Can RBI’s rate cut revive entry-level demand for Hero MotoCorp and Maruti Suzuki?

Auto stocks in focus: The automobile sector across passenger vehicles (PV), two-wheelers (2W), and commercial vehicles (CV) has been facing demand challenges in the domestic market, even as export markets have maintained decent growth despite increasing global headwinds.

The continued weakness in domestic demand is attributed to subdued consumer sentiment, particularly in the entry-level segment, which is typically more affordable, simpler, and fuel-efficient.

For instance, the contribution of entry-level motorcycles to overall sales declined to 37% in April 2025 from 53% in Q4FY23. Similarly, entry-level cars accounted for only 31% of total PV sales in Q4FY25, down from 41% in Q4FY23.

According to domestic brokerage JM Financial, this decline is primarily due to tight liquidity conditions in the financial sector and higher interest rates, which have dampened financing appetite. Amid these tight financial conditions, vehicle loan growth fell to 8.6% in March 2025 from 25.4% in January 2025.

Rate cut to rev up entry-level vehicle sales

The brokerage believes that the Reserve Bank of India’s recent 50 basis point repo rate cut will help revive demand for entry-level vehicles, benefiting companies like Hero MotoCorp, TVS Motor Company, Maruti Suzuki, and Ashok Leyland.

JM Financial expects that the rate cut will ease financial conditions and reduce borrowing costs for both dealers and end customers, helping to uplift demand sentiment. Additionally, the RBI’s pro-growth stance bodes well for NBFCs’ risk appetite, which had weakened significantly in H2FY25.

Combined with earlier tax reductions announced in the Union Budget to stimulate consumption, the brokerage believes these developments will significantly benefit the entry-level segment.

It expects both the entry-level 2W and PV segments to gain momentum following the rate cut. Furthermore, light commercial vehicles (LCVs) and small commercial vehicles (SCVs) are also expected to benefit from lower interest rates.

The reduction in the Cash Reserve Ratio (CRR) by 100 basis points—set to be implemented gradually over the course of the year—is projected to inject ₹2.5 trillion of primary liquidity into the banking system by the end of November 2025. This increased liquidity should improve fund availability for both consumers and dealers, the brokerage noted.

JM Financial maintains its ‘Buy’ rating on Hero MotoCorp and TVS Motor Company in the 2W segment, with target prices of ₹4,700 and ₹3150, respectively.

In the PV segment, it has a ‘Buy’ rating on Maruti Suzuki with a target price of ₹13,300 per share, and in the CV segment, Ashok Leyland is the top pick, with a ‘Buy’ rating and a price target of ₹264.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.