Why Jefferies and Nomura are betting big on 3 auto stocks as truck sales rise 43%

Maybe a bit confusing. How can demand be running so hot in some corners of the auto market, while other segments are falling behind their own estimates?

Two big brokerage houses, Nomura and Jefferies, have crunched the data on India’s auto sector and listed their preferred bets. 

The Indian automobile sector had a strong August. However, the industry is now heading towards a tougher comparison base. At the same time, electric vehicle adoption is rising, while supply constraints are still affecting some manufacturers.

Let’s take look what the brokerages are saying –

August demand remains strong

The brokerage firm Nomura said that the demand remained firm across most auto categories in August. Medium and heavy commercial vehicles surprised on the upside, while tractors also performed better than expected.

Passenger vehicle volumes rose 36% year-on-year (YoY), against Nomura’s estimate of 41%. Two-wheeler volumes increased 10%, while tractor volumes rose 9%. Medium and heavy commercial vehicle volumes jumped 35%, significantly ahead of Nomura’s 25% estimate.

Nomura added, “Strong demand momentum across auto segments” remained the key takeaway from the month.

But not every company managed to fully capture this demand. Maruti Suzuki India, Hyundai Motor India and TVS Motor Company reported volumes below expectations. Nomura believes this was largely because of supply and logistics issues rather than a sudden slowdown in demand.

Trucks steal the show

Commercial vehicles emerged as one of the strongest pockets of the market. Jefferies estimates that truck industry wholesales grew around 43% YoY in August. Registrations rose 29%.

The brokerage house Jefferies also pointed to strong wholesale growth across several manufacturers. Tata Motors Commercial Vehicles grew 56%, while Ashok Leyland, Mahindra & Mahindra, Bajaj Auto, Maruti Suzuki India and TVS Motor Company recorded growth of 21-38%.

Two-wheelers were strong as well. Industry wholesales rose around 11%, while registrations jumped 24%.

But tractors are showing early signs of moderation. Industry wholesales grew around 9%, while registrations increased only 3%.

Electric vehicles are changing the game

The other major theme is electric vehicle adoption. Nomura said electric vehicle penetration reached 7.2% in passenger vehicles and 10.7% in two-wheelers during August. For three-wheelers, penetration crossed 50%.

Jefferies also expects electric vehicles to remain an important growth driver. In passenger vehicles, Tata Motors Passenger Vehicles continued to lead electric vehicle sales, with a 43% market share in August.

Nomura report noted, “EV penetration continues to rise, supported by new model launches, improving charging infrastructure and increasing capacities.”

Jefferies, Nomura top picks: Key stocks to watch

Nomura continues to prefer Mahindra & Mahindra, Hyundai Motor India, Tata Motors Commercial Vehicles, TVS Motor Company and Sona Comstar.

The brokerage expects companies exposed to electric vehicles and new model launches to outperform as industry growth normalises.

Jefferies has a slightly different preference. Its preferred original equipment manufacturer picks are Eicher Motors and TVS Motor Company, followed by Mahindra & Mahindra.

It has an ‘Underperform’ rating on Hyundai Motor India and Tata Motors Passenger Vehicles.

Key risks investors need to watch

The biggest question now is whether August’s growth can continue. According to Jefferies, “Entering a high base” could make YoY growth look less impressive in the coming months, particularly from October onwards.

There is another concern. Commodity prices have eased from their peak but remain elevated. Commercial vehicle makers have largely passed on these costs, while passenger vehicle companies have taken comparatively smaller price increases.

Nomura warned that further price hikes could test demand, especially in the mass-market segment. As per Jefferies report, “the sustainability of volume growth over the next few months would be crucial as the industry enters a high base.”

Disclaimer: This article is based on research reports from one or more brokerage firms and is for informational purposes only. The views, target prices, and recommendations expressed are those of the respective brokerage firms and do not reflect the official policy or position of Financial Express. This should not be construed as an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor before making any investment decisions.