Nifty Auto index up 3%; Bajaj, TaMo gain up to 5%; what's behind the rally?

In the past one month, the Nifty Auto index has outperformed the market by soaring 9.5 per cent, as against 0.18 per cent gain in Nifty 50.

Shares of automobiles and related companies were on a roll with the Nifty Auto index surging 3 per cent on the National Stock Exchange (NSE) in Monday’s intra-day trade on expectations of healthy business growth.

 

Bajaj Auto, Hero MotoCorp, Tata Motors, Mahindra & Mahindra (M&M), TVS Motor Company and Eicher Motors from automobiles rallied between 3 per cent and 5 per cent. Tube Investments of India, Samvardhana Motherson International, Exide Industries, MRF and Bosch from auto-related stocks surged in the range of 2 per cent to 6 per cent.

 

At 02:25 PM; Nifty Auto index, the top gainer among sectoral indices was up 2.5 per cent, as compared to 0.75 per cent rise in the Nifty 50. In the past one month, the index has outperformed the market by soaring 9.5 per cent, as against 0.18 per cent gain in the benchmark index.

 

Meanwhile, Ola Electric Mobility (up 15 per cent at Rs 62.35) and Ather Energy (up 14 per cent at Rs 512.75) among the non-index stocks have zoomed over 10 per cent amid heavy volumes.  Why are auto stocks rallying?

 

According to media sources, dealerships across India experienced an expected inventory glut in August, which was expected, as cautious car buyers held off purchases in anticipation of possible GST cuts. Recent VAHAN data highlighted a significant 3 per cent month-on-month dip in retail auto sales, with many showrooms reporting higher unsold stocks despite ongoing demand for electric vehicles. Inventory levels have soared up to 75 days which were steady at 55 days by the end of July. 

 

This trend, on expected lines amid policy uncertainty, reflects the auto industry’s cyclical sensitivity to tax announcements and confirms market predictions that buyers often defer decisions when major fiscal changes are anticipated, ICICI Securities said in a note.

 

Monthly automobile volumes (wholesales) for the month of August 2025 might see a modest drop compared to July, due to sluggish demand and high inventory levels at dealerships as a result of anticipation of GST reforms. Overall, the outlook is cautiously optimistic but tempered by current market corrections and uneven demand trends, the brokerage firm said.  Robust demand

 

Meanwhile, August witnessed relatively robust demand in the SUV segment amidst anticipated GST rate changes. With the final GST announcement approaching, M&M said the company is consciously decided to bring down the wholesale billing to minimize the stock being carried by its dealers. The management looks forward to the GST rationalisation, which would be a demand driver through the festive season.

 

The above-normal monsoon and improved reservoir levels augur well not only for Kharif crops but also for the upcoming Rabi season in October. While the IMD's forecast of surplus rainfall in September – especially in certain pockets – may pose risks to Kharif harvests, it needs to be managed with caution. All these factors, along with continued government support through financing schemes for farmers could potentially drive tractor demand during the upcoming festive season, M&M said.

 

Kotak Institutional Equities believes multiple government initiatives, including potential GST cuts, will drive auto demand. A shift to 18 per cent GST (across most segments) could reduce on-road prices by 3-8 per cent across 2Ws, PVs, CVs and tractors, which may stimulate volumes.

 

Domestic auto ancillaries are set to benefit through higher OEM demand, strong replacement volumes and operating leverage. Tyre makers also gain from replacement demand (except Balkrishna Industries due to higher global exposure), while battery companies may also benefit due to an uptick in OEM, replacement and industrial demand, the brokerage firm said.