India's Auto Sector: Mixed Signals Amidst Global and Domestic Challenges

In the first quarter of FY26, India's automobile sector presented a mixed performance, with a notable divergence between segments, as reported by Axis Securities. The growth was primarily driven by the two-wheeler and tractor segments, while passenger and commercial vehicles saw subdued activity.

Two-wheeler exports surged 23.2% compared to last year. However, domestic volumes declined by 6%, attributed to affordability issues, with motorcycles seeing a 9% dip. Despite challenges, the segment outlook is promising, buoyed by premium launches, elongated replacement cycles, and potential GST relief.

Tractor sales experienced a 9.2% increase in domestic markets, thanks to pre-election schemes, robust rabi output, and favorable monsoon conditions. Yet, export growth was limited to 2.7%, hindered by ongoing weaknesses in key markets like the U.S. and Europe. Meanwhile, passenger vehicle exports rose by 34.4%, fueled by new model introductions and OEM strategies targeting Africa and South America; however, domestic sales fell by 1.4%.

For commercial vehicles, exports increased by 23.4%, but domestic sales slightly dropped by 0.6%, affected by a high base effect and fleet operators' caution due to sluggish infrastructure activity post-elections. Despite these challenges, overall OEM revenue grew by 7% year-on-year in Q1FY26, driven by robust export growth and segment recoveries.

The future appears cautiously optimistic, with possible GST cuts on the horizon by late 2025, which could revitalize consumer demand and affordability in two-wheelers and entry-level passenger vehicles.

(With inputs from agencies.)