Lookback: The Auto Upgrade Cycle That Quietly Carried Nifty Through Eighteen Months

Between the summer of 2023 and the closing tape of 13 December 2024, Indian auto stocks delivered the most coherent, multi-quarter sector rally on the Street, and almost nobody framed it as one until it was nearly over.

The Nifty Auto index closed 13 December 2024 at levels that capped a gain of over 60% from its 22 June 2023 lows, a stretch in which the broader Nifty 50 itself put up a respectable but visibly smaller run. The headline numbers, lifted from NSE daily closes across that window, were striking enough. What made the rally interesting was not the magnitude. It was the texture. This was not a one-stock, one-quarter pop. It was a slow, fundamentally anchored re-rating that absorbed three earnings seasons, two RBI rate decisions, a general election, and a sharp October 2024 correction in the headline indices, and still finished green on every meaningful timeframe.

I treated the auto complex as a discretionary cyclical through most of FY24, and I missed the leadership rotation for the first three months of the move. Reading the December 2024 tape back against the June 2023 setup, the structure of the cycle was almost textbook. The trigger was a margin reset. The fuel was a product-mix premiumisation that brokerages took two quarters to underwrite. The reversal risk, which materialised partially in early November 2024 before being absorbed, was inventory and rural demand wobbling under a delayed monsoon. By the time the 13 December weekly closed, the cycle had matured but had not yet rolled.

Caption: The weekly frame showed three distinct legs, with the steepest acceleration between Q4 FY24 results and the September 2024 peak.

What actually triggered it

The 22 June 2023 low was set in a market that was, at the time, more interested in IT, capital goods, and PSU banks. Auto stocks had spent most of CY22 and the first half of CY23 working through a brutal commodity squeeze. Steel, aluminium, and palladium had ripped through input lines from late FY22, and the OEM response, which was a quiet, staggered series of price hikes through CY23, did not fully reflect in margins until the September 2023 quarter. Maruti Suzuki, in its Q2 FY24 commentary, flagged the operating leverage that would land when raw material tailwinds met those carried-over price actions. The Street read that note as a guide and then largely shelved it. Three weeks of sideways action followed.

That commentary was the actual trigger. The June 2023 low was the price low, but the upgrade cycle started with the Q2 FY24 print in late October 2023, when Maruti reported a sharp operating margin expansion and Tata Motors followed with a Jaguar Land Rover beat that even the company's own guidance had not telegraphed. Within ten sessions, three large domestic brokerages moved their FY25 EPS estimates for Maruti higher by double-digit percentages, and the sector PE re-rating began in earnest. By mid-November 2023, the Nifty Auto had broken out of its CY22-CY23 range on volume that exchange data showed was running well above the trailing six-month average for the constituents.

The sustenance question is the more interesting one, because raw material relief alone was never going to carry eighteen months of price action. What sustained the rally was the mix shift. Through CY24, the proportion of SUVs in domestic passenger vehicle sales kept climbing past every threshold that auto desks had used as their ceiling assumption. The premium SUV segment, where realisations and margins were structurally higher than the hatchback base, was where Maruti, Mahindra, and Tata each had a credible product pipeline. Maruti's Grand Vitara and Invicto, Mahindra's XUV700 and the late-2024 BE-series teasers, Tata's Harrier and Safari refresh, and the consistent volume from Hyundai Creta on the unlisted side of the comparable cohort, all fed into a sector ASP curve that bent upward through every quarter of CY24. Bhavcopy-level data on the listed names showed traded volumes scaling alongside the price move, not against it, which is usually the cleaner signal that institutional money is sitting on the long side.

The two-wheelers told a different but complementary story. Hero MotoCorp, Bajaj Auto, and TVS spent the first half of the cycle as laggards, with the relative strength versus Nifty Auto staying below one through most of CY23. The rural demand recovery, which began showing up in tractor volumes from late Q4 FY24 and accelerated through the kharif sowing window of mid-2024, pulled the two-wheelers into the rally with a lag. Bajaj Auto and TVS, both of which had been investing in the premium and EV ends of their portfolios, took over leadership inside the two-wheeler basket through the June to September 2024 stretch. Hero, which had been the laggard of the cohort through CY23, played catch-up only in October and November 2024, and only after its festive volume disclosures came in better than the muted Street expectations.

