BofA on India CVs: India's commercial vehicle cycle is showing signs of a decisive upturn, with demand broadening across segments even as macroeconomic concerns weigh on investor sentiment, according to BofA Securities.
Analysts Gunjan Prithayani and Eshan Bhargava believe the industry can deliver 10-12% or more volume growth in FY27, with upside risks, and has a ‘Buy' rating on Ashok Leyland and Tata Motors CV.
The disconnect, according to BofA, is increasingly between what the macro narrative suggests and what the underlying industry data is showing. CV volumes have grown more than 25% year-to-date, while August demand was particularly strong in medium and heavy commercial vehicles.
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Truck Cycle Is Broadening
BofA's recent industry interactions have strengthened its conviction that the CV cycle has “decisively inflected upwards”.
The recovery is no longer limited to a single segment, with M&HCVs leading August growth and demand coming from both large fleet operators and smaller transporters.
Several factors are coming together like better vehicle affordability and benign financing conditions, an ageing vehicle fleet supporting replacement demand, a pickup in infrastructure and private-sector capex, migration from used trucks to more efficient BS6 vehicles and healthy fleet economics.
High fleet utilisation, firm freight rates and lower running costs are also supporting transporters' profitability.
Why The Cycle Could Have More Room To Run
BofA believes the current upcycle has a stronger foundation than previous cycles because the freight ecosystem has become more organised. That is allowing operators to pass through cost inflation more effectively while maintaining healthier profitability.
The brokerage also does not see the threat from rail freight as imminent, despite the longer-term expansion of dedicated freight corridors.
Tata, Ashok Leyland Have A Stronger Moat
BofA expects market shares among leading truck makers to remain broadly stable as product capabilities have converged following the BS6 transition and aggressive pricing is unlikely to become a major tool for gaining share.
For new or smaller players, breaking into the M&HCV segment remains difficult because of the established advantages of Tata and Ashok Leyland in distribution, service networks, financing access, brand equity and fleet relationships.
The rising adoption of telematics could also create an additional revenue opportunity through predictive maintenance, insurance underwriting and product development based on large installed vehicle pools.
Margins Face A Speed Bump, Not A Breakdown
Near-term margins could come under pressure from sharp inflation in steel and rubber. BofA expects recent price hikes of around 1–1.5% each quarter to have only partially offset the cost increase in Q2.
However, the brokerage views this as a cyclical headwind rather than a structural problem, given strong demand, pricing discipline and ongoing cost-reduction programmes.
Regulatory changes from October 2027, including ADAS and braking-system requirements, will be an important factor to watch for their potential inflationary impact.
BofA's Preferred CV Bets
Despite concerns around crude prices and the broader macro environment, BofA believes the market is “trading macro, missing micro” in Ashok Leyland and Tata Motors CV.
Both stocks have corrected even as volume performance has consistently surprised on the upside. With valuations below 20x PE and around 12x EV/EBITDA, BofA believes improving earnings growth, a better industry structure and sector-leading ROEs could support a re-rating.
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