Auto sales growth to cool post-festive season, says Monarch; bets on Minda Corp, RK Forgings and Sundram Fasteners

Against this backdrop, MNCL prefers diversified auto ancillary companies that have multiple growth drivers, including an increase in content per vehicle, rather than relying solely on underlying industry growth. The brokerage has named Minda Corporation, RK Forgings and Sundram Fasteners as its top picks from its coverage universe, citing their potential to outperform the broader automobile industry.

The brokerage has maintained a Buy rating on all three stocks, with a target price of Rs 985 for Minda Corporation, Rs 805 for RK Forgings and Rs 1,315 for Sundram Fasteners. The stocks offer potential upside of up to 44%, 16% and 23%, respectively, according to MNCL. It also considers valuations at current market prices attractive for all three companies.

Minda Corporation is expected to deliver strong growth through increasing content per vehicle. RK Forgings is positioned to benefit from healthy new order bookings and expansion in casting, while Sundram Fasteners is expected to gain from export orders and diversification into non-automotive segments.

Festive demand drives October auto sales

The Indian automobile industry reported healthy volume growth in October 2026, supported by strong festive-season demand, improved consumer sentiment and sustained replacement demand. GST rationalisation and improved affordability also supported vehicle demand across most segments.

Passenger vehicles, two-wheelers, three-wheelers and commercial vehicles recorded healthy growth, indicating broad-based demand momentum. However, the farm equipment segment remained weak, reporting double-digit volume de-growth amid continued pressure on tractor demand.

MNCL said it expects PV, CV and 2W industry growth to moderate in the second half of FY27 on a high base, while tractor sales are likely to remain subdued.

Passenger vehicle growth faces a post-festive test

The passenger vehicle segment reported strong sales volume growth in October, supported by festive demand, improved affordability, strong exports and favourable consumer sentiment.

The festive calendar, with Navratri and Dussehra falling in October, led to a concentration of vehicle deliveries. Advance dealer stocking ahead of Dhanteras and Diwali in November also supported wholesale dispatches.

According to Sahil Sanghvi, VP, Institutional Research at Monarch Networth Capital, the benefits of GST 2.0 have improved vehicle affordability and purchasing power, supporting both first-time buyers and replacement demand.

Demand remained skewed towards SUVs and compact SUVs, with a wider product portfolio and new launches supporting consumer traction.

Despite a high base, Maruti Suzuki, Tata Motors and Hyundai reported strong double-digit year-on-year volume growth, supported by large order backlogs. Mahindra & Mahindra (M&M), however, reported relatively muted growth of 1% year-on-year, largely due to a significantly higher base.

"We will closely watch out for the inventory levels and order backlogs to determine the growth trajectory. However, we expect the overall 4W sales growth to moderate in 2HFY27 once the festive period ends," Sanghvi said.

Two-wheeler growth expected to taper

Improving rural demand, replacement buying, premiumisation and rising electric vehicle penetration are expected to support the two-wheeler industry.

However, MNCL expects growth to taper in the second half of FY27 due to a high base, similar to its outlook for passenger vehicles.

The brokerage also remains watchful on two-wheeler-heavy auto ancillary companies and said it would look for signs of sustained underlying industry growth before turning positive on the segment.

Commercial vehicles report healthy growth

The commercial vehicle segment recorded healthy volume growth in October, reflecting sustained demand across freight and passenger transportation.

Force Motors, Volvo Eicher and Tata Motors reported year-on-year volume growth of 45%, 35% and 27%, respectively, while M&M recorded growth of 17%.

The medium and heavy commercial vehicle (M&HCV) segment continued to outperform, indicating healthy fleet utilisation and replacement demand.

Going ahead, expansion in logistics activity, fleet replacement and sustained infrastructure spending are expected to support demand in the commercial vehicle segment.

Tractor demand remains weak

The farm equipment segment continued to face pressure in October, partly due to a high base in the corresponding period last year. Below-normal and uneven monsoon rainfall have also raised concerns over farm incomes and near-term tractor demand.

While exports provided some support, with M&M and Escorts Kubota reporting healthy export growth, domestic demand remained subdued.

MNCL said post-harvest cash flows and an improvement in rural liquidity would be key factors determining the recovery in tractor demand.

Against an expected moderation in vehicle industry growth and continued weakness in tractors, the brokerage's preference remains tilted towards diversified auto ancillaries with company-specific growth drivers that could help them outperform underlying industry trends.

Disclosure: This article has been written by Kumar Gaurav, who is not a Sebi-registered Research Analyst or an Investment Adviser. Gaurav and their ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective Sebi-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here