FIIs turn cautiously optimistic on Indian automobile industry amid concerns of longevity in demand post-festive season: Motilal Oswal

While FIIs have turned optimistic about the Indian automobile industry following the GST rate cuts, the question of demand sustainability post the festive season remains in investors’ minds, Motilal Oswal said in a sectoral note on Friday.

The brokerage firm says that during its roadshow in Singapore, conversations with around 15 FIIs revealed that investors were also keen to understand whether demand for entry-level segments in both passenger vehicles and two-wheelers would pick up, or whether premiumisation would continue after the GST rate cuts.

In the passenger vehicles segment, while a majority of investors are convinced that wholesale demand will remain robust till December 2025, there is little consensus on whether demand will be sustained from January 2026 onwards, which would determine stock movements thereafter.

Some investors also view the current revival in demand, especially in entry-level cars, as driven by discounts, according to Motilal Oswal, and are not willing to believe that demand can remain upbeat after OEMs gradually withdraw discounts in CY26. A few investors have also questioned the future outlook for Mahindra & Mahindra and Tata Motors’ PV arm amid reports that BYD is entering India.

Most investors are also looking to invest in Maruti Suzuki , but at the same time, they were also observant of the trajectory that the small car demand will take, along with the momentum of its recently launched products. Investor interest and sentiment are also divided on Mahindra & Mahindra and Hyundai Motor India .

For two-wheelers, investors were keen to understand whether any green shoots are suggesting a pickup in demand in the entry-level segment. For Eicher Motors , investors wanted to understand what led to the substantial growth in Royal Enfield volumes over the last two months and whether the same can be sustained going forward. Also, they wanted to understand the impact of the GST hike on the 350cc-plus segment and how it could affect Royal Enfield's upcoming launches.

The uncertainty wreaked by tariffs has made it difficult for investors to evaluate auto ancillaries purely on the basis of merit, Motilal Oswal added. On the segments that have been adversely impacted by tariffs like CV components and non-autos, FIIs wanted to understand what kind of impact these companies are seeing in terms of demand and margins. Investors were also keen to understand if domestic-focused auto ancillaries are seeing any uptick in their production schedules from OEMs, given the expected demand revival.