The leadership rotation that paid

Within the Nifty Auto constituents, the rotation was clean enough that I marked it on the chart at the time and then proceeded to under-position it for two quarters. The first leg, June 2023 to roughly February 2024, was a Maruti and Tata Motors story. Both names added in excess of one lakh crore to their market capitalisation across this stretch, with the Maruti move anchored to the operating-margin reset and the Tata Motors move anchored to JLR plus the domestic SUV mix. By February 2024, Tata Motors had crossed the one thousand rupee mark on a sustained basis and Maruti was trading above twelve thousand on most sessions, levels that earlier in the cycle had been considered the upper end of fair value by most sell-side models.

The second leg, February 2024 to roughly June 2024, was where M&M took over. The XUV700 had been a slow burn through CY23, but the order book, which the company began disclosing more aggressively in its FY24 results calls, pulled the stock into a re-rating that was visibly steeper than what the index was doing. M&M went from being treated as a tractor company with an SUV side hustle to being treated as a premium SUV story with a tractor hedge, and the multiple expanded accordingly. The farm segment, which earlier in the cycle had been a drag because of patchy rural demand, flipped to a tailwind once the southwest monsoon began behaving and the tractor-to-passenger-vehicle margin gap narrowed.

Caption: Note how Maruti and Tata led from the June 2023 base, M&M took over leadership through early CY24, and Bajaj Auto plus TVS finished the year as the strongest performers on a six-month relative basis.

The third leg, the summer and early autumn of 2024, was the two-wheeler chapter. Bajaj Auto, which had spent much of CY23 as a defensive holding paying out via buybacks, broke out of a multi-year base in May 2024 and went on to deliver a substantially superior six-month return than the index. TVS, in parallel, became the favoured way to play the premium two-wheeler mix shift, with its export book and the iQube EV ramp pulling the sustained, multi-quarter operating leverage that the Street had been waiting on since the original CY22 EV thesis.

The fourth leg, which was already in motion as the December 2024 tape closed, was a quieter rotation back into the original leaders. Maruti and Tata Motors, having corrected through the October 2024 broader-market drawdown, were stabilising at higher levels than where they had begun CY24, and the brokerage notes through November and early December began revisiting FY26 estimates upward. The auto ancillaries, which had been a relative-strength leader through almost the entire window but had largely sat outside the Nifty Auto basket as constituents, were already trading on the kind of valuations that suggested the next leg of the cycle, if it came, would have to be earned through earnings rather than through multiple expansion.

The cross-sector frame

The eighteen-month auto move did not happen in a vacuum, and the relative frame is where the rally either looked obvious or looked underappreciated, depending on which sector you anchored against. Realty and capital goods, the two domestic-cyclical baskets that competed with auto for the same domestic-recovery narrative, delivered comparable or stronger returns over the same window, but with notably higher volatility and shallower institutional sponsorship. The PSU bank index, which began the period as the consensus long, peaked in early CY24 and then spent the rest of the window working through profit-taking, ending up well below the auto basket on the trailing one-year comparison as of December 2024.

The IT index was the most useful contrast. CY23 had ended with IT as the obvious recovery long for early CY24, on the back of US recession fears receding and a hoped-for revival in discretionary tech spending. That revival was delayed through most of CY24, and the IT index spent the year oscillating, finally putting on a sharp move only in the November and December tape as the AI-spend thesis began landing more concretely. Auto, in the same window, had delivered a substantially more linear, more institutionally-attractive return profile. For a domestic long-only fund, the auto overweight had been the single best sector call available, and the public disclosures from a handful of large mutual fund houses through CY24 confirmed that the overweight had built up steadily and was approaching its widest level in five years by the September 2024 portfolio cut.

FII flows into the auto names, read through the NSDL sectoral data through the window, showed a different pattern from the price chart. Foreign positioning had been net-buyer through the first leg, turned net-seller through the May to October 2024 stretch as the broader emerging-market flow turned cautious into the US election, and then returned as net-buyer through the November and early December window. The DII flow, however, was almost mechanically net-buyer through the entire eighteen months, which is the kind of one-way flow that explains both the magnitude and the relative calmness of the move. When the foreign book did sell through mid-CY24, the domestic mutual fund and insurance bid simply absorbed it, and the price impact was a drawdown of roughly nine to eleven percent off the September 2024 highs before the index made new ones again in November.

