Autos on firm footing for long-term upcycle; Axis Sec reveals top 5 picks

Among OEMs under coverage, it has identified Eicher Motors, and Bajaj Auto as its top conviction ideas in 2Ws, and Ashok Leyland in the CV segment

Axis Securities remains constructive on the automobile and auto ancillary sectors, picking Eicher Motors, Bajaj Auto, and Ashok Leyland as its top bets in the auto original equipment manufacturer (OEM) space. In auto ancillaries, the brokerage has identified Sansera Engineering, and Endurance Technologies as its top conviction picks.

 

In the auto OEM space, Axis Securities said stable Ebitda margins are being supported by a richer product mix and strengthening volume trends in two-wheelers (2Ws), commercial vehicles (CVs), and tractors. Growth in FY26E is expected to be driven by premium launches, GST rate cuts, rural recovery, and supportive policy measures, despite mild raw material headwinds.

 

 

“The sector has displayed strong performance in Q3FY26, with clear pockets of strength emerging, especially in exports, tractors, and premium segments. The recent GST rate cut has further supported demand recovery across key categories. We believe the industry is transitioning towards sustainable long-term growth, and our insights are aimed at helping investors position portfolios strategically to capture compelling opportunities in this space,” said the brokerage in its report titled “Top Conviction Ideas - “Auto & Auto Ancillaries”.

 

Among auto ancillaries, the brokerage expects gradual margin stability, with revenue growth supported by volume recovery in 2Ws and tractors, along with continued premiumisation. However, performance may remain mixed due to commodity cost pressures and product mix variations across players.

 

According to Axis Securities, a pick-up in domestic demand, and exports will remain key monitorables for the sector.

FY26 outlook: Stable margins, improving volumes

The brokerage expects Ebitda margins to remain largely stable in the near term, supported by a richer product mix, though raw material headwinds could exert slight pressure. It expects 2W sales volumes to sustain mid- to high single-digit growth in FY26E, backed by new premium segment launches, an extended replacement cycle, and recovery in exports.

 

“A favourable monsoon, GST rate cut, income tax relief, and increased rural spending are likely to further drive demand for entry-level motorcycles,” said the brokerage.

 

Overall passenger vehicle (PV) sales growth, largely led by the utility vehicle (UV) segment, is expected to remain in the mid single digits in FY26E — versus earlier low single-digit expectations — aided by the GST rate cut and new model launches. These measures, Axis Securities said, may help arrest the decline in entry-level PV domestic sales.

 

The brokerage added that OEMs remain optimistic about long-term structural growth drivers, including India’s vast road network, policy measures aimed at reducing supply chain costs, the vehicle scrappage policy, lower interest rates, and continued infrastructure capex outlined in the Union Budget.

 

“CV volumes are expected to grow in the high single digits, while tractor volumes are projected to expand at a mid double-digit pace in FY26E, supported by a favourable monsoon, lower financing costs, GST rate cuts, and increased government allocations towards the farming and infrastructure sectors ahead of state elections,” said Axis Securities.

Top stock picks

Axis Securities remains selective in its approach. Among OEMs under coverage, it has identified Eicher Motors (target price ₹8,060), and Bajaj Auto (target price ₹10,790) as its top conviction ideas in 2Ws, and Ashok Leyland (target price ₹225) in the CV segment. In the PV/tractor space, it favours Mahindra & Mahindra (non-coverage), citing its strong SUV portfolio and leadership in the domestic tractor industry.

 

In auto ancillaries, Axis Securities has picked Sansera Engineering (target price ₹2,275), and Endurance Technologies (target price ₹2,880) as its top conviction bets.

 

“In the long run, product premiumisation, strong order books, growing exports, GST rate cuts, and the shift towards EVs are expected to drive higher content per vehicle, boosting profitability. Considering current valuations, our top conviction picks in the ancillary space are Sansera Engineering and Endurance Technologies,” said the brokerage.  ======================================== 

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