Maruti, M&M, Bajaj Auto: Limited upside in auto stcks, says Choice Equities

Choice Institutional Equities upgrades auto sector to 'Positive' citing GST reforms, easing rare earth supply, and rural demand. See top auto stock picks with upside potential

Choice Broking on auto stocks

  The recent goods and services tax (GST) reforms, along with likely macro tailwinds, has turned analysts at Choice Institutional Equities positive on the automobile sector. In a report dated September 15, the brokerage upgraded the sector outlook to 'Positive' from 'Neutral', expecting a revival in auto demand due to lower vehicle prices. 

The brokerage, however, believes much of the run-up in auto stocks has happened, leaving little scope for further upside. 

Since August 15, the Nifty Auto index has surged 11.4 per cent on the NSE as aganinst a 2 per cent rise in the benchmark Nifty50 index.   Among individual stocks, Eicher Motors has rallied 19.3 per cent, Maruti Suzuki 18.5 per cent, TVS Motor 15.6 per cent, Hero MotoCorp 12.6 per cent, and samvardhana Motherson 11.4 per cent. Ashok Leyland, M&M, Tata Motors, and Bajaj Auto, meanwhile, have gained up to 9.9 per cent, ACE Equity data shows. 

 

Four reasons why Choice Broking is ‘Bullish’ on auto and auto-ancillary sector:

1) GST reform

Under the recent rate rationalisation of the GST structure, the government has move small cars, two-wheeler, and three-wheeler segments to the 18 per cent slab from 28 per cent. Also, I has changed the GST rate on tractors to 5 per cent from 12 per cent, and the large car segment to a flat rate of 40 per cent. 

The changes, as per the brokerage, present a major opportunity for the automobile sector. 

  "This reduction is expected to boost demand, which was negatively impacted due to high vehicle prices driven by stricter emission and safety norms. Original equipment manufacturer (OEM)-led price hikes also added to the overall cost of ownership, especially for entry-level buyers," it pointed out. 

2) Rare earth supply chain issues ease

Recently, China lifted export restrictions on rare earth magnets to India—key inputs for electric vehicle (EV) motors and high-performance automotive components. The temporary ease in supply-side pressures may provide short- to medium-term relief for the domestic auto sector, particularly in the lead-up to the festive season when demand typically surges. 

From an investment perspective, this easing could support improved production visibility and margin stability for EV and auto component manufacturers in the near-term, the brokerage said. However, China's history of abrupt policy shifts introduces a level of geopolitical and supply-chain risk that investors should not overlook, it cautioned.

  "Over the long term, sustainable value creation in the sector will depend on efforts by OEMs and the government to diversify sourcing and accelerate the development of domestic alternatives and advanced material technologies" Choice Institutional Equities said.

 

3) Tackling US tariffs

India has been exploring alternative opportunities through trade diversification and improved foreign relations to tackle US President Donald Trump-triggered tariffs. 

The ongoing conversation on the India-UK Free Trade Agreement (FTA) represents a strategic opportunity as India looks to expand its market access. 

  "Additionally, India has observed incremental improvements with China, particularly since border disengagement efforts began in late 2024. These developments aim to foster more stable bilateral ties and open up channels for expanded trade," Choice said. 

4) Healthy monsoon, and uptick in rural demand

Amid strong monsoon and higher kharif sowing, the brokerage anticipates a boost in rural income, to drive 2W and tractor demand. 

Top auto stocks to buy, sell, hold right now:

In this backdrop, Choice Institutional Equities has shared its investment ideas in the auto sector: 

Ashok Leyland | Buy | Share price target: ₹155 | Upside potential: 15.6%

Ashok Leyland stock is well-positioned to take advantage of the GST rate cuts for the CV industry (~93–95 per cent of total revenue) which can act as a catalyst for the pent-up replacement demand of the aging fleet. Taking this into account, we revise our FY27/FY28 EPS estimates upwards by 3.7 per cent/4.6 per cent. 

Bajaj Auto | Add from Buy | Target price: ₹9,975 | Upside potential: 10.9%

GST rate cuts for two and three wheelers benefit ~50 per cent of Bajaj Auto’s portfolio, while there is no effect for the remaining portfolio that comprises exports and EV. Thus, we revise our FY27/FY28 EPS estimates upwards by 1.8 per cent/2.7 per cent. 

Eicher Motors | Reduce from Add | Target price: ₹6,550 | Downside potential: 4.7%

EIM is poised for strong growth, with GST rate cuts benefitting nearly 81 per cent of its portfolio, while the rate change to 40 per cent for above 350cc motorcycles (~6 per cent of portfolio) will be a small negative for the company. 

Hero MotoCorp | Reduce from Add | Share price target: ₹5,350 | Upside potential: 1.0%

Hero MotoCorp is well-positioned to take advantage of the GST rate cuts benefitting ~93 per cent of its portfolio. The entry level segment (below 110cc motorcycles), which has seen decline over the past few years, can see an uptick in volume due to these rate cuts. Consequently, we revise our FY27/FY28 EPS estimates upwards by 3.6 per cent/5.4 per cent. 

M&M | Buy | Target price: ₹4,450 | Upside potential: 24%

MM is a major beneficiary of the GST rate cuts, with these changes positively impacting all the segments of the company. Around 95 per cent of M&M's portfolio is set to benefit due to these rate cuts. We revise our FY27/FY28 EPS estimates upwards by 1.9 per cent/2.7 per cent. 

Maruti Suzuki India | Reduce from Add | Target price: ₹15,200 | Downside potential: 0.8%

Around 80 per cent of MSIL's portfolio is set to benefit due to these rate cuts. MSIL has started the export of e-Vitara and has launched Victoris, a new model in the SUV segment. We revise our FY27/FY28 EPS estimates upwards by 5.5 per cent/6.9 per cent.