Global headwinds may hit growth prospects of auto parts suppliers

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Stocks of automotive (auto) component makers that draw a majority of their revenue from key overseas markets are likely to face pressure amid demand weakness, tariff uncertainty, margin stress, and stretched valuations. 

Bharat Forge, Samvardhana Motherson International (Samil), Sona BLW Precision Forgings (Sona Comstar), and Balkrishna Industries are expected to bear the brunt, as at least 55 per cent of their revenue comes from global markets. 

These stocks have lagged the broader sector. Their average return over the past six months and one year stands at 4.5 per cent and minus 6 per cent, respectively, compared with gains of 19 per cent and 17 per cent for the Nifty Auto index over the same periods. 

The Street’s primary worry is weak demand in key markets, as flagged by automakers. Most global passenger vehicle (PV) manufacturers expect revenue and volume growth in calendar year (CY) 2025 to be flat or lower than in CY 2024. The outlook for heavy trucks, particularly in North America, is more downbeat. 

During the July–September quarter, retail sales of North American Class 8 trucks — the heaviest category, with a gross vehicle weight rating above 33,000 pounds as defined by the Federal Highway Administration — fell 20 per cent year-on-year (Y-o-Y). In contrast, sales of heavy commercial vehicles (CVs) in Europe rose 5 per cent Y-o-Y.

 

Leading truck makers such as Volvo, Daimler, and Paccar expect CY 2025 to end weakly, with projected declines of up to 19 per cent in North America and 14 per cent in the European Union (EU). CY 2026 is expected to deliver mixed results: about a 6 per cent contraction in North America, offset by 2 per cent growth in the EU.

 

Analysts at Nuvama Institutional Equities, led by Raghunandhan N L, say the EU truck market remains replacement-led, with defence spending likely to lift demand from CY 2026 onwards. By contrast, the North American long-haul freight downturn continues, driven by lower volumes and customer caution around US Environmental Protection Agency CY 2027 norms and tariffs.

 

Several brokerages expect weakness in the North American auto segments. Light-vehicle demand, according to Kotak Institutional Equities, is likely to soften due to tariff-driven price inflation, high borrowing costs, and a reset in electric vehicle (EV) demand.

 

On the CV side, Class 8 trucks remain in a downcycle, weighed down by weak freight activity, elevated inventories, and a thin order book for CY 2026, say Kotak Securities analysts Rishi Vora and Apurva Desai. Demand for off-highway equipment is likely to stay subdued as contractors absorb excess fleet capacity, while farm machinery faces pressure amid poor sentiment and tight credit conditions, they add.

 

Elara Securities echoes the cautious tone, pointing to guarded demand commentary from global automakers, persistent tariff risks, and a worsening supply-chain backdrop. Automakers continue to grapple with tariff-related pressure even in the fourth quarter of CY 2025 and into CY 2026, which has pushed profitability for most global players down to the low-to-mid single-digit range, say analysts at the brokerage led by Jay Kale.

 

Given this backdrop, most brokerages remain negative on companies with large overseas exposure. Kotak Securities has maintained a ‘sell’ rating on Bharat Forge and Samil, and a ‘reduce’ rating on Sona Comstar, citing a subdued global auto outlook and rich valuations. While these stocks have rallied on expectations of a potential US–India trade deal, the brokerage says any tariff relief would offer only a modest margin lift, likely outweighed by a weak global environment.

 

Elara, too, remains cautious on Samil, Sona Comstar, and Bharat Forge. Slowing global PV growth, shrinking profit pools for automakers in China, market-share pressure on legacy players in the EU, and a deceleration in US growth weigh on Samil. For Sona Comstar, concerns around Tesla’s growth persist. At the same time, a recovery in US EV demand remains a key monitorable following the slump in October and November after the expiry of federal tax credits. For Bharat Forge, muted global CV demand continues to be a drag, especially after Volvo lowered its North American Class 8 growth outlook for CY 2025.

 

Nuvama, however, takes a more constructive view on CY 2026, arguing that prospects across several global auto segments have improved. It expects better conditions for CVs and construction equipment compared with CY 2025, which could work in favour of globally exposed firms such as Balkrishna Industries, Bharat Forge, and Samil. These companies, it says, are likely to outpace the industry through order wins and diversification efforts.