Auto Stocks To Buy: UBS bets on these shares but sees downside risk for Bajaj Auto

While the Street expects goods and services tax (GST) cuts to spur a medium-term revival in entry-level and two-wheeler demand, brokerage firm UBS said that past precedent and channel checks indicate consumers are increasingly looking to trade up to premium models.

UBS mentioned that upcoming regulatory changes, such as CAFE norms and two-wheeler ABS mandates, along with potential state government tax hikes, could erode the benefits of GST cuts.

The foreign brokerage prefers premiumisation plays like Mahindra & Mahindra, TVS Motor Company, and Hyundai Motor India (all rated Buy), while it sees downside risks for Hero Motocorp and Bajaj Auto (both Sell) and a neutral stance on Maruti Suzuki India.

On the ground, Indian auto dealers reported a 5.2% year-on-year growth in September, with both two-wheelers and passenger vehicles seeing upbeat demand, according to the Federation of Automobile Dealers Associations (FADA).

While sales were subdued in the first three weeks of the month, they surged after September 22, when the revised GST rates took effect.

Two-wheeler sales rose 6.5% YoY, and passenger vehicle sales grew 5.8%. Dealers also recorded record sales during the nine-day Navratri festival, with a 34% YoY jump, driven by both new buyers and existing customers upgrading vehicles to benefit from lower taxes and festive schemes.

Looking ahead, the auto dealers body expects above-normal monsoon, a strong harvest, and steady lending rates to support consumer purchasing power. It also anticipates peak sales during the Diwali festival, when high-value purchases typically surge.

With agency inputs