Why is Maruti Suzuki among the worst performing auto stocks?

SYNOPSIS: Maruti Suzuki’s underperformance stems from policy changes impacting hybrids, EV readiness gaps, and strategic uncertainty, despite strong demand, with near-term pressures outweighing long-term growth expectations amid evolving emission norms.

During Monday’s trading session, shares of the market leader in the passenger vehicle segment in India slipped more than 5 percent on the stock exchanges. We’re talking about Maruti Suzuki India Limited. With a market capitalisation of Rs. 4.11 lakh crores, the stock closed in the red at Rs. 13,078.65 on BSE, down by over 4 percent, as against its previous closing price of Rs. 13,710.95. So far in 2026, shares of Maruti Suzuki have delivered negative returns of around 22 percent, and is down by nearly 20 percent over the past six months. So, what’s actually behind the underperformance in Maruti Suzuki’s stock? Let’s take a closer look.

Policy Changes

Maruti Suzuki’s recent underperformance can largely be traced to the latest draft of India’s Corporate Average Fuel Consumption (CAFE) 2027 emission norms, which have raised fresh concerns for investors. The proposed changes signal a shift in policy direction, putting the country’s largest carmaker under near-term strategic pressure.

At the heart of the issue is the company’s product mix and long-term technology roadmap, both of which may need recalibration under the new framework. The updated draft norms bring notable changes to how emission targets are calculated. The revisions adjust key parameters such as the multiplier, reference vehicle weight, and baseline fuel consumption, which together shift the efficiency curve upward.

In simple terms, this curve defines the average emissions limit a manufacturer’s fleet must meet based on vehicle weight. By tweaking these inputs, regulators have effectively allowed higher permissible emissions for the same vehicle weight compared to earlier proposals.

Specifically, the multiplier has been reduced from 0.002 to 0.00158 for the first year, while the reference weight has been increased from 1,170 kg to 1,229 kg. At the same time, the baseline fuel consumption has been raised from 3.7264 litres per 100 km to 3.9960 litres per 100 km for FY28.

Taken together, these changes relax the emission curve, giving automakers slightly more headroom to meet regulatory requirements, at least in the near term. Maruti may need to re-evaluate the sustainability of their hybrid-focused strategies, particularly in light of reduced incentives for hybrids and the withdrawal of benefits for small cars.

Hybrid Advantage Weakens Under New Norms

Maruti has traditionally built its portfolio around small, fuel-efficient petrol cars, while gradually shifting toward strong hybrids as a transitional step toward electrification. However, the latest draft norms have diluted this advantage.

The super-credit benefit for strong hybrids has been reduced from 2.0x to 1.6x, and additional incentives for small cars have been withdrawn. This significantly weakens the benefits the company previously enjoyed under the earlier regulatory framework, reducing the effectiveness of its hybrid-led strategy.

Although the introduction of 3-year compliance windows (FY28-30 and FY30-32) provides some flexibility, the overall regulatory push is clearly in favour of faster EV adoption. This is where Maruti appears relatively less prepared compared to its peers, as its EV pipeline is still at a nascent stage, with scale expected only over the coming years.

On the contrary, competitors like Mahindra & Mahindra (M&M) and Tata Motors PV already have stronger EV portfolios and clearer product pipelines, making it easier for them to align with tightening emission norms. While initial EV requirements for Maruti may remain modest (1-3 percent initially), future tightening could necessitate a faster ramp-up.

The option to purchase carbon credits offers temporary relief, but it comes at a cost and could impact margins if the internal transition is delayed. This brings the focus to a larger strategic question: whether the company should continue prioritising hybrids or accelerate investments in EVs. With policy support for hybrids gradually reducing, the company may need to reassess its long-term direction.

Brokerage Outlook

About a month ago, domestic brokerage firm Motilal Oswal Financial Services Limited had expressed the view that concerns around the underperformance of Maruti Suzuki India Limited were overdone, while maintaining a bullish stance on the company.

At the time, the brokerage noted that the stock’s underperformance relative to the broader auto index has been primarily driven by short-term weakness in wholesale volumes and a softer-than-expected performance in Q3 FY26. 

However, it highlighted that these concerns may be overstated, as underlying retail demand remains strong across both passenger cars and utility vehicles. This strength is evident in the company’s improved retail performance following the GST rate cut. Additionally, near-term wholesale volumes have been constrained by capacity limitations, which are expected to ease from April 2026 onwards as new capacities come online.

Looking ahead, Motilal Oswal expects the company to outperform industry growth in FY27, supported by a robust product pipeline. This includes a new variant of the Brezza, the recently launched models such as Victoris and e-Vitara, along with at least one additional launch planned during FY27. Export performance is also expected to remain strong, with the company progressing toward its medium-term target of 7.5-8 lakh units by FY31, having already exceeded its FY26 export target by February 2026.

On the cost front, the brokerage anticipates that rising input cost pressures will be mitigated through a combination of reduced discounts, a better product mix, and normalisation in pricing. Overall, it expects the company to deliver an earnings CAGR of around 16 percent over the FY25-FY28 period.

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