Riding In Fast Lane: BofA Upgrades Outlook For India’s Two-Wheeler Sector — Here Are Top Stock Picks
BofA is most positive on Eicher Motors, which it sees as the strongest growth pick among listed two-wheeler manufacturers.
Bank of America has turned constructive on India’s two-wheeler sector as demand gains momentum, margins show signs of improvement and regulatory risks ease. The brokerage noted the industry is firmly riding in the fast lane, though much of the near-term optimism is already priced into share valuations.
The firm believes the outlook for two-wheelers is improving as the impact of the GST 2.0 rate cut has made premium models more accessible and unlocked pent-up demand. It expects the industry to close fiscal 2026 with around 8% year-on-year volume growth despite a flat first half.
The brokerage's discussions with the managements of Hero MotoCorp, Eicher Motors and Bajaj Auto reinforced expectations of 8–10% growth in the second half, with potential upside if demand remains firm. Notably, this recovery has occurred without discounting, a sign of underlying demand strength.
BofA highlighted that premiumisation has accelerated following the GST rate cut, while the entry-level segment has shown early signs of revival. However, it believes it is too early to call a sustained recovery in the mass and rural segments. Importantly, ABS safety norms, earlier scheduled for implementation in January 2026, may be deferred, and the government is likely to consider lower-cost alternatives.
Export demand remains strong for all major OEMs, supported by favourable foreign-exchange trends. The brokerage also observed that incumbents are gaining market share in electric two-wheelers, with the competitive landscape shifting from price wars to product strength and customer value.
On stock preferences, BofA is most positive on Eicher Motors, which it sees as the strongest growth pick among listed two-wheeler manufacturers. It maintains a 'Buy' rating with a target price of Rs 7,750.
It retained 'Neutral' rating on Bajaj Auto with a target price of Rs 9,300, while Hero MotoCorp also got a 'Neutral' rating, but the target price was hiked to Rs 6,450, raised from Rs 5,900. BoFA remains 'Neutral' on TVS Motor, with a target price of Rs 3,825.
The brokerage noted that two-wheeler stocks, except Bajaj Auto, have rallied 45–50% year-to-date, compared with earnings upgrades of only 3–11%, implying that valuations are no longer cheap.
BofA believes both Eicher and TVS offer solid earnings growth prospects of 15–20% CAGR, but it prefers Eicher due to its potential for margin gains through operating leverage and pricing actions.
Eicher Motors appeared confident about sustained demand momentum driven by refreshed products, improved marketing and enhanced affordability post-GST changes, it said. Capacity expansion is underway, with product initiatives mainly aimed at optimising existing platforms rather than building new ones. Margins are expected to recover gradually.
It sees Hero and Bajaj as value plays, trading at sub-20 times forward earnings, but remains cautious about the sustainability of the entry-level motorcycle recovery.
Hero MotoCorp reported a strong festive season and emphasised its shift toward strengthening its business model, expanding into new categories, improving brand positioning and scaling up electrification. BofA increased its target price for the stock to Rs 6,450, raising its valuation multiple to 20 times due to these structural improvements.
For Bajaj Auto, the brokerage sees the stock lacking catalysts in the near term but believes new launches, a potential KTM turnaround and strong exports could support re-rating in 2026.
Bajaj Auto echoed industry optimism for domestic two-wheelers and highlighted ongoing efforts to regain lost market share, although major product actions such as Pulsar updates and a new 125cc bike are expected only next year. Exports and three-wheelers, which now form about 60% of the mix, remain key growth drivers. The company’s entry into the rickshaw segment appears promising and could support growth visibility.
Overall, BofA maintains the sector’s recovery is on a firmer footing, but stock performance from here will depend on sustained market share gains, execution strength and discipline in pricing and product strategy.
