The Indian auto sector is expected to accelerate in the second half of FY26, with analysts turning bullish on the back of GST reforms, strong rural demand, and improving trade dynamics.
Brokerages Choice Broking and InCred Equities have revised their sector outlooks upward, highlighting five major factors that will drive growth in the auto stocks.
GST Cuts to Unlock Demand
The recent GST restructuring is seen as a catalyst for auto sales recovery. Small cars, two-wheelers, and three-wheelers have moved to the lower 18% slab, while tractors have shifted from 12% to 5%. Large cars now attract a flat 40% rate.
According to analysts, this GST rate cut will revive demand suppressed by high costs from stricter emission and safety norms and repeated OEM price hikes. Entry-level buyers, most impacted by affordability issues, are likely to benefit the most.
Rare Earth Supply Chain Relief
China’s decision to lift restrictions on rare earth magnet exports to India has eased short-term concerns for electric vehicle (EV) makers and advanced auto component manufacturers. These materials are vital for EV motors. However, experts warn of China’s unpredictable policy stance and stress the need for India to develop alternative supply chains and technologies to ensure long-term stability.
Trade Diversification Amid Global Tariff Risks
While US tariffs remain a challenge, India’s active pursuit of trade diversification could soften the blow. Progress on the India-UK Free Trade Agreement (FTA) and incremental improvements in ties with China post-border disengagement are expected to provide support to the auto supply chain and open up export opportunities.
Rural and Government-Led Demand Boost
A strong monsoon and higher kharif sowing are expected to lift rural incomes, fuelling demand for two-wheelers and tractors. On the commercial vehicle side, government-driven capital expenditure is set to support long-term demand, particularly post-monsoon, providing another leg of growth for the sector.
Market Sentiment and Historical Cycles
InCred Equities points out that the BSE Auto Index typically leads volume recovery by a few months. The recent rally, sparked by GST cut expectations, has pushed valuations slightly above the mean. Yet, with a potential two- to three-year upcycle ahead, analysts see scope for sustained growth. EV adoption in the two-wheeler space may slow in the near term due to higher price differentials with petrol scooters, but incumbents such as Bajaj Auto and Hero MotoCorp are positioned to gain.
Brokerage Stock Picks
Choice Broking recommends Buy on Mahindra & Mahindra (M&M) (Target Price: ₹4,450), Ashok Leyland (Target Price: ₹155), and Lumax Auto Technologies (Target Price: ₹1,330), while maintaining an Add on Lumax Industries (Target Price: ₹4,400).
InCred Equities has upgraded Escorts Kubota and M&M shares to Add, Tata Motors shares to Hold, and Apollo Tyres stock to Add.
It also raised target prices for Maruti Suzuki, Hero MotoCorp, Ashok Leyland, and Bajaj Auto, preferring Maruti and M&M in passenger vehicles, Bajaj Auto and Hero MotoCorp in two-wheelers, and Ashok Leyland in CVs.
Outlook
With tax reforms, rural revival, policy support, and positive trade developments converging, analysts expect FY26 to mark the beginning of a strong upcycle for the Indian auto sector. While global uncertainties remain, the domestic growth drivers appear firmly in place.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