The historical analog

The eighteen-month auto rally between June 2023 and December 2024 was structurally most similar to the CY15-CY17 auto cycle, when a combination of post-deregulation diesel pricing, a Pay Commission tailwind, and a premiumisation push at Maruti and Eicher delivered a comparably-shaped move on the Nifty Auto. The differences mattered as much as the similarities. The CY15-CY17 cycle was carried disproportionately by Maruti and Eicher, with a much weaker contribution from the two-wheelers and a near-absent contribution from Tata Motors, which spent most of that window working through the original JLR China problem. The CY23-CY24 cycle, by contrast, was broader. Five of the top six names in the Nifty Auto contributed meaningfully to the rally, and the leadership rotated rather than concentrated.

The other useful analog is the CY09-CY10 post-GFC recovery, where auto was the cleanest beneficiary of the stimulus-driven domestic demand bounce. That cycle ended sharply in late CY10 as commodity costs began squeezing margins ahead of any price-hike response. The CY23-CY24 cycle, again by contrast, began on a commodity tailwind rather than ended on a commodity headwind, which is part of why the operating leverage held through three earnings seasons instead of two.

What the analogs suggested, for anybody reading the December 2024 tape carefully, was that the typical Indian auto cycle ran between fifteen and twenty-four months from trough to peak on the index. The eighteen-month mark of the CY23-CY24 cycle was, in calendar terms, sitting inside but not at the end of that window. The product pipeline visibility from the OEMs, the rural recovery trajectory through the late-2024 disclosures, and the still-reasonable multiple on Maruti and Tata Motors versus their own five-year averages, all argued that the cycle had room. The risks, equally clearly, were the same ones every auto cycle has eventually surfaced. Inventory build at the dealer end, a sharper-than-expected raw material reversal, or a demand letdown on the festive read into Q4 FY25.

The December 13 read

The 13 December 2024 weekly close was, on the most literal reading of the chart, a higher high in an uptrend that had not yet shown a structural top. The relative strength of the Nifty Auto versus the Nifty 50 had pulled back from its September 2024 peak but had stabilised above the trend line that had defined the entire move from June 2023. The breadth inside the index was healthier than at the September peak, with a wider basket of constituents printing fresh fifty-two-week highs into early December than had been the case in the prior leg.

Caption: The closing-session structure showed a clean defence of the prior week's low and an upper-half close, the kind of weekly print that historically did not mark a top in a trending move.

The intraday tape into the 13 December close was the cleaner read of the two. The index spent the bulk of the December 12 and 13 sessions absorbing supply in the upper half of the prior week's range, and the closing thirty-minute candle on the Friday was a strong-bodied positive that printed at the day's highs. That kind of weekly print, in the historical sample of Indian sector indices in trending moves, has been a continuation signal substantially more often than it has been a top.

The bear case, which I treated seriously through most of the November and December tape, was the inventory question. Dealer-channel inventory had risen through the October correction and the Diwali demand, while reasonable, had not been the blowout that some of the more bullish notes had set up for. If Q3 FY25 numbers, due to print through January and February 2025, showed dealer inventory above the comfort threshold and OEM volume guides being trimmed, the multiple compression would have come quickly. That was the rail-trip risk into the December close, and it was the one I marked as the single highest-conviction reason to be selective rather than indexed long into early CY25.

Verdict

Stance: BULLISH (qualified, with size discipline) Horizon: 3mo Rationale: As of the 13 December 2024 close, the Nifty Auto cycle was mature but not exhausted, with breadth, leadership rotation, and DII positioning all still supportive, and the Q3 FY25 inventory print sitting as the single binary risk on the immediate horizon.

The eighteen-month auto rally between June 2023 and December 2024 was the rally most domestic-discretionary funds quietly built their CY24 numbers on, and the one most retail conversations did not frame as a coherent sector call until the second half was already running. The cycle anatomy was clean, the leadership rotation was tradeable if read patiently, and the historical analogs argued for at least one more quarter of room before the structural top question had to be taken seriously. What ended up mattering more than any of the macro framing was the simple discipline of letting the operating leverage land in the prints and the mix shift land in the dealerships, and reading the tape rather than the narrative.