Auto Stocks Rally for the Second Straight Day: Check Factors Behind the Rally

On August 19, 2025, Shares of leading auto companies such as Tata Motors, Bajaj Auto, Samvardhana Motherson, and MRF traded higher for the second straight day, as investor sentiment turned positive across the sector. The Nifty Auto index rose by 1%, while the Nifty EV index climbed over 1%, reflecting broad-based gains.

Factors Behind the Rally

China Lifting Restrictions on Rare Earth Magnets

A key driver behind the rally is emerging news that China may lift restrictions on rare-earth magnets, a crucial component in electric vehicles and hybrid technologies. Additionally, the Chinese Foreign Minister has assured India of efforts to address concerns around import dependency.

At present, China controls 70–80% of global rare-earth processing, and past supply disruptions have already pushed several Indian automakers to explore production cuts. If the curbs are indeed eased, EV-focused manufacturers like Tata Motors, Mahindra, and Ola Electric could see significant relief and upside.

However, hybrid-focused companies such as Maruti Suzuki, which rely more heavily on permanent magnet synchronous motors (PMSMs), remain particularly exposed to ongoing supply risks.

Also Read: Industry Leader Warns Negative Implication of GST Rate Cut on Life and Health Insurance

The impact extends to auto component makers as well, with companies like Endurance, Motherson, and Bosch India—which supply EV motors, steering systems, and electronic parts—being closely tied to rare-earth availability.

GST Reforms

In addition to the rare-earth catalyst, the auto sector is also supported by other favourable factors, including the prospect of GST rationalisation across vehicle categories, hinted at in Prime Minister Narendra Modi's Independence Day address, which promised "next-generation GST reforms" by Diwali.

Festive Demand

The sector is further buoyed by a seasonal rise in demand as the festive period approaches.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.