The shares of two-wheeler companies are performing exceptionally well, indicating a positive outlook, which may seem perplexing considering the current demand conditions. Rural demand remains subdued due to weak rainfall, and price hikes by two-wheeler companies are further dampening demand.

However, over the past six months, shares of Eicher Motors Ltd, Bajaj Auto Ltd, Hero MotoCorp Ltd, and TVS Motor Co. Ltd have seen significant increases of approximately 16%, 28%, 29%, and 42%, respectively. Eicher Motors is the listed parent company of Royal Enfield. Several company-specific factors have contributed to this upward trend. For example, TVS has consistently delivered strong margins of around 10% in recent quarters, and its penetration into the electric vehicle market has outperformed its peers. Additionally, the launch of premium vehicles by Bajaj and Hero in partnership with Triumph Motorcycles and Harley Davidson, respectively, has boosted investor confidence in these companies.

It's worth noting that the challenging conditions are not limited to the domestic market alone. Two-wheeler export volumes are also struggling to gain momentum. This is particularly crucial for Bajaj, as exports accounted for nearly 48% of its total two-wheeler volume in FY23, a decrease from the 57% share seen in FY22. However, there is a positive development as Bajaj's export volumes increased by 2% year-on-year in August after months of decline.

On the margin front, the potential rise in steel prices poses a threat, especially when demand is weak, making it challenging to pass on cost increases to consumers. Additionally, the expansion of electric vehicles could exert pressure on profitability, as this business tends to have lower margins. Lastly, with increasing competition, particularly in the premium segment, there might be a surge in advertising and promotion expenses.