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Auto Sector: Cooling commodity prices ease margin concerns; Sector well poised for catch-Up rally

ICICIdirect Research 26 Jun 2026 DISCLAIMER

This sharp retracement of key commodity prices, reduces one of the key near-term overhangs for the domestic automobile sector.
Underlying demand momentum has been strong in the domestic market post GST rate cuts with OEM’s taking calibrated price hikes thereby shielding the consumer demand momentum.
On the ancillary front, Natural Rubber prices which are currently quoting at ₹270/kg (primary tracking synthetic rubber price – a crude derivative) is seen tracing back to its pre-war levels of ₹180-200/kg, which is positive for the domestic tyre players.
Thus, easing commodity-related cost pressures, improves the earnings visibility for the sector starting H2FY26 and creates a constructive setup for renewed momentum in automobile stocks.
With Auto Index down ~6% on YTD basis amid geopolitical tensions, we see this as a opportunity to buy stocks given the low vehicle penetration, rising income levels and upcoming 8th pay commission. Underlying premiumization trend remains unabated. Sector is well poised for double digit value growth going forward
We are positive on the Auto space with top bets as Maruti Suzuki (BUY; Target: ₹ 16,150), M&M (BUY; Target: ₹ 4,000) in the OEM space and Apollo Tyres (BUY; Target: ₹ 500) and Lumax Auto Technologies (BUY; Target: ₹ 2,035) in the auto ancillary space.

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