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Asia roadshow takeaways: Cautious optimism

* We met with around 15 FIIs in our Singapore roadshow for three days last week. Most FIIs have now turned positive on the Indian automobile sector after the GST rate cuts.

* One key question lingering on the mind of most of the investors is whether the demand will sustain beyond the festive season or not, especially once discounts are curtailed.

* Investors were also keen to understand whether or not entry demand would pick up (in 2Ws/PVs) or premiumisation would continue after GST cuts.

* Within OEMs, MSIL seemed to be a consensus BUY, while there was mixed feedback for all other OEMs.

* In auto ancillaries, investors agreed that the ongoing tariff uncertainty has made it difficult to evaluate auto ancillaries purely on merit.

* Within auto ancillaries, beyond our top picks of Endurance and Happy Forgings, we saw lot of investor interest in BHFC, SONACOMS, BOS, SAMIL and MSWIL.

Investor Interest in PV segment

* The key question lingering on the minds of most of the investors is whether or not demand will sustain beyond the festive season.

* While most investors are convinced that wholesales are likely to remain strong at least until Dec’25, there is still no consensus whether or not demand will sustain from Jan’26 onward, which would eventually determine the stock movements from hereon.

* Given that the current demand revival, especially in entry cars, was driven by discounts, few investors were not willing to believe that demand can remain upbeat after a gradual withdrawal of discounts in CY26.

* Quite a few investors expressed concern over future outlook for MM / TTMT given the ongoing newsflow that BYD is looking to enter India

* Within PV OEMs, most investors agree to the BUY call on MSIL but were keen to monitor small car demand and momentum in its new launches.

* Investor interest was divided between MM and HMIL. Few Investors were questioning if one should consider looking at TTMT PV after the correction.

Two Wheelers – Key monitorables

* Investors were keen to understand if there are any green-shoots visible to suggest entry 2W demand is seeing a pickup.

* Hence, after the recent rally, investors were not sure whether to continue to hold HMCL or not.

* Further, most investors agreed that TVS remains a long-term structural play but hardly any investors were comfortable with current valuations.

* On EIM, investors were keen to understand what led to the substantial growth in RE volumes in the last two months and if the same can sustain from hereon. Also, they wanted to understand the impact of GST hike in >350cc segment and what impact it can have on upcoming new launches for RE.

* In BJAUT, the key concern was the loss in market share in two wheelers, both in domestic and exports.

Commercial Vehicles – when will the tide turn?

* One of the key queries in FIIs has been whether or not there is any evidence on CV demand revival at this stage.

* Few FIIs were also keen to understand the impact of DFC on the sector and will that drive structural de-rating for the sector.

* Investors did agree to the view that CV industry has much better pricing discipline now and the leverage for most players is much better than any of the past cycles. Hence, this sector did see reasonable interest from Investors.

Auto Ancillaries – tariff uncertainty remains the primary concern

* Investors agreed that the ongoing tariff uncertainty has made it difficult to evaluate Auto Ancs purely on merit.

* On the segments that have been adversely impacted by tariffs like CV components and non-autos, FIIs wanted to understand what kind of impact these companies are seeing in terms of demand and margins.

* Investors were also keen to understand if domestic-focused Auto Ancs are seeing any uptick in their production schedules from OEMs, given the expected demand revival.

* We received minimal push-back on our top picks in Auto Ancs, which are Endurance and Happy Forgings.

* Within Auto Ancs, we saw a lot of investor interest in BHFC, SONACOMS, BOS, SAMIL and MSWIL.

Valuation and view

* After the GST rate cuts and based on discussions with OEMs and dealers, auto demand has picked up across segments, albeit aided by pent-up demand.

* The notable trend is that entry-level vehicles, both 2Ws and PVs, are seeing a marked pickup in demand.

* Most OEMs across segments expect to sustain the healthy momentum at least until Diwali, if not beyond.

* With a recovery in demand, we expect discounts to gradually reduce after the festive season.

* MSIL is our top pick among auto OEMs, as its new launches and the current export momentum should drive healthy earnings growth.

* We also like MM given the uptrend in tractors and healthy growth in UVs.

* In Auto Ancillaries, our top picks are Endurance and Happy Forgings.

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