Auto sector mixed; Maruti, M&M top MOFSL bets as GST decision looms

MOFSL on auto sector: Visible green shoots in the two-wheeler (2W) segment and robust growth in tractors are offering some optimism for the automobile sector, even as passenger vehicle (PV) demand remained muted in August 2025, according to a Motilal Oswal Financial Services (MOFSL) note, dated September 1.

 

Analysts noted that the proposed GST rate rationalisation remains the key near-term trigger, particularly for PVs. “Maruti Suzuki (MSIL) is our top pick among auto original equipment manufacturers (OEMs), as its upcoming new launches and the current export momentum should drive healthy earnings growth,” the report said. Mahindra and Mahindra (M&M) was also highlighted positively, with analysts citing “an uptrend in tractors and healthy growth in UVs.”

 

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GST uncertainty weighs on PV volumes

 

Passenger vehicle wholesales continued to show weakness, with volumes for the four listed OEMs declining by 2 per cent Y-o-Y in August 2025, the report said. Year-to-date (YTD), the segment has seen a marginal 1 per cent Y-o-Y growth. M&M reported its first utility vehicle volume decline (-2 per cent Y-o-Y) since November 2021, attributed to a conservative approach on dealer inventory ahead of the potential GST changes.

 

Maruti Suzuki’s volumes dipped marginally by 0.6 per cent Y-o-Y to 181,000 units, with export growth of 40.5 per cent Y-o-Y offset by a 7.5 per cent drop in domestic sales. Hyundai and Tata Motors (TTMT) also reported declines of 4.2 per cent and 2.6 per cent Y-o-Y, respectively.

 

“PV wholesales were impacted by the impending GST rate cut proposal, as customers postponed their purchase decisions,” MOFSL noted.

 

2W segment rebounds; TVS, RE lead growth

 

The 2W space showed strong signs of revival, with the four listed players posting 15 per cent Y-o-Y growth in August. TVS Motor Company (TVSL) led the way with 30 per cent Y-o-Y growth in total vehicle sales, while Royal Enfield (RE) clocked a 55 per cent Y-o-Y increase, exceeding estimates.

 

Bajaj Auto (BJAUT) saw 5 per cent growth in total sales, though domestic volumes were down 12 per cent Y-o-Y. Export performance remained strong at +29 per cent Y-o-Y. Hero MotoCorp (HMCL) reported 8 per cent Y-o-Y growth to 553,000 units.

 

“Overall, 2W volumes for the four listed entities grew 7 per cent Y-o-Y YTD, largely driven by exports,” said the Motilal Oswal note.

 

CV growth driven by exports, bus sales

 

Commercial vehicle (CV) sales rose 8.4 per cent Y-o-Y in August, led by strong export demand and bus sales. Tata Motors reported a 10 per cent Y-o-Y increase, supported by 77 per cent growth in exports and a 6 per cent rise in domestic volumes. Ashok Leyland saw 5.4 per cent growth, with MHCV sales up 8.3 per cent Y-o-Y and bus volumes up 36 per cent. VE Commercial Vehicles (VECV) posted 9.5 per cent Y-o-Y growth to 7,200 units. Y-T-D FY26, however, CV volumes are up just 2 per cent Y-o-Y for the three listed peers.

 

Tractors: Standout performer

 

The tractor segment continued its strong run, with M&M and Escorts posting 28 per cent and 27 per cent Y-o-Y growth, respectively. M&M’s volumes came in at 28,100 units (above estimates), while Escorts reported 8,500 units.

 

Motilal Oswal attributed this strength to “timely monsoons, strong reservoir levels, and an early festive season,” and noted that “industry sentiment remains upbeat,” especially with expectations of a GST cut on tractors and farm equipment. However, MM did flag concerns around surplus September rainfall potentially impacting Kharif harvests.

 

Outlook: GST decision a critical catalyst

 

With PV demand deferred and mixed trends across other segments, the GST Council’s decision remains a key monitorable for the sector. Motilal Oswal maintains a constructive stance on MSIL and MM, viewing them as best-positioned to benefit from demand normalisation, export strength, and potential tax rationalisation.

 

“The decision by the GST Council on the proposed rate cut remains the key monitorable for the sector,” analysts at Motilal Oswal said.