Two-wheelers, EV makers, and tractor manufacturers are showing robust volume trends. Maruti Suzuki is a preferred pick in passenger vehicles. PSU banks may also attract investor interest due to attractive valuations.

Indian equities are entering the festive season with optimism in the auto sector, where improving demand and healthy festive momentum could deliver positive surprises in the December quarter, says Dhananjay Sinha, CEO and Co-Head Institutional Equities at Systematix Group.

Speaking to ET Now, Sinha said while the buzz around Tata Motors' restructuring and upcoming stock split has drawn investor attention, he prefers other plays in the auto space -- particularly two-wheelers, EV makers, and tractor manufacturers, which are seeing stronger volume trends and better growth visibility.

Tata Motors shares slipped over 2 per cent on Monday, emerging as the top Nifty loser, ahead of the special session scheduled between 9-10 am on Tuesday to determine the stock prices of Tata Motors and Tata Motors DVR post-demerger.

However, Sinha remains cautious.

"Tata Motors has a global presence and, therefore, exposure to global risks. The company is also seeing some reduction in market share, particularly in the SUV segment," he said.

"While the stock has corrected and there seems to be some bottoming out, I would not consider it among my preferred auto picks right now. There are better opportunities available."

The company's global exposure through Jaguar Land Rover (JLR) and domestic headwinds in the SUV category make it vulnerable to both macro and demand risks, he noted.

Despite weakness in Tata Motors, Sinha is bullish on the broader auto space, expecting an improvement in volumes across segments this quarter.

"We have been overweight on autos for a while. There is an improvement in volumes, and we expect a positive surprise in the December quarter, particularly in two-wheelers," Sinha said.

Sinha highlighted that after several muted quarters, the two-wheeler segment is showing steady recovery driven by rural demand revival, lower base, and festive buying.

"Two-wheelers such as Hero MotoCorp and TVS Motors are performing well. In the EV space, Ather Energy is gaining market share rapidly, while both Hero MotoCorp and Bajaj Auto are strengthening their EV portfolios," he noted.

In the passenger vehicle segment, Sinha expects Maruti Suzuki to benefit from its strong product lineup and value positioning.

"There's visible improvement in the value segment of passenger vehicles. Maruti remains a preferred pick," he said.

Among auto sub-sectors, tractors are showing the strongest volume growth, helped by a low base and recovery in rural income.

"The tractor segment is on a good trajectory, and while full recovery hasn't happened yet, we expect a positive surprise here as well," Sinha said.

As the Diwali season approaches, markets are closely watching consumption trends across sectors. According to Sinha, the auto sector remains the strongest consumption theme, while FMCG and consumer durables may continue to see mixed trends due to weak on-ground demand and liquidity tightness.

"People are closely watching how festive consumption pans out. The consumer goods space has been lacklustre -- on-ground volume growth is not very strong," he said.

"Working capital requirements and tight liquidity are impacting FMCG players. So, we are being selective."

Among FMCG stocks, Sinha prefers companies with resilient brand portfolios and steady earnings visibility.

"Marico and Godrej Consumer Products (GCPL) are on our radar. These are the selective names we like within the consumption pack," he added.

While most attention is on consumption and auto, Sinha noted that PSU banks could see renewed interest given their attractive valuations and improved balance sheet strength.

"People are looking at PSU banks at this juncture because valuations remain compelling. The larger private sector banks continue to trade at a premium, so value investors are likely to look at the PSU pack," he explained.

However, Sinha remains selective in financials, preferring leverage plays within the auto and consumer durable space, where operating performance is improving.

The near-term outlook for equities will hinge on corporate earnings and management commentary during the ongoing result season.

"Overall, the result season will be critical. What managements say about demand trends, margins, and outlook for the rest of FY25 will determine the market's tone," Sinha said.

While the broader market has been volatile, select sectors like autos and defence continue to show relative strength, and Sinha expects stock-specific opportunities to emerge during earnings.

Summing up his strategy, Sinha said he expects the auto sector to lead the next leg of recovery, supported by festive demand, price stability, and margin improvement.

"We remain positive on autos -- especially two-wheelers, Maruti, and tractor players -- as they show the strongest fundamental momentum," he said.

"Consumption remains mixed, but selective FMCG names could deliver steady performance," he said.

For investors looking to position ahead of Diwali, Sinha suggests sticking with growth-driven cyclicals such as autos and selective value plays in PSU banks and consumer durables, while staying cautious on global-exposed names like Tata Motors in the near term.

Auto stocks set for festive momentum: Bullish on Hero, Maruti, and tractors; cautious on Tata Motors: Dhananjay Sinha