The Strategic Case for Auto and Metal Sector Exposure in India Amid Policy and Global Demand Tailwinds

India’s auto and metal sectors are at a pivotal inflection point, driven by a confluence of policy tailwinds, global demand shifts, and macroeconomic tailwinds. As the country advances its ambition to become a USD 5 trillion economy, strategic investments in these sectors offer compelling opportunities for capital appreciation, supported by both structural reforms and cyclical momentum.

Policy-Driven Structural Reforms: A Catalyst for Growth

The Indian government’s recent interventions have created a fertile ground for domestic manufacturing. The Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI), launched in 2025, mandates a minimum investment of INR 41.50 billion (US$485.9 million) and phased domestic value addition (DVA) targets to localize EV supply chains. This initiative, coupled with a 15% import duty concession on electric four-wheelers, is attracting foreign automakers to establish India as a global EV production hub [4].

Simultaneously, the updated PLI Scheme 1.1 for specialty steel has lowered investment thresholds for critical sub-sectors like Cold-Rolled Grain-Oriented (CRGO) steel, enabling manufacturers to carry surplus production forward. These reforms aim to reduce reliance on imports and bolster self-sufficiency in materials essential for automobiles, defense, and electrical infrastructure [6]. Such policy clarity is critical for investors, as it reduces regulatory uncertainty and aligns with India’s broader Industry 4.0 agenda [1].

Global Demand Trends: EVs and Lightweight Materials as Growth Engines

Global light vehicle sales are projected to reach 85.1 million units in 2025, with the Asia-Pacific region leading growth due to rising incomes and technological innovation [3]. While EV adoption remains uneven, consumer interest in hybrids and range-extender technologies is surging, particularly in markets with underdeveloped charging infrastructure [2]. India’s push for EVs, supported by SPMEPCI, positions it to capture a significant share of this transition.

The metal sector is equally poised for expansion, driven by demand for lightweight materials like aluminum and high-strength steel. The global automotive metals market is expected to grow from USD 176.16 billion in 2024 to USD 264.26 billion by 2032, with India’s robust production in basic metals (up 12.7% year-on-year in July 2025) underscoring its competitive edge [5]. The shift to EVs further accelerates demand for specialized metals used in battery enclosures and structural components, creating a virtuous cycle of growth [4].

Macroeconomic Tailwinds: Low Rates, Easing Inflation, and Currency Dynamics

India’s macroeconomic environment in 2025 is characterized by accommodative monetary policy and subdued inflation. The Reserve Bank of India (RBI) maintained a repo rate of 5.50% in August 2025, following a 50-basis-point cut in June, while CPI inflation fell to 1.55% in July—the lowest since January 2017 [3]. This easing of financial conditions supports corporate borrowing and capital expenditure, particularly in capital-intensive sectors like auto and metals.

However, the Indian rupee’s depreciation (USD/INR at 88.00 as of September 2025) introduces headwinds for import-dependent firms. Yet, the government’s safeguard duties on flat steel and infrastructure-driven domestic demand mitigate these risks [1]. With India’s GDP growth projected at 6.5% for FY2025–26, the economy’s resilience to external shocks enhances the appeal of sectors with strong domestic linkages [2].

Valuation Metrics: Attractive Entry Points Amid Divergent P/E Ratios

Valuation metrics highlight compelling entry points for investors. The Indian Auto Manufacturers industry trades at an average P/E of 8.29 as of September 2025, reflecting undervaluation relative to its 5-year historical average of 12.3 during low-interest-rate periods (2017–2020) [2]. This discount is partly due to near-term concerns over U.S. tariff threats, which could squeeze margins by 50–250 basis points for export-heavy firms [2]. However, the sector’s 10.7% market cap growth between Q1 and Q2 2025—driven by robust auto exports (up 19.0% in FY2025)—suggests earnings recovery is imminent [1].

The Metal sector exhibits a wider dispersion in valuations. Hindalco Industries (P/E 9) and NALCO (P/E 7) trade at discounts, while Gravita India Ltd (P/E 37) commands a premium, reflecting divergent growth trajectories. Historically, during low-interest-rate environments (2017–2020), the Steel industry’s P/E expanded from 11.3 to 20.5 at a 12.65% CAGR [2], indicating potential for re-rating as demand from infrastructure and EVs accelerates.

Strategic Investment Timing: Aligning with Policy and Cyclical Momentum

The current juncture offers a unique alignment of policy-driven structural reforms and cyclical demand. For the auto sector, companies adapting to software-defined vehicles and streamlining supply chains—such as Maruti Suzuki and Bajaj Auto—are well-positioned to outperform as global EV adoption gains traction [1]. In metals, firms investing in lightweight alloys and localized production (e.g., Tata Steel) stand to benefit from both domestic infrastructure spending and global diversification away from China [5].

Investors should also consider the macroeconomic backdrop: with inflation easing and interest rates likely to remain accommodative, the cost of capital for capex-intensive projects is favorable. The rupee’s depreciation, while a near-term challenge, could spur domestic substitution and bolster margins for export-oriented firms.

Conclusion

India’s auto and metal sectors are entering a phase of transformative growth, underpinned by policy clarity, global demand shifts, and macroeconomic tailwinds. While risks such as U.S. tariffs and currency volatility persist, the structural opportunities—particularly in EVs and specialty metals—justify a strategic allocation. For investors seeking to capitalize on India’s manufacturing renaissance, the current valuation discounts and policy momentum present a compelling case for entry.

Source:
[1] India Advanced Manufacturing [https://www.trade.gov/market-intelligence/india-advanced-manufacturing]
[2] India’s Automobile Industry: Trends, Performance, and ... [https://indiamacroindicators.co.in/resources/blogs/indias-automobile-industry-trends-performance-and-what-lies-ahead]
[3] India Inflation Rate [https://tradingeconomics.com/india/inflation-cpi]
[4] India Rolls Out New EV Scheme Targeting Foreign Auto Investment [https://www.india-briefing.com/news/india-rolls-out-new-ev-scheme-targeting-foreign-auto-investment-37791.html]
[5] India Manufacturing Tracker: 2024-25 [https://www.india-briefing.com/news/india-manufacturing-tracker-2024-25-33968.html]