

Bajaj Auto (Buy, Target Rs 9,360): Strong export presence and premium motorcycles position it well for international demand.

Ashok Leyland (Buy, Target Rs 135): Set to gain from infrastructure-driven demand and steady exports, despite flat domestic volumes.

Sansera Engineering (Buy, Target Rs 1,500): Key player in auto components, positioned to benefit from premiumization and higher vehicle content.

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