Bank of America (BofA) upgraded its outlook on India's two-wheeler sector to "constructive" on December 10, 2025, citing accelerating demand momentum, margin recovery, and easing regulatory headwinds that position the industry to "firmly ride in the fast lane". The broking's shift follows robust festive sales data and post-GST 2.0 affordability boosts, which have unlocked pent-up consumer interest without resorting to aggressive discounting—a sign of underlying structural strength. While acknowledging that much of the near-term optimism is already reflected in elevated valuations, with most stocks (except Bajaj Auto) surging 45-50% year-to-date against modest 3-11% earnings upgrades, BofA forecasts 8% year-on-year volume growth for fiscal 2026, potentially tilting higher if rural and mass-market segments sustain their early revival. This positive stance comes amid a broader economic backdrop where India's two-wheeler market, valued at over $15 billion, benefits from rising middle-class aspirations, urbanisation, and export tailwinds.

Key drivers behind the upgrade include the recent GST rate rationalisation, which has enhanced accessibility for premium models and spurred premiumisation trends, alongside refreshed product lineups and intensified marketing from major OEMs like Hero MotoCorp, Eicher Motors, and Bajaj Auto. BofA highlights strong export performance—accounting for up to 60% of some players' mix—bolstered by favourable forex dynamics and a pivot in the electric two-wheeler space toward product differentiation over price competition, allowing incumbents to capture market share. Regulatory relief, such as the potential deferral of stringent ABS safety norms slated for January 2026 in favour of cost-effective alternatives, further alleviates near-term pressures. Discussions with company managements reinforce these trends, pointing to capacity expansions on existing platforms and forays into adjacent segments like three-wheelers and rickshaws as catalysts for sustained growth.

Financially, the sector is poised for gradual margin expansion through operating leverage and pricing discipline, with BofA projecting 15-20% CAGR earnings growth for select players like Eicher and TVS Motor over the medium term. However, risks linger, including the durability of entry-level demand recovery, execution challenges in electrification, and vulnerability to commodity price volatility or monsoon disruptions in rural areas. The broking notes that while the recovery footing is firmer than in prior cycles, success hinges on market share gains and strategic execution, particularly as competition intensifies in exports and EVs.

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Among listed peers, BofA is most bullish on Eicher Motors, dubbing it the "strongest growth pick" with a 'Buy' rating and target price of Rs 7,750, driven by refreshed Royal Enfield offerings, marketing push, and capacity build-up that could yield margin upside. Hero MotoCorp earns a 'Neutral' upgrade to Rs 6,450 (from Rs 5,900), valued as a sub-20x forward earnings play with structural tailwinds from new categories and electrification. Bajaj Auto and TVS Motor also receive 'Neutral' calls at Rs 9,300 and Rs 3,825, respectively, praised for export resilience and growth potential but lacking immediate catalysts.

This upgraded thesis aligns with India's automotive resurgence, where two-wheelers—comprising 80% of vehicle sales—serve as a barometer for consumer sentiment and economic health. As global players eye the market's 200 million-plus vehicle park, BofA's picks emphasise value amid stretched multiples, advising investors to monitor Q3 earnings for confirmation of demand sustainability.

With the sector's momentum potentially spilling into fiscal 2027, BofA's recommendations spotlight opportunities in premium and export-orientated firms, underscoring a transition from cyclical recovery to long-term value creation in one of Asia's most dynamic mobility arenas.

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