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According to data, SML Isuzu has surged 300%, Force Motors has risen 191%, and Gabriel India has gained 148%; Will the rally continue?
Auto ancillary sector (Representative Image)
The auto ancillary sector has emerged as the surprise star of the Indian stock market over the past six months. While large automakers have posted steady gains, it is the parts and component makers that have delivered standout returns to investors.
Multibagger Rally in Ancillaries
In just half a year, six stocks from the sector have turned multibaggers. According to exchange data, SML Isuzu has surged 300%, Force Motors has risen 191%, and Gabriel India has gained 148%. Lumax Auto Tech is up 134%, while OBSC Perfection, Banco Products, and NDR Auto have also delivered returns exceeding 100%.
This sharp rally came during a period when the Nifty 50 delivered 10% returns, while the Nifty Auto index, which includes original equipment manufacturers (OEMs), rose 22%.
Key Drivers of the Boom
1. Strong Domestic Demand
After years of sluggish growth, India’s auto sales are showing a strong recovery across passenger cars, two-wheelers, and commercial vehicles. This has translated into more orders for ancillary companies, directly boosting their revenue.
2. Policy Support
Reforms such as GST rationalisation and tax cuts have improved efficiency in the auto supply chain. Combined with repo rate cuts, these measures have boosted consumer demand. Vehicles are now more affordable, which has accelerated sales.
3. Technological Transition
The gradual adoption of electric vehicles (EVs) is creating new opportunities. Ancillary players are localising EV components and diversifying into adjacent sectors like railways and mining. This is helping reduce dependence on passenger vehicles while opening up fresh revenue streams.
4. Margin Support from Lower Costs
Semiconductor shortages that disrupted the industry in recent years have largely eased, while raw material prices remain stable. This has improved margins and profitability across the sector.
Expert Views
Arpit Jain, Joint MD at Arihant Capital Markets, said the rally has been led primarily by domestically focused companies. Export-heavy firms have not benefited as much due to global demand weakness. However, companies catering to India’s rising consumption and commercial vehicle upgrades have seen substantial gains.
“Policy and affordability have boosted demand. Some of the stocks that doubled or tripled are now trading at high multiples,” said Ashwini Shami of OmniScience Capital.
Adding to this, Bhavik Joshi, Business Head at INVasset PMS, highlighted both cyclical and structural drivers: “The auto ancillary sector’s remarkable rally, with six stocks delivering multibagger returns over the past six months, underscores both the cyclical tailwinds and structural shifts reshaping the industry. Domestic vehicle demand has rebounded strongly across categories, while policy measures such as GST rationalisation and rate cuts have enhanced affordability. Simultaneously, easing input costs, particularly in semiconductors, have supported margin expansion.
Narendra Solanki, Head Fundamental Research – Investment Services, Anand Rathi Shares and Stock Brokers, said: “The run-up in Auto stocks is due to anticipation of GST rate cuts and expectations of improving demand outlook post GST cuts. The sector has been muted in terms of growth over the past few quarters due to inflation, supply chain issues, and subdued demand. With lower inflation, policy rate cuts, good monsoon, and now impending GST cuts coinciding with festive season demand, makes macro environment is favourable for pickup in demand for the sector.”
What Lies Ahead
Brokerage Axis Securities believes the auto ancillary sector is at a structural turning point. Long-term growth is expected to remain intact, supported by rising exports, premium vehicle sales, and a recovery in rural demand. The firm sees opportunities in select companies such as Sansera Engineering.
However, near-term challenges remain. Valuations have turned expensive, global uncertainties persist, and export markets continue to face pressure.
Joshi explained that “the sharp surge has also lifted valuations well above long-term averages, embedding expectations of sustained peak margins. Such conditions rarely play out uniformly. Leaders with advanced capabilities, strong balance sheets, and diversified OEM linkages are likely to compound steadily, but others more dependent on cyclical volumes could struggle to justify current pricing. Looking ahead, broad-based multibagger returns may be less probable than in the recent rally. Instead, the sector is likely to enter a phase of greater differentiation, where earnings delivery and alignment with long-term industry shifts become decisive. For investors, this is no longer a momentum trade but a selective opportunity set.”
Shami cautioned that investors should temper expectations: “The same pace of gains may not continue. Sectors like financials and power currently offer a better risk-reward balance.”
Jain added that while export challenges—especially for firms with high US exposure—could create short-term pressure, the long-term outlook remains positive, backed by structural demand, increasing localisation, EV adoption, and ongoing commercial vehicle upgrades.
We believe the optimism in the sector is based on strong positive triggers and should continue to remain for the H2FY26, stated Solanki.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before taking any investment decisions.
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More
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