Auto stks skid 28% in a yr; FY26 outlook offers little hope

Donald Trump’s pause of reciprocal tariffs could be a temporary relief for auto stocks but their performance in the past one year has been well short of expectations, falling by up to 28%. Barring a couple of stocks, most have been inconsistent and there seems less hope on the sector's future prospects in light of muted Q4FY25 earnings and likelihood of downgrades in FY26.

As the focus now shifts to the earnings, brokerages expect stock specific action, going ahead.

Auto stocks welcomed Trump’s move to defer imposition of tariffs on more than 70 nations till July. The Nifty Auto index climbed over 2% on Friday with Samvardhana Motherson International, Bharat Forge and Tata Motors surging between 4.6% and 2.2% on the closing basis.

The Trump administration had slapped a 25% tariff on imports of auto & auto components along with an additional 25% tariff on the import of light trucks.

While Trump’s tariffs have dented the prospects of auto pack, the problems back home have also soured sentiments. The auto sector’s performance is closely tied-up with the state of the Indian economy. Concerns emerged after the Q2FY25 GDP shocker when India reported a 5.4% growth which was a seven quarter low.

It has been a downhill for majority of the auto stocks in the Nifty Auto index which has slipped 11% in 2025, while the broader Nifty has declined nearly 4%. In the past 12 months, the 15-stock index has fallen by over 5% versus 2.5% uptick witnessed by the heartbeat index.

Eicher Motors, TVS Motor Company, Maruti Suzuki India (MSIL) and Exide Industries are only stocks which have managed to remain positive in 2025, so far while the remaining 11 counters in the auto index have fallen between 30% and 6% on the year-to-date basis.

Both Eicher and TVS have also been the most consistent performers on a 1-year basis, delivering stellar returns of 27% and 26%, respectively in the said period. While Mahindra & Mahindra (M&M) and Ashok Leyland have yielded 27% and 20% in the past 12 months, they have slipped into the red on the YTD basis.


Q4FY25 in slow lane


Brokerages see muted earnings for the auto companies in the January-March quarter.

Equirus Securities expects earnings to be flat for the auto pack and within this, OEMs that make the vehicles and tyre manufacturers are likely to report flat margins due to higher commodity cost pressures.

Within 2Ws, the overall wholesales improved 6% year-on-year while declining 4% quarter-on-quarter, Equirus said, adding that the domestic wholesale grew by 2% YoY while exports grew 29% YoY. On the retail front, overall 2W sales were flattish YoY mainly due to lower discounting and tightened financing impacting sales.

Overall passenger vehicles (PVs) wholesales grew 10% YoY mainly driven by strong numbers from M&M. Meanwhile, PV retail grew 7% YoY and 1% QoQ in Q4FY25 driven by higher discounting towards the end of March.

M&M and Toyota continue to gain market share while Tata Motors lost market share in 4QFY25, the brokerage said in a preview note.

SBI Securities also expects auto companies' earnings to remain muted this time. It said that volume growth was decent in the quarter with M&M and TVS Motor outperforming the industry. "Two-wheeler companies to report YoY margin improvement driven by higher export mix. Auto ancillary margins are expected to be lower YoY due to rise in raw material costs (tyre and battery makers) as well as pricing pressure in the aftermarket," this brokerage said.

Also Read: Muted Q4 for banks as NIMs squeeze and tepid loan growth to hit earnings. 4 things to watch out for

4 things to watch out for:

Volume: The auto industry witnessed moderate growth in Q4FY25, with segmental volume changes ranging from -3% to +4% YoY, according to estimates by IIFL Capital. Tractors stood out with a robust 17% growth, aided by a low base from the previous year.

Margins: Equirus expects margins of OEMs to remain broadly flattish led by price hikes however offset by commodity cost pressures. Realization across 2W players are expected to marginally increase mainly due to price hikes and better product mix.

Margins of tyre companies are expected to be flattish QoQ impacted by high rubber prices coupled with higher INR/USD realizations offset by marginal price hikes.

The Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the sector is expected to see modest 3% YoY growth excluding Tata Motors, reflecting subdued demand across segments except tractors, said IIFL Capital.

Exports: Exports mix has improved across players in the quarter, Equirus said.

Tyre companies could report replacement volumes growth in mid-single digit while exports are expected to be subdued.

Sector Outlook


Axis Securities expects earnings downgrades across companies due to global and domestic demand weakness with the tractor segment outperforming 2Ws/PVs/CVs. PV sales are expected to moderate on a high base, while new product launches from certain OEMs in the SUV segment are anticipated to drive growth, Axis noted, while seeing persistence of sluggish demand in the entry-level segment.

IIFL Capital sees limited earnings upside for FY26 with EBITDA growth slowing for OEMs as PV and CV demand flattens and 2W momentum fades post-festive season. With commodity prices stabilising, the sector’s margin expansion trend is plateauing, it said.

Stocks to buy


Equirus is betting on Maruti Suzuki, Subros and Uno Minda.

Axis Securities' OEM stocks to buy are Ashok Leyland, TVS Motors and M&M while UNO Minda, Sansera Engineering and Steel Strips Wheels (SSWL) in the auto ancillary segment.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)