The Indian automotive sector is gearing up for a high-speed year. International brokerage house Nomura has identified Mahindra & Mahindra (M&M) as its top pick among Original Equipment Manufacturers (OEMs). Not just M&M, Nomura also holds a ‘Buy’ rating for other major manufacturers, which include Ashok Leyland, Tata Motors Commercial Vehicles (TMCV), TVS Motor Company, Ather Energy, and Hyundai Motor India.
Nomura on Automobile: Top picks across PVs, CVs and two-wheelers
The brokerage house is upbeat on the sector on the back of a surge in domestic volumes across all segments. Passenger vehicle (PV) volumes rose 22% year-on-year in the third quarter of FY26. The commercial vehicle (CV) cycle is showing strong growth. Rising freight rates are boosting profitability for fleet operators. Lower GST rates and an ageing truck fleet are also driving demand. Nomura has raised its forecast for Medium and Heavy Commercial Vehicles (MHCV). They expect Ashok Leyland and TMCV to deliver earnings ahead of the street expectations.
In the two-wheeler and passenger vehicle segments, premiumisation is the dominant theme. Consumers are moving toward more expensive models. Nomura expects the SUV mix in the PV segment to continue rising for several years.
Nomura on Automobile: Top ancillary picks
Further, Nomura has chosen Sona BLW Precision Forgings, Samvardhana Motherson International, Sansera Engineering, UNO Minda, and CEAT as its top pick among ancillary stocks. These companies are benefiting from higher production levels across the board.
The third quarter of FY26 is expected to be strong for the auto industry. Excluding Jaguar Land Rover, OEMs are projected to report cumulative revenue growth of 25%. EBITDA growth is forecasted at 27%.
Nomura on Automobile: Speed bumps – commodity costs ahead
However, the road ahead has some speed bumps. Commodity costs are on the rise. Precious metal prices have ticked up significantly. This created a 50-basis-point cost increase in Q3. Nomura expects that another 100 basis point impact is likely in the fourth quarter.
The brokerage expects that companies with strong pricing power will be better positioned to handle these costs. Nomura suggested that OEMs will need to implement calibrated price increases to protect margins.
“Additionally, implementation of the new Labour Code could lead to a significant one-time cost impact, which we have not incorporated into our Q3 FY26 estimates,” said Nomura.
In tyres, replacement demand has gained good traction, and OE recovery should further benefit them, especially in the CV segment. Benign commodity prices will support margins, said the brokerage house. However, given the sharp jump in certain commodities such as copper, etc., there might be some near-term margin pressure, which is likely to be passed through with a lag.
Among the suppliers, Nomura prefers Sona Comstar, Motherson Sumi, Sansera Engineering, UNO Minda, and CEAT.
However, as M&M leads the pack, Nomura expects Bajaj Auto and Hero MotoCorp are likely to miss the estimates. In auto ancillary, Apollo Tyres, Sansera Engineering, and Balkrishna Industries are likely to surprise positively, while Motherson Sumi could surprise negatively.