Auto Stocks Re-Rating: Morgan Stanley upgrades Eicher, Hero but downgrades Bajaj

Global brokerage firm Morgan Stanley, in a note on the auto sector, said GST rationalisation could trigger price cuts of a scale that consumers have not witnessed before. It added that monetary easing and the implementation of the Eighth Pay Commission would further support demand in the coming quarters.

The brokerage said that, historically, auto sector valuations tend to peak around margin highs. With margins likely to surprise on the upside this time, the sector could see stronger re-rating trends.

Morgan Stanley mentioned that Mahindra & Mahindra (M&M), TVS Motor (TVSL), and Eicher Motors (EIM) were already gaining market share, and GST-led price reductions could accelerate this trend.

On stock calls, the brokerage has upgraded Eicher Motors to 'Equalweight' with a revised price target of ₹7,201, and Hero MotoCorp to 'Equalweight' with a price target of ₹5,968, as both benefit from two-wheeler recovery, but valuations look full and margin upside surprise is limited.

However, it downgraded Bajaj Auto to 'Underweight', with a price target of ₹8,075, citing that the company stands to benefit the least from a domestic recovery on a relative basis.

The brokerage further said that only 13% of households in India own passenger vehicles (PVs), while 73% own two-wheelers. It said price cuts would support both replacement demand and first-time buyer recovery.

First-time buyers are expected to be the key driver of PV demand, whereas replacement demand could play a larger role in boosting two-wheeler sales.

Maruti Suzuki India, with new SUV launches and a recovery in first-time buyers, is expected to see market share gains, the brokerage said.

Automakers pass on GST cuts to consumers

Auto stocks, from Tata Motors to Mahindra & Mahindra, saw strong buying interest in Monday's trade following GST rate cuts on several vehicle categories. The Nifty Auto index gained 2.5%, with 13 of its 15 constituents advancing. Key gainers included Bharat Forge and Ashok Leyland, both rising up to 6%.

Several manufacturers have announced price reductions, fully passing on GST benefits to customers:

Mahindra & Mahindra (M&M): Up to ₹1.56 lakh on models including Bolero, Scorpio, Thar Roxx, and XUV700 (effective September 6).

Tata Motors: Up to ₹1.55 lakh on passenger vehicles and up to ₹4.65 lakh on commercial vehicles (effective September 22).

Hyundai: Up to ₹2.40 lakh on models such as i20, Venue, Creta, Alcazar, and Tucson (effective September 22).

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