The domestic automobile sector in India is experiencing a strong recovery, with sales volumes increasing by 17% year-over-year in the December quarter. This growth is driven by healthy demand across all major segments, including two-wheelers, passenger vehicles, commercial vehicles, and tractors. The sector’s financial performance is also robust, with revenues expected to grow by 24% year-over-year, and operating profit and net profit projected to rise by 27% each.
The recovery in the sector is driven by several factors, including recent tax rationalization measures, which have led to a pickup in demand for entry-level vehicles. Additionally, strong wholesales and healthy retail sales have kept inventories lean, which is expected to support volume momentum in the next quarter. As demand normalizes, discount intensity is expected to ease, aiding profitability.
The sector’s outlook is also reinforced by several structural and near-term trends, including broad-based demand recovery, improving capacity utilization, disciplined inventory management, and relatively stable input costs. Moderate upward revisions in earnings expectations across the sector further underline improving confidence.
Two companies that are well-positioned to benefit from the sector’s growth are Mahindra & Mahindra and TVS Motors. Mahindra & Mahindra is targeting strong long-term growth, with a focus on expanding its SUV and light commercial vehicle business, as well as its farm segment. The company is also investing in new technologies, including electric vehicles and autonomous driving.
TVS Motors, on the other hand, has posted its highest-ever quarterly sales, driven by strong demand for two-wheelers and electric vehicles. The company is investing in battery localization, swappable technology, and charging infrastructure, and is expected to benefit from the growth in the electric vehicle market.
Overall, the domestic automobile sector in India is expected to experience sustained growth, driven by strong demand, improving financial performance, and several structural and near-term trends. The sector offers a compelling earnings visibility, making it an attractive play on domestic consumption and cyclical recovery. Mahindra & Mahindra and TVS Motors are two companies that are well-positioned to benefit from the sector’s growth, and are expected to deliver strong returns to investors.