India’s automobile sector entered FY27 on a mixed note, with passenger vehicles (PVs) and tractors continuing to demonstrate healthy demand momentum, while two-wheelers (2Ws) and commercial vehicles (CVs) showed signs of moderation amid external headwinds and evolving market dynamics.
The PV segment remained the standout performer in May, supported by robust retail demand, lean dealer inventories, healthy order backlogs, and new capacity additions. These factors translated into stronger-than-expected wholesale growth across the industry. Demand was particularly strong in utility vehicles and newly launched models, while inventory discipline across dealerships helped sustain production and dispatch momentum. The segment also benefited from improving consumer sentiment and continued product innovation, including growing traction in electric vehicle offerings.
In contrast, the two-wheeler market presented a more nuanced picture. While wholesale volumes recorded healthy growth, underlying retail demand remained relatively softer during the first two months of the fiscal year. Inventory normalisation at dealerships played a significant role in supporting dispatches. Export performance was mixed across manufacturers, reflecting uneven demand conditions in overseas markets. Nevertheless, easing supply-side constraints and improved product availability supported volume recovery for select players.
Commercial vehicles continued to face a challenging operating environment. Industry growth moderated as geopolitical tensions in West Asia disrupted trade flows and weighed on freight activity. Demand softness was visible across key categories, particularly in the medium and heavy commercial vehicle segment. Although certain manufacturers continued to gain market share through stronger execution and product positioning, the broader sector remains exposed to macroeconomic uncertainty and external disruptions.
The tractor industry remained a bright spot, driven by resilient rural demand. Healthy reservoir levels, improved rural liquidity, and supportive agricultural policies contributed to strong sales momentum. However, the outlook for the second half of the fiscal year has turned more cautious. Rising farm input costs, supply chain disruptions, softer prices for select cash crops, and the possibility of an El Niño-led weak monsoon could temper demand growth.
Looking ahead, the sector’s trajectory is likely to remain differentiated across segments. Passenger vehicles appear best positioned to sustain growth, supported by healthy demand and controlled inventory levels. Tractors continue to benefit from favourable rural fundamentals, though weather-related risks warrant close monitoring. Meanwhile, commercial vehicles and two-wheelers may require stronger demand recovery and improved macro conditions to regain momentum. Rising input costs across segments remain a key near-term challenge, underscoring the importance of operational efficiency and pricing discipline in sustaining profitability.
Samvardhana Motherson: Buy | Target Rs 160
Samvardhana Motherson delivered a strong 4QFY26 performance, with adj. PAT rising 55% YoY and EBITDA margin expanding 200bp to 11%, driven by robust execution and margin improvement across wiring harness, integrated assemblies, and emerging businesses. The company’s growth visibility remains strong, supported by a USD96b booked business pipeline, multiple greenfield projects across global markets and rapid scaling in high-growth segments such as consumer electronics and aerospace. Management has raised its 5-year revenue aspiration to USD108b, supported by a strong order backlog, EV transition, while better-than-expected 4Q performance amid a challenging global macro environment has led to an 8% upward revision in FY27/FY28 earnings estimates.
Maruti Suzuki: Buy | Target Rs 15,529
(The author is Siddhartha Khemka, Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd.)
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
