Mahindra & Mahindra has emerged as Nomura's top automobile sector pick following remarkable booking numbers for its latest SUV launches, while Bajaj Auto faces a more cautious assessment despite expanding its electric vehicle portfolio with an affordable offering.

Strong Market Response Drives Mahindra Optimism

Nomura highlighted the exceptional customer response to Mahindra's dual launch strategy in a research note dated January 14. The refreshed XUV 7XO and all-electric XEV 9S together achieved impressive booking figures, demonstrating strong market appetite for the company's premium SUV offerings.

The brokerage noted that these launches "meaningfully strengthen MM's positioning in the premium SUV space, with competitive pricing and a materially improved feature set supporting demand visibility." Nomura estimates that electric vehicles account for approximately 15% of the combined order book for both models.

Volume Projections and Growth Outlook

Nomura has established specific volume expectations for the new models, projecting monthly sales of 7,500 to 7,800 units for the XUV 7XO in FY26 and FY27, while anticipating 3,000 to 4,000 units monthly for the XEV 9S over the medium term. The brokerage cautioned that the strong initial booking momentum presents an upside risk to these volume assumptions.

Nomura maintains its Buy rating on Mahindra & Mahindra with a target price of ₹4,355.00, compared to the closing price of ₹3,650.00 on January 14.

Bajaj Auto's Affordable EV Strategy Meets Neutral Stance

Despite Bajaj Auto's strategic move to expand its electric vehicle accessibility through the Chetak C25, Nomura maintained a neutral position on the stock. The new variant represents the company's most affordable Chetak offering, targeting price-conscious and first-time EV buyers.

While acknowledging that the launch "lowers the entry price point within the Chetak portfolio, expanding Bajaj's addressable market in the electric scooter segment," Nomura noted that features and boot space have been reduced compared to higher-end variants.

Financial Projections and Market Position

Nomura projects overall volume growth for Bajaj Auto at 10%, 9%, and 6% over FY26, FY27, and FY28 respectively, with EBITDA margins expected at 20.90%, 21.80%, and 21.70%. However, the brokerage highlighted that the stock is already trading at approximately 21.4 times core FY28 earnings, limiting upside potential.

The research house maintained its Neutral rating on Bajaj Auto with a target price of ₹9,814.00, implying minimal upside of 2.40% from the closing price of ₹9,580.00 on January 14. Nomura emphasized that "Ather and TVS continue to be our preferred picks in the 2W space," indicating where it sees better opportunities in the two-wheeler segment.

Tech Mahindra is expected to report steady revenue performance along with improved profitability in the December quarter, supported by margin expansion and cost optimization measures. According to average estimates from six brokerages, the company's revenue is projected to rise by around 7.00% year-on-year in Q3, while profit after tax is likely to jump approximately 40.00% year-on-year.

The estimated profit growth does not account for any potential impact from labour code-related provisions. However, given the strong scale of growth projected by brokerages, Tech Mahindra is likely to report profit expansion, setting it apart from many of its larger IT peers.

Revenue Outlook: Modest Growth Led by Enterprise Traction

Most brokerages anticipate that Tech Mahindra's revenue growth will remain modest on a sequential basis, pointing to a slow and steady recovery rather than a sharp bounce-back. The following table summarizes brokerage projections for sequential growth:

Nomura and Centrum Broking project sequential growth of around 0.40-0.50% in constant currency terms, supported by improving momentum in BFSI, communications, and enterprise segments. Nuvama is relatively more upbeat, forecasting constant currency growth of approximately 0.70% quarter-on-quarter, aided by seasonally stronger retail performance and incremental contributions from telecom and manufacturing.

Margins: Expansion Remains the Key Theme

Margin expansion remains the key focus for investors this quarter. Most brokerages expect Tech Mahindra to deliver notable sequential improvement in EBIT margins, driven by cost optimization measures, operational efficiencies, and a favourable currency environment.

Nuvama estimates margins to improve by about 40.00 basis points and expects Tech Mahindra to stay on track with its FY27 margin guidance of 15.00%. HSBC believes margin performance will remain aligned with the company's stated FY27 targets, underscoring confidence in management's execution on profitability.

Deal Wins and Pipeline

Deal momentum will be another critical area to monitor. Nomura expects net new deal wins in the range of ₹4,980-6,640 crores for the quarter, while Kotak Equities estimates a higher ₹7,263-7,470 crores, implying strong sequential and year-on-year growth. Kotak notes that newer deals are likely to be higher margin, which could further support profitability in the coming quarters.

Management commentary on the deal pipeline, conversion timelines and traction in Europe is expected to be closely tracked, especially amid a still-cautious global demand environment.

Key Areas for Investor Focus

Brokerage firms expect communications and enterprise verticals to drive near-term growth, with BFSI also showing early signs of improvement. However, commentary on the telecom vertical remains crucial, given its historical importance to Tech Mahindra's revenue mix.

Investors will also look for updates on recovery in the hi-tech and manufacturing sectors that have seen pressure over recent quarters. The company's ability to maintain its margin expansion trajectory while navigating potential labour code provisions will be closely monitored by market participants.