New Delhi, April 15 -- Rising commodity costs and a potential slowdown in domestic demand are emerging as key headwinds for the auto sector in the near term, even as stock prices have corrected 10-30% over the past six months, according to a report by HSBC Global Investment Research.

"Auto stock prices have fallen 10-30% over the past six months, largely due to commodity cost inflation and the Middle East conflict," the report said. "Hence, on consensus estimates valuations appear undemanding." However, HSBC cautions that risks remain. "We believe commodity price hikes are significant and the impact on demand from a macro slowdown or likely price hikes may surprise the market negatively in the near term."

While the research firm remains...