India's Auto Sector Forecast: Mixed Growth Ahead

India's automobile industry is set for a mixed trajectory by FY2026, with moderate growth in passenger vehicles, steady two-wheeler demand, and continued momentum in the tractor sector. While SUVs and two-wheelers show promise, the commercial vehicle segment and export market pose potential headwinds.

India's automobile sector is poised for a mixed performance in FY2026, as highlighted by a report from Kotak Institutional Equities. The passenger vehicle market is anticipated to grow modestly, driven by a boost in the SUV segment due to new launches and the expanding electric vehicle sector.

Despite the low single-digit growth projection, challenges such as weak entry-level demand and a high base effect from previous years may temper overall expansion in the passenger vehicle industry. SUVs and MUVs are expected to see growth between 6-8%, whereas hatchbacks and sedans might register 3-4% growth.

The two-wheeler segment is expected to grow by 6-9% YoY in FY2026, fueled by urbanization and a shift towards premium motorcycles. The export market, especially in Latin America and parts of Africa, also shows positive trends, contributing to this segment's growth.

The medium and heavy commercial vehicle segment presents a mixed outlook, with some automakers optimistic about mid-single-digit growth, while others foresee stagnation. Nevertheless, manufacturers remain positive about maintaining margins due to stable commodity prices and diversified revenue streams.

The tractor industry's robust growth is expected to continue, backed by favorable agricultural conditions like improved sowing acreage and reservoir levels. This trend is likely to extend into the first half of FY2026, driven by the advantage of strong Minimum Support Prices enhancing farmers' purchasing power.

Growth in the auto component industry is closely linked to vehicle demand. While domestic demand remains stable, export market uncertainties could impact revenue growth for some ancillary firms.