SYNOPSIS: Morgan Stanley remains positive on Indian auto stocks, favoring companies like M&M, Maruti Suzuki, TVS Motor, and Hero MotoCorp due to strong fundamentals and growth potential with an upside potential of upto 33%
Global brokerage firm Morgan Stanley has recently turned on several Indian equities, highlighting strong upside potential as markets move past near-term volatility. Their research indicates that well-positioned names such as M&M, Maruti Suzuki, TVS Motor, and Hero MotoCorp remain preferred Overweight picks.
The outlook is focused on companies with strong fundamentals, healthy growth prospects, and supportive industry tailwinds. These stocks are seen as beneficiaries of a potential demand recovery, new product cycles, and improving macroeconomic conditions, offering investors opportunities for medium- to long-term value creation.
Morgan Stanley’s Ratings and Target Prices
| Stock Name | Target Price (₹) | Rating | Potential (%) |
|---|---|---|---|
| TVS Motor | 4327 | Outperform | 16% |
| Hero MotoCorp | 6537 | Outperform | 25% |
| Ashok Leyland | 180 | Neutral | 3% |
| M&M (Mahindra & Mahindra) | 3919 | Outperform | 22% |
| Hyundai | 2114 | Outperform | 11% |
| Eicher Motors | 7763 | Neutral | 8% |
| Bajaj Auto | 8920 | Underperform | -9% |
| Maruti Suzuki | 17895 | Outperform | 33% |
Short Overview of Targets Table
Brokerage updates indicate a largely positive stance on auto stocks with selective adjustments: TVS Motor Company and Hero MotoCorp retain “overweight” ratings with slightly higher target prices, while Ashok Leyland stays “equal-weight” with a reduced target.
Along with it, Mahindra & Mahindra and Hyundai Motor India remain “overweight” but see target cuts, whereas Eicher Motors holds “equal-weight” with a marginal hike. Bajaj Auto continues to be “underweight” despite a slight increase in target, and Maruti Suzuki maintains an “overweight” rating with a modest target price upgrade.
Reason for the Target
Volume up-cycle supporting earnings
Volume up-cycle in the auto industry supports earnings visibility as rising vehicle demand improves capacity utilization for OEMs. Higher volumes typically lead to operating leverage, spreading fixed costs over more units. This strengthens profitability over time and offsets near-term margin pressure from input costs and compliance-related expenses across global markets.
Gradual pricing power for OEMs
OEMs are expected to gradually pass through rising input and compliance costs to end customers, supported by improving demand conditions. This pricing power is not immediate but builds with volume recovery and product mix improvement. Over time, it helps protect margins and supports earnings stability despite inflationary and regulatory pressures.
Attractive industry view supported by structural drivers
Maintain Attractive Industry View reflects confidence in structural demand recovery and resilience of the auto sector despite cyclical pressures. The volume up-cycle, improving pricing power, and normalization of supply chains support a constructive outlook. This underpins the conviction that sector earnings will gradually improve, making valuations more supportive over time.
Near-term headwinds impacting Q1 margins
Auto manufacturers face multiple near-term headwinds, including elevated input costs, intermittent supply-chain disruptions, and tightening regulatory standards. These factors are expected to weigh on Q1 gross margins. However, these pressures are largely transitional, as firms adapt pricing strategies and improve sourcing efficiency to stabilize profitability over the subsequent quarters ahead.
Overall sector resilience and long-term support
Despite multiple macro and industry headwinds, earnings resilience is supported by cyclical recovery in auto demand and gradual normalization of input costs. The sector benefits from an improved mix, stronger SUV penetration, and steady replacement demand. These drivers provide downside protection and justify maintaining a positive long-term sector stance overall outlook remains.
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