Indian auto sector in 2025: Growth opportunities and challenges to watch

The Nifty Auto index has outperformed the Nifty 50 index by a large margin. As of December 26, the YTD returns for Nifty Auto and Nifty 50 stand at 23% and 9.2%, respectively. Here’s what lies ahead for the auto sector in 2025.

What’s driving the growth?

The 2W (two-wheeler) segment is anticipated to post double-digit growth in 2025. Factors supporting this expected growth include a surge in rural demand and the upcoming marriage season, which extends from late 2024 into 2025.

The tractor segment, which had shown a significant slowdown, is expected to make a comeback due to favourable monsoons, improved reservoir levels, and a strong Rabi crop outlook. With the revival of the rural economy, higher optimism is anticipated, as the sector is closely tied to the health of the auto industry.

The Speed bumps ahead

Despite the growth drivers, some headwinds still loom over the industry. The CV (commercial vehicle) segment is struggling due to weak demand, reduced fleet utilisation, and delays in government payments. While slight YoY growth was observed in November 2024 (owing to a low base), a sustainable recovery remains uncertain.

In the PV (passenger vehicle) segment, demand has cooled down after the festive season. This is reflected in the moderation of discounts offered by manufacturers, which has affected sales volumes. Although new launches from players like Mahindra and Kia look promising, customer conversions remain a key challenge, creating a cautious sentiment in the industry.

Q3FY25 earnings: what to expect?

For Q3FY25, the 2W and tractor segments are expected to perform well, driven by strong demand and improved rural sentiment. However, the PV and CV segments may post subdued results due to the normalisation of festive demand and weak freight availability. Hence, segmental performance is likely to show divergence.

November 2024 sales insights

PV sales summary

Recent sales data provides insights into ongoing trends in the industry. In November, the highest YoY rise in the PV segment was recorded by Toyota Kirloskar at 49%, followed by MG Motor at 45%, and M&M at 16%. MSIL posted a 5% increase, while Hyundai experienced a 2% decline, and Tata Motors saw a 2% rise. However, the monthly trend was negative for all players due to the post-festive demand slump.

2W ales

The 2W sales in November were primarily driven by exports. Major players like Bajaj Auto, TVS Motor, HMSI, and Hero MotoCorp recorded export growth of 26%, 34%, 47%, and 36% YoY, respectively. On the domestic front, the trend remained negative, ranging from -8% to 7% across major players. Hero MotoCorp experienced the highest decline in November, while TVS and Suzuki Motorcycle showed the highest growth.

Tractor sales

The tractor segment, represented by Escorts, witnessed a 9.4% YoY decline and a significant 50.4% MoM decrease. M&M, however, recorded a 4.1% YoY increase and a 49% MoM decline, primarily due to seasonality and high base effects.

Looking ahead

The Indian auto sector’s journey in 2025 promises to be a mix of acceleration and caution. While the 2W and tractor segments are expected to lead with robust demand, the PV and CV segments are likely to face hurdles. Hence, investors should focus on key players to position themselves for opportunities in the industry.