Auto stocks traded higher on Monday, October 12, with Tube Investments of India and Bajaj Auto leading gains in the Nifty Auto index. The gains come as global investment banking firm CLSA sees an attractive risk-reward opportunity in the sector after the index corrected around 17% over the past two months, despite robust retail demand momentum.
CLSA attributed the correction to concerns about profitability amid commodity inflation, the risk that frequent price hikes could affect demand, and a valuation de-rating as growth normalises following the goods and services tax (GST) rate cuts.
However, CLSA said concerns about growth moderation after the GST rate cuts took effect in October were neither new nor unexpected. Automakers reiterated their confidence in delivering mid- to high-single-digit growth in the second half of financial year 2027 (H2 FY27) during a conference in Hong Kong in September, it noted.
CLSA believes several original equipment manufacturers (OEMs) are now trading at compelling valuations, even under conservative assumptions for FY28 that factor in the potential persistence of commodity inflation.
M&M stands out among automakers
Mahindra & Mahindra is CLSA’s preferred pick among OEMs. The firm maintained its High-Conviction Outperform rating on the stock, which it said trades at around 15 times FY28 core earnings per share (EPS).
This valuation assumes a 10% decline in tractor volumes in FY28 and the continuation of benign earnings before interest and taxes (EBIT) margins across segments.
CLSA believes that even under this conservative scenario, which implies around 10% compound annual growth (CAGR) in its Earnings Per Share, M&M’s valuation adequately reflects the risks.
The firm’s assessment suggests that the recent correction has improved the sector’s risk-reward profile, although concerns around commodity inflation, price hikes and post-GST growth normalisation remain key factors for investors to monitor.
Auto stocks turn green
Shares of both Tube Investments and Bajaj Auto are trading with gains of nearly 3% each, while TVS Motor is trading with gains of nearly 2%.
Mahindra & Mahindra, CLSA’s preferred pick, is also trading with gains of 1.3%, along with Samvardhana Motherson, which is trading at a similar quantum.
Among other auto stocks, Bharat Forge was up 0.8%, Hyundai Motor India gained 0.9%, and Uno Minda rose 0.8%. Tata Motors Passenger Vehicles (TMPV) edged up 0.5%, while Bosch gained 0.5% and Maruti Suzuki India advanced 0.3%.
The Nifty Auto index has gained more than 330 points today and is up 1.3% at ₹25,190.15. The index has fallen nearly 12% since January this year.
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