The Indian automobile sector which is in a recovery mode is expected to sustain across segments, said Motilal Oswal Financial Services (MOFSL) on Friday.

“The auto sector has underperformed over the last five years due to incessant headwinds that had a severe impact on volumes and margins. However, a revival in volumes and margins over the last few quarters has driven the sector’s outperformance,” it said.

MOFSL expects the recovery to sustain across segments, though the pace of growth will be different across segments of auto original equipment manufacturers (OEMs) and auto components, it said adding that for two-wheelers, demand recovery is underway on a low base.

It said the industry is expected to grow at nine per cent compound annual growth rate (CAGR) in volumes over FY23-25. However, increasing electrification and the consequent changing competitive landscape are the key structural risks for the incumbents.

“Passenger vehicle (PV) growth is expected to normalise to 6.5 per cent CAGR, after witnessing 21 per cent CAGR over FY21-23. With reasonable industry growth, MOFSL prefers OEMs with strong product lifecycles and mix improvement. Commercial vehicles (CVs) are in the early peak cycle phase but should see sustained reasonable growth over the next two years with margin expansion expected to be the key driver of earnings,” it said.

It also said that a scrappage scheme, if implemented in spirit, can elongate the cycle.

The PV manufacturers such as Maruti Suzuki India (MSIL), Hyundai India, Mahindra & Mahindra and Tata Motors recorded the highest-ever sales and their export volumes also grew in FY23, despite various macro headwinds.

Overall, the exports grew 15 per cent YoY with MSIL leading the charge by surpassing its previous peak of FY22 with an eight per cent YoY growth.