Disclaimer: Views and outlook in this report belong to the brokerages and analysts cited. They do not reflect the views of Business Standard. Readers are advised to exercise discretion. Sector of the week by Motilal Oswal Wealth Management Research Desk Strong Festive Demand Supports Volumes; Growth Set to Normalize The Indian automotive industry recorded strong volume growth in 2QFY27, supported by pre-festive channel stocking, favourable base effects and improving demand across segments. Passenger vehicles (PVs) grew 31.2 per cent YoY, commercial vehicles (CVs) grew ~29 per cent, while ICE two-wheelers (2Ws) posted a relatively modest 10.4 per cent growth.
The strong headline growth was partly driven by a low base, as OEMs had deferred dispatches in Sep’25 ahead of GST rate cuts. With the base normalizing, industry growth is likely to moderate over the coming quarters. The 2W segment continued to witness divergent trends, with scooters outperforming motorcycles amid changing consumer preferences and premiumization. ICE scooters grew 15.4 per cent YoY in 2QFY27, while motorcycles grew 7.4 per cent, weighed down by subdued demand in the economy segment and weakness at Bajaj Auto.
Premium motorcycles remained a key growth driver, with the 150–250cc segment growing 21.2 per cent YoY. TVS Motor, Eicher Motors and Hero MotoCorp outperformed peers during 1HFY27, supported by stronger product positioning and demand across select segments. Going forward, product refreshes and premium launches should support volumes, although the gradual normalization of the base is likely to temper reported growth. PV demand remained healthy, led by utility vehicles (UVs), which grew 34.1 per cent YoY in 2QFY27 compared with ~25 per cent growth in passenger cars.
UVs accounted for 67.6 per cent of PV
UVs accounted for 67.6 per cent of PV volumes in 1HFY27, up ~160bp YoY, reflecting sustained consumer preference for larger vehicles. Maruti Suzuki, Tata Motors Passenger Vehicles and Kia recorded strong growth during the first half, while Mahindra & Mahindra and Hyundai faced relative pressure from supply constraints and production issues. With supply disruptions easing and a healthy launch pipeline across the industry, volumes should remain supported; however, growth is likely to moderate as the favourable base effect fades. CVs delivered a strong performance, with domestic volumes increasing 28.7 per cent YoY in 2QFY27, supported by healthy freight activity, government infrastructure spending, mining activity and a pickup in construction demand.
MHCV goods vehicles remained a key growth driver, while LCVs benefited from sustained demand across e-commerce, FMCG and last-mile mobility. Tata Motors Commercial Vehicles and Ashok Leyland remained key players to watch, supported by strong demand across goods and passenger applications. Although resilient freight activity and infrastructure spending should continue to support the segment, macroeconomic uncertainty and elevated fuel and commodity costs remain key monitorables. On profitability, commodity-cost pressures remain a concern, although price hikes undertaken by OEMs should cushion the impact and support a gradual margin recovery beyond 2QFY27.
A healthy product-launch pipeline, premiumization and improving operating leverage should benefit manufacturers with strong brand positioning and product portfolios. Risks include a normalization of the low base, a potential El Niño impact on rural demand and renewed escalation of geopolitical tensions in West Asia. Against this backdrop, OEMs with stronger product cycles and execution capabilities are likely to be better placed to sustain growth. We remain constructive on the sector, while expecting volume growth to moderate from the elevated levels seen in 1HFY27.
Our preferred OEM picks are Mahindra & Mahindra,
Our preferred OEM picks are Mahindra & Mahindra, Maruti Suzuki and TVS Motor, supported by their respective product positioning and growth opportunities. Among auto ancillaries, we prefer Motherson Wiring, Samvardhana Motherson International, Steel Strips Wheels and Tenneco India, given their exposure to underlying automotive demand and company-specific growth drivers. Check – TOP GAINERS NSE | TOP LOSERS NSE TVS Motors Target Price: ₹4,817 TVS Motor (TVSL) continues to strengthen its market position through consistent share gains across domestic and export markets, supported by premiumization, a strong product portfolio and a healthy launch pipeline.
The company outperformed peers with 27 per cent YoY volume growth in 2QFY27, led by motorcycles (+24 per cent), scooters (+23 per cent) and 3Ws (+47 per cent), while exports grew 35 per cent YoY. Rising export contribution and a favourable EV mix should support an ~8 per cent YoY improvement in average selling prices. Despite raw-material inflation and a higher EV mix, price hikes, operating leverage and a richer product mix should support margin resilience and earnings growth. TVSL’s expanding presence in premium motorcycles and electric 2Ws, alongside capacity expansion, provides further growth opportunities.
We expect revenue/EBITDA/PAT to deliver a CAGR of 20 per cent/23 per cent/24 per cent over FY26–28E, supported by continued market share gains, product launches and gradual margin improvement. Bajaj Auto Target Price: ₹12,162 Bajaj Auto (BJAUT) is well positioned for medium-term growth, supported by healthy export momentum, a gradual domestic market share recovery and a strong product launch pipeline across premium motorcycles and electric 2Ws/3Ws.
Total volumes grew 20 per cent YoY
Total volumes grew 20 per cent YoY in 2QFY27, led by 41 per cent growth in exports, which increased the export mix to 50 per cent from 43 per cent in 2QFY26, supporting better realizations and product mix. However, domestic motorcycle volumes remain under pressure, with economy-segment weakness and shifting consumer preferences weighing on performance, while recent market share losses highlight the need for successful product refreshes.
The planned capacity expansion of ~25 per cent across electric 2Ws/3Ws, from 7m to 9m units, provides headroom for growth. Strong operating leverage, a favourable export and 3W mix, and improving realizations should help offset commodity inflation and a higher EV mix, supporting margin resilience. We expect revenue/EBITDA/PAT to deliver a 20 per cent/22 per cent/22 per cent CAGR over FY26–28E. Given healthy return ratios, robust free cash flow generation and valuations of 23x/19.6x FY27E/FY28E EPS, we maintain a constructive view on the stock.
