“We expect the overall auto market to consolidate in the near term, as most of the GST-cut-led demand upgrades are already priced into valuations,” Kale told ET Now.
“The next trigger will depend on how demand sustains through Q4 FY25 and into FY27.”
Maruti edges ahead of M&M as small-car demand rebounds
Kale noted that Maruti Suzuki’s strong Q2 performance, driven by higher average selling prices (ASPs) and renewed traction from first-time buyers, positions it slightly ahead of Mahindra & Mahindra (M&M) in the short term.
“Maruti has outperformed M&M in the last one to two months, primarily because first-time buyers are returning to the small-car segment,” he said.
“In contrast, M&M’s growth now depends more on customer upgrades from base to top-end variants.”Despite this, Kale remains confident in M&M’s fundamentals, citing its strong SUV lineup and resilient tractor segment, which has “surpassed expectations year-to-date.”
Tractor and festive retail sales exceed expectations
Kale highlighted that tractor sales have held up strongly despite initial concerns over rural demand. He also pointed to festive-season retail sales that exceeded estimates across most automakers.
“No major OEM reported below-estimate sales. Tata Motors, TVS, and M&M Auto all delivered in-line to better-than-expected volumes,” Kale said.
“The key now will be how wholesale volumes normalize after the festive season and how inventories are managed.”
Top sector picks and pecking order
Elara Capital maintains a positive stance on the auto sector, particularly Maruti Suzuki, Mahindra & Mahindra, and TVS Motor as its top picks across passenger vehicles and two-wheelers.
“Our pecking order is Maruti, Mahindra, and TVS — the three best-positioned names to gain market share and sustain earnings momentum,” Kale said.
While passenger vehicles remain a strong structural story, Kale expects two-wheelers to benefit from rural recovery and commercial vehicles (CVs) to see a mild upturn in FY26 on replacement demand.
Outlook: Steady growth, watch for next leg of demand
Kale believes that India’s auto story remains robust, supported by higher disposable incomes, rural recovery, and improving consumer sentiment. However, valuations leave limited room for short-term re-rating.
“The next big leg of upside will come when we see consistent volume growth beyond Q4 FY25,” he added.
“Until then, investors should accumulate quality names on dips.”