Global brokerage firm Nomura has identified several auto stocks with significant upside potential, maintaining 'Buy' calls on key players ahead of the release of May auto sales data. The firm projects potential returns of up to 47% for some of its top picks, even as it offers a nuanced outlook on the broader automotive market.
Nomura's Top Auto Stock Recommendations
Among its coverage, Nomura continues to recommend a 'Buy' on:
- Mahindra & Mahindra Ltd (M&M): With a target price of Rs 4,580, Nomura sees a substantial 47% upside from recent closing prices.
- Hyundai Motor India Ltd: The brokerage has set a target of Rs 2,407, indicating a 26% potential upside.
- TVS Motor Company Ltd: Nomura's target for TVS Motor stands at Rs 4,105.
- Ather Energy Ltd: A target price of Rs 1,120 has been assigned to the electric scooter manufacturer.
- Sona BLW Precision Forgings: The target for this component maker is Rs 720.
- UNOMINDA: A target of Rs 1,494 was also noted.
Market Outlook: EVs Drive Growth, CVs Face Headwinds
Nomura's monthly auto sales preview suggests a healthy demand momentum for both passenger vehicles (PVs) and two-wheelers, despite recent increases in fuel prices. However, the brokerage anticipates that the combined impact of higher fuel and vehicle prices, alongside broader inflationary pressures, may temper overall auto demand in the coming months.
Conversely, the report highlights an accelerating pace of Electric Vehicle (EV) adoption, driven by increasing government policy support and rising energy costs. Nomura's estimates for May 2026 indicate passenger vehicle EV penetration at 6.3% and two-wheeler EV penetration at 8.8%, demonstrating strengthening consumer interest in electric mobility.
The outlook for commercial vehicles (CVs) remains cautious. Nomura notes that rising fuel costs and vehicle price hikes are likely to sharply affect demand in this segment. Media reports cited by the brokerage also suggest that fuel price increases and shortages have already impacted the operational fleet of commercial vehicles in parts of India.
Cost Pressures and Pricing Strategies
Most Original Equipment Manufacturers (OEMs) have indicated cost pressures ranging from 300-400 basis points for the June quarter of FY27. While price hikes implemented so far have been modest at 1-2%, Nomura believes that commercial vehicles and two-wheelers are better positioned to pass on these cost pressures over the next six months. For passenger vehicles, the impact is expected to vary, with entry-level cars and two-wheelers likely to experience a greater demand hit from price adjustments.