Will auto sector outperform Nifty 50 again in 2025? Experts weigh in

The Auto index has been a standout performer in 2024, significantly outpacing the benchmark Nifty. While the Nifty has gained 13 percent year-to-date, the Nifty Auto index has surged over 28 percent. This impressive run has raised questions about whether the sector can sustain its momentum and outperform the broader market again in 2025.

A Strong Performance

Over the past year, the Auto index has climbed 34 percent, almost double the Nifty’s 17 percent rise. December saw the sector bounce back with a 2 percent gain, following declines of 0.6 percent in November and 13 percent in October. Before these corrections, the Auto index delivered consistent positive returns for the first seven months of 2024.

The sector’s performance has been bolstered by expectations of volume recovery, margin expansion due to lower raw material costs, and operational efficiency improvements.

Key Constituents’ Contribution

All constituents of the Nifty Auto index posted gains in 2024, led by Mahindra & Mahindra (up 77 percent), Samvardhana Motherson (64 percent), and Bosch (62 percent). Others, including Exide Industries, Bajaj Auto, Ashok Leyland, and TVS Motor, recorded gains of 20-47 percent. Eicher Motors, Hero MotoCorp, Maruti Suzuki, and Balkrishna Industries also contributed with advances exceeding 9 percent.

Expert Views on 2025 Prospects

As the Indian auto sector gears up for 2025, it finds itself at a pivotal juncture following an impressive performance in 2024. With the Nifty Auto index significantly outpacing the Nifty 50, the spotlight is on whether this momentum can be sustained. Industry experts weigh in on the potential growth drivers and challenges that could shape the sector’s trajectory in the coming year, offering insights into key segments such as two-wheelers, passenger vehicles, and the growing influence of premiumisation and EV adoption.

Growth Drivers: Premiumisation and Rural Demand

Several industry experts are optimistic about the sector’s prospects, particularly in the two-wheeler and passenger vehicle segments. Sandeep Bansal, Senior Portfolio Manager at ASK Investment Managers, forecasts double-digit growth in two-wheelers and mid-single-digit growth in passenger vehicles. He believes strong volume growth will drive margin expansion, although future performance will likely be more stock-specific.

Atul Parakh, CEO of Bigul, also highlights rural demand as a key growth driver for the two-wheeler segment, alongside the increasing adoption of EVs. The sector’s shift towards premium vehicles, especially SUVs, is another major growth factor. Trivesh D, COO at Tradejini, anticipates strong demand for premium variants in both passenger vehicles and two-wheelers, further supporting mid-to-high single-digit growth in these segments. He also sees significant opportunities in auto ancillaries as they expand their global presence.

Challenges: Inflation, Supply Chain Disruptions, and Inventory Risks

Despite the positive outlook, experts warn of several risks that could hinder growth in 2025. Jathin Kaithavalappil, Assistant Vice President at Choice Broking, points to potential inventory build-ups, rising input costs, and supply chain disruptions as challenges that could limit the sector’s relative performance against broader market trends. Anchal Kansal, Research Analyst at Green Portfolio, also expresses concern about persistent retail inflation and stagnant GDP growth. While premiumisation and expected interest rate cuts could provide a boost, these macroeconomic factors remain risks for the sector’s short-term performance.

Government Initiatives and Macroeconomic Tailwinds

Several experts point to favorable government policies and macroeconomic conditions that could support the auto sector in 2025. Ajit Mishra, Senior Vice President of Research at Religare Broking, highlights the government’s scrappage policy and the Production-Linked Incentive (PLI) schemes for EVs as key growth enablers. He also notes that interest rate cuts and stable commodity prices could fuel demand recovery, particularly in rural areas and urban mobility markets. Additionally, improvements in input costs and easing semiconductor shortages are expected to enhance profitability, further supporting a positive outlook for the auto sector.

In summary, the auto sector’s cyclical nature, coupled with favorable macroeconomic conditions and sector-specific catalysts, provides a strong foundation for continued growth. However, the pace of outperformance will depend on stock-specific factors, premiumisation trends, and successful execution of EV strategies. While the road ahead may present challenges, the auto sector appears well-equipped to maintain its upward trajectory and potentially outshine Nifty once again.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.