Festive Demand Strong: Auto Stock Correction Opens Buying Window
Equirus Securities suggests selective buying in auto stocks as festive demand remains strong despite raw material cost concerns and foreign selling.
The recent correction in automobile stocks has created a strategic window for investors to selectively pick vehicle manufacturers, as robust festive demand and resilient earnings continue to provide a strong foundation for the sector, according to a recent report by Equirus Securities.
Strong Festive Retail Trends
Despite various market concerns, retail demand across different vehicle segments has remained healthy. The report highlights significant year-on-year growth during the festive period of FY27:
- Two-wheelers: Registrations surged by 45 per cent year-on-year, reaching 2.23 million units.
- Passenger Vehicles: Registrations grew by 54 per cent, totaling approximately 523,000 units.
While these figures are impressive, Equirus notes that the growth rates were partly supported by a low base effect, following declines in registrations during FY26 due to GST rate rationalisation. Instead, the brokerage suggests that the CAGR (Compound Annual Growth Rate) for FY25–27 is a more accurate metric, showing a steady growth of around 13 per cent for both segments.
The EV Revolution Gains Momentum
The shift toward sustainable mobility is accelerating, with electric vehicles (EVs) showing massive retail growth during the festive period:
- Electric Two-Wheelers: Retail sales jumped by 93 per cent year-on-year, with penetration reaching 11.5 per cent.
- Electric Passenger Vehicles: Sales rose by 91 per cent, achieving a penetration level of 8.6 per cent.
Investment Outlook and Market Risks
The brokerage suggests that many market concerns, such as rising raw material costs and growth prospects for the second half of FY27, are already largely priced into current valuations. This makes the current correction an opportunity for an "active look" at Original Equipment Manufacturers (OEMs).
Valuation Comparison
The report provides a comparative look at passenger vehicle manufacturers based on their estimated FY28 earnings:
- Mahindra & Mahindra: Trading at 18.2 times.
- Maruti Suzuki: Trading at 19.3 times.
- Hyundai: Trading at 21.7 times.
However, Equirus warns that investors must remain cautious regarding foreign investor selling. Persistent outflows from Indian equities could weigh on OEM valuations in the near term, regardless of how strong the underlying business fundamentals may be.
Future Demand Outlook
Dealer confidence remains high, with expectations that demand will sustain in absolute terms throughout the second half of FY27. This optimism is driven by replacement demand in the two-wheeler segment and a steady influx of new buyers in the passenger vehicle market. However, the report notes that some urban dealerships have reported a slight impact due to stagnant income growth among consumers.