Delayed monsoon may weigh on auto demand, but long-term outlook stays strong: Aditya Shah

A delayed monsoon is emerging as a key concern for the automobile sector, particularly for rural-focused segments such as tractors and two-wheelers. However, Aditya Shah, Founder, Hercules Advisors believes the weakness is likely to remain temporary, while the long-term outlook for automobiles remains intact.

Rural Demand May Slow, But Auto Story Remains Positive

The Nifty Auto index came under pressure amid concerns that a delayed monsoon could hurt rural demand, affecting tractor and two-wheeler sales.

Shah believes the market will eventually factor in the impact of a weaker monsoon, but says the broader growth story for the sector remains intact.

“The market will adjust to this reality, and a deficient monsoon is something that we are looking at. Having said that, I believe the auto sector, barring this short-term problem, will continue to do well,” he said.

He prefers Mahindra & Mahindra and Eicher Motors among OEMs, while highlighting Sona BLW and Motherson as stronger long-term opportunities in the auto ancillary space.
“The real juice, the real delta is in the auto ancillary space… Over the longer period, I remain positive first on the auto ancillaries and then on the OEMs,” he said.
EV Theme Is a Long-Term Opportunity
Discussing the Delhi government’s new EV policy and incentives, Shah said electric mobility remains a structural investment theme, although infrastructure challenges will slow adoption in the near future.

“EV is not a short-term play. It is a long-term play,” he said.

He identified TVS Motor, Ather, Tata Motors, Mahindra, and Sona BLW among the companies best positioned to benefit from the transition.

“Sona BLW, where 70% of its revenue is linked to the EV side of the market, will continue to do well… Over the next three to five years, EV is a good theme to play,” he said.

Kotak Mahindra Bank Offers Long-Term Value
Shah believes the valuation reset in Kotak Mahindra Bank reflects uncertainty around the leadership transition after founder Uday Kotak’s exit.

However, he sees the correction as an attractive entry point for long-term investors. “This one-and-a-half to two times price-to-book is the area to buy Kotak Bank,” he said.

He added that the bank’s strong asset quality remains a key positive despite the ongoing management transition.

Banks Continue to Be a Preferred Sector
Shah expects banking sector loan growth of around 10-15% in FY27, assuming geopolitical risks ease and inflation remains under control.

He remains positive on private sector banks and SBI while also seeing turnaround opportunities in select microfinance lenders.

“Private sector banks together with SBI will remain a growth pick… For FY27, I am positive on the banks,” he said.

Chemicals, Pharma and EPC Also Stand Out
Beyond financials, Shah continues to favour chemicals, pharmaceuticals and EPC companies, particularly those that have corrected meaningfully.

He named Deepak Nitrite, Vinati Organics, Apcotex Industries, Laurus Labs, Divi’s Labs, Neuland, and Syngene as companies worth tracking, while also seeing value in reasonably priced EPC contractors.

“Chemicals and pharma continue to be my top picks… Banks continue to be my top pick, while the microfinance space is where a lot of alpha can be created,” he said.