Will auto sector outperform Nifty 50 again in 2025? Experts weigh in | Stock Market News

The auto index has been a standout performer in 2024, significantly outpacing the benchmark Nifty. While the Nifty has gained 13 per cent year-to-date, the Nifty Auto index has surged over 28 per cent. 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

In the past year, the auto index has climbed 34 per cent, almost double the Nifty’s 17 per cent rise. December saw the sector bounce back with a 2 per cent gain, following declines of 0.6 per cent in November and 13 per cent in October. Before these corrections, the auto index consistently delivered 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 per cent), Samvardhana Motherson (64 per cent), and Bosch (62 per cent). Others, including Exide Industries, Bajaj Auto, Ashok Leyland, and TVS Motor, recorded gains of 20-47 per cent. Eicher Motors, Hero MotoCorp, Maruti Suzuki, and Balkrishna Industries also contributed with advances exceeding 9 per cent.

2025 Prospects for the Auto Sector

Indian auto sector finds itself at a pivotal juncture following an impressive performance in 2024. 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. 

Sandip Bansal, Senior Portfolio Manager at ASK Investment Managers, predicts double-digit growth in two-wheelers and mid-single-digit growth in passenger vehicles, citing strong volume growth as a key driver for margin expansion as well.

Rural demand along with increasing adoption of EVs will be among two key drivers for two-wheeler sales in 2025, according to Atul Parakh, CEO of Bigul. 

Meanwhile, 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.

Government Initiatives & Macroeconomic Tailwinds

Several experts highlight favourable government policies and macroeconomic conditions that could bolster the auto sector in 2025. 

Ajit Mishra, Senior Vice President of Research at Religare Broking, identifies the government’s scrappage policy and the Production-Linked Incentive (PLI) schemes for electric vehicles (EVs) as key catalysts for growth. He also points to potential interest rate cuts and stable commodity prices as factors that could drive demand recovery, particularly in rural markets and urban mobility. Furthermore, improvements in input costs and the easing of semiconductor shortages are expected to boost profitability.

Challenges: Inflation, Supply Chain Disruptions, and Inventory Risks

Despite the positive outlook, experts flagged several risks that could hinder growth in 2025. Jathin Kaithavalappil, Assistant Vice President at Choice Broking cited 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. 

The sector could also face a slowdown due to the double whammy of persistently high inflation and stagnant GDP growth, cautioned Anchal Kansal of Green Portfolio.

“While premiumisation and expected interest rate cuts could provide a boost, these macroeconomic factors remain risks for the sector’s short-term performance,” Kansal said.

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.