Auto upcycle is here, says Morgan Stanley; Upgrades Maruti, Eicher, Hero

Among companies, Maruti Suzuki is expected to gain market share with new SUV launches and a revival in first-time buyers, prompting the brokerage to raise its target from ₹14,262 to ₹18,360.

Morgan Stanley on Indian Autos: Morgan Stanley expects India’s auto sales to grow, citing factors like potential price cuts, government incentives, and rising household demand. In a research note dated September 8, analysts Binay Singh and Sushrut Ghalasahi highlighted that “GST rationalisation could drive auto price cuts of the magnitude consumers have not seen before, monetary easing and the 8th pay commission to also support demand.”

 

The brokerage noted that historically, “auto multiples tend to peak around peak margins,” suggesting that any upside surprise in margins could support additional re-rating for key players.

 

Household penetration remains a key growth driver. Currently, only 13 per cent of Indian households own passenger vehicles (PVs), while 73 per cent own two-wheelers (2Ws). Morgan Stanley expects price cuts to “accelerate replacement demand and attract first-time buyers.” Specifically, PV demand will likely be driven by new buyers, while replacement demand will underpin growth in the 2W segment.

 

Among companies, Maruti Suzuki India Limited (MSIL) is expected to gain market share with new SUV launches and a revival in first-time buyers, prompting the brokerage to raise its price target from ₹14,262 to ₹18,360. Mahindra & Mahindra (M&M), TVS Motors, and Eicher Motors (EIM) were already gaining market share, and potential price cuts could accelerate this trend.

 

Morgan Stanley has upgraded Eicher Motors (₹4,079 to ₹7,021)) and Hero MotoCorp (₹3,765 to ₹5,968) to Equal Weight (EW) from Underweight (UW), reflecting “expected benefits from the 2W recovery,” though the brokerage noted that valuations for both stocks are approaching full levels with limited margin upside. On the flip side, Bajaj Auto has been downgraded to UW from EW, with its price target reduced from ₹9,117 to ₹8,075, as it stands to benefit less from the domestic discretionary auto cycle.  

On the bourses at 9:40 AM, Hero MotoCorp rose 0.17 per cent to ₹5,450, Maruti Suzuki gained 0.18 per cent to ₹15,285.80, and Eicher Motors advanced 0.85 per cent to ₹6,871.75, while Bajaj Auto fell 0.56 per cent to ₹9,389.50. In comparison, BSE Sensex was trading 0.34 per cent higher at 81,064.88 levels.

 

Other upgrades include Hyundai Motor India (₹2,241 to ₹3,066), Mahindra and Mahindra (₹3,668 to ₹4,321), TVS Motor (₹3,126 to ₹3,933) and Ashok Leyland (₹144 to ₹152), highlighting the brokerage’s constructive stance across both PV and 2W segments.

 

Looking at the broader industry, analysts expect a GST-driven virtuous cycle, projecting 10 per cent Y-o-Y growth for PVs and 8 per cent for 2Ws in FY27. PVs, currently in a downcycle relative to the past 20-year trends, could surprise more strongly than 2Ws due to lower household penetration, higher operating leverage, and strong terminal growth.

 

The brokerage also “raised earnings estimates by 3–10 per cent across coverage, factoring in stronger volumes and leverage gains.” Morgan Stanley has maintained Overweight (OW) ratings on Maruti, M&M, TVS, Hyundai, and Ashok Leyland, reflecting expectations of robust margin recovery and market share gains. 

 

Volume recovery will be critical, but “margin upside surprises remain the key driver for incremental outperformance in the Indian auto sector.”