Auto Stocks Outperform Market Volatility, Driven by Strong December Sales and Positive Outlook

Auto stocks have managed to weather market fluctuations in the first week of 2025, with investors rallying behind strong December wholesale numbers that exceeded expectations. Among the most notable performers were passenger vehicle (PV) stocks, which benefitted from strong double-digit sales growth, particularly in the UV and entry-level car segments, with Maruti Suzuki leading the charge.

Strong Passenger Vehicle Performance

December saw robust sales growth in both the entry-level and SUV segments, with figures jumping 29% and 21% year-on-year (YoY), respectively. This was driven by a positive response to new UV launches and the increasing demand for CNG vehicles. Analysts have retained a positive outlook for the PV sector, which helped boost market sentiment and drive stock prices higher. Over the last three trading sessions, the Nifty Auto Index surged 5.12%, with Eicher Motors leading the pack with a 10% rise. Maruti Suzuki, Tata Motors, Mahindra & Mahindra, Ashok Leyland, TVS Motor, Hero MotoCorp, and Bajaj Auto followed, all posting gains between 3% and 9.3%.

Eicher Motors Leads the Charge

Eicher Motors, a key player in the commercial vehicle (CV) sector, saw notable gains following the release of the December numbers. However, the two-wheeler (2W) segment, excluding Eicher Motors, experienced some disappointment, driven by inventory correction that impacted domestic sales.

CLSA Adds Tata Motors to Portfolio

Global brokerage firm CLSA has added Tata Motors to its India-focused portfolio, citing the company’s balanced approach in addressing risks related to a potential slowdown in commercial vehicle sales and its Jaguar Land Rover (JLR) division. This move reflects growing confidence in Tata Motors’ strategies to tackle these challenges.

2W Demand Outlook

In the two-wheeler (2W) space, December sales saw a 3% YoY decline, driven primarily by a reduction in domestic sales due to inventory correction. However, export volumes showed strong double-digit growth, partially offsetting the domestic decline. Domestic brokerage firm JM Financial pointed out that 2W demand in the near term will depend heavily on the success of new launches and rural market sentiment. Electric two-wheelers (E2Ws) are expected to continue their growth, with OEMs focusing on affordable launches and expanding production and distribution capabilities.

PV and CV Market Outlook

Passenger vehicle OEMs saw double-digit growth in volumes YoY, exceeding brokerage expectations by 4%. The continued growth of the SUV segment and solid exports were key drivers. While the overall PV industry posted moderate growth in 2024, carmakers expect sales to reach 4.3 million units in Q3 FY25, with strong SUV demand and sustained interest in emission-friendly powertrains.

In the commercial vehicle segment, volumes grew modestly, with fleet operators’ sentiment remaining stable. Government spending on infrastructure is expected to support demand, with strong sales in the bus segment driven by healthy demand from state transport undertakings (STUs) and private operators.

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