Nifty Auto bounced 1.3% to ₹25,190.15 on Monday, October 12, snapping a two-month losing streak. The rally was led by Tube Investments and Bajaj Auto, both up nearly 3%, as investors digested a fresh note from global investment bank CLSA. The firm argues the sector has hit a sweet spot after correcting about 17% since August, creating an attractive risk-reward profile for long-term holders. This rebound comes despite persistent headwinds from commodity inflation and fears that frequent price hikes might dampen demand. Yet, CLSA insists these worries were largely priced in when GST rate cuts took effect in October. Automakers themselves signaled confidence at a September conference in Hong Kong, reaffirming their guidance for mid- to high-single-digit growth in the second half of FY27.
Mahindra & Mahindra is the clear standout in CLSA’s coverage. The firm holds a High-Conviction Outperform rating on the stock, which currently trades at roughly 15 times its FY28 core earnings per share. This valuation isn’t built on rosy assumptions. It assumes a 10% decline in tractor volumes for FY28 and persists with benign EBIT margins across all segments. Even under this bearish scenario, CLSA sees M&M’s earnings per share compounding at about 10% annually, suggesting the stock offers a safety margin that peers lack.
The broader sector saw broad-based gains on the day. TVS Motor climbed 2%, while Samvardhana Motherson matched M&M’s 1.3% rise. Bharat Forge, Hyundai Motor India, and Uno Minda all added 0.8% to 0.9%. Tata Motors Passenger Vehicles and Bosch edged up 0.5%, and Maruti Suzuki India ticked up 0.3%. The Nifty Auto index, down nearly 12% since January, gained over 330 points in the session.
Investors should watch commodity costs and pricing strategies in the coming months. If automakers can maintain margins while absorbing input cost inflation, the valuation de-rating could reverse. CLSA’s model suggests the current discount adequately reflects the risks, making the sector a potential value play for the next two quarters.