Strong Q3 show, trade deals drive gains for auto-component stocks

Segment has outperformed the Nifty Auto index so far this year

Auto stocks on Friday were able to withstand selling pressure better than other sectors with the BSE auto and Nifty auto indices falling less than 1 per cent as compared to the 1.3 per cent fall of the benchmark indices. Within the auto pack, prospects of the ancillary players have improved over the past one month, driven by multiple triggers. 

Auto-component stocks were laggards last year but have been outperforming the Nifty auto index since the start of the year. In fact, over the past month the top three gainers in the Nifty Auto index were auto-component majors. Leading the auto pack was Bharat Forge with gains of 19.1 per cent, followed by Sona BLW Precision (15.6 per cent) and Samvardhana Motherson (14.3 per cent). 

The main drivers for the top listed players are strong October-December (Q3) results, trade deals with the European Union (EU), United Kingdom (UK), and United States (US), and diversification beyond the core auto business. This has helped them derisk cyclical demand and technology trends. 

Axis Securities says that the free-trade agreements with UK and the EU are supportive for exporters of auto ancillaries. 

Engineering-intensive components such as forgings, castings, wheels, axles and electronics, according to Sanchit Karekar, are likely to see improved access to European markets, supported by India’s cost advantages and increasing sourcing diversification by European original equipment manufacturers under the China+1 strategy. 

The clear beneficiaries are export-oriented majors in auto parts, says the brokerage. It has a “hold” rating on Endurance Technologies with a target of ₹2,830 per share and a “buy” rating on CIE Automotive and Sansera Engineering with a target of ₹500 per share and ₹1,950 per share, respectively. 

The US-India trade deal is another positive. The decline in reciprocal tariffs from 50 per cent to 18 per cent is more positive for the ancillary space than it is for auto makers, points out ICICI Securities. Within the auto-component space, the key gainer would be medium and heavy commercial vehicles. The brokerage says that key beneficiaries of this include Bharat Forge, Balkrishna Industries, Steel Strips Wheels, and Sensera Engineering in its coverage universe. 

Third-quarter results have added to positive sentiment and the investor tilt towards the companies in auto parts. Given the Q3 revenue outperformance and fair valuations, Nomura Research has a “buy” rating on Bharat Forge. Kapil Singh and Siddhartha Bera of the brokerage expect the firm to witness strong growth, driven by a robust rampup in defence and aerospace, and improved demand for commercial vehicles. The India-US trade deal removes the tariff overhang and new order wins should continue. The restructuring of the EU steel business and potentially shifting part of it to India could be a catalyst, says the brokerage. 

The country’s largest auto-component maker, Samvardhana Motherson, also delivered a strong Q3 performance, which led to upgrades on the target price. 

Motilal Oswal Research raised its earnings estimates for FY26 by 6 per cent, given the better than expected performance in Q3 despite adverse global conditions. Analysts led by Aniket Mhatre of the brokerage expect the firm to continue to outperform global automobile sales, fuelled by rising premiumisation and the transition to electric vehicles, a robust order backlog in autos and non-autos, and a successful integration of recent acquisitions. 

While Endurance Technologies had a steady quarter, brokerages are cautious, especially on the European business. While the domestic auto segment has kicked off well after the cuts in rates of good and services tax, the European business is currently operating in a challenging environment. HDFC Securities says the company is set to continue to benefit from increasing premiumisation in the domestic two-wheeler industry, auguring well for its portfolio of inverted front forks, slip/assist clutches, and hydraulic brake systems. 

After a strong Q3 show, led by healthy organic growth amid macro headwinds, Elara Securities is positive on Sona BLW Precision Forgings. The firm continues to show a strong development capability in new products and has many levers in place on products, segments, and customer expansion. Analysts led by Jay Kale have raised their FY26-28 earnings by 2-5 per cent and increased their target price.