India’s automobile and auto ancillary sector is set to close Q4FY26 on a strong note, with volume growth accelerating across segments even as cost pressures and geopolitical risks begin to cloud the near-term outlook, according to a sector preview by Asit C. Mehta Investment Intermediates Ltd.

Broad-based demand fuels Q4 momentum

The March quarter saw sustained demand momentum, with total industry volumes rising 22.6% year-on-year, led by two-wheelers (24.8%), tractors (22.9%), and passenger vehicles (16.8%). Growth strengthened sequentially from Q3, reflecting improved affordability post GST rationalisation, healthy rural demand, and robust freight activity.

Passenger vehicles and two-wheelers remained the key growth drivers, supported by festive demand, new launches, and limited price hikes during the quarter. The tractor segment continued to benefit from favourable monsoons, while commercial vehicles posted 19.2% growth, albeit with some moderation in March due to cautious freight sentiment.

OEMs ride operating leverage, exports boost earnings

Among automakers, Maruti Suzuki is expected to report an 11.8% rise in volumes, driven largely by a sharp 61% jump in exports, with revenue likely to grow 24.1% year-on-year. Margins are seen improving sequentially to 8.5%, aided by operating leverage.

Bajaj Auto is projected to deliver a strong rebound, with volumes up 24.3% and revenue rising 30.9%, supported by broad-based demand across domestic and export markets. Meanwhile, Hyundai Motor India may see moderate volume growth of 8.7%, with margins under pressure due to adverse product mix and raw material costs.

Auto ancillaries are also expected to post healthy growth. Uno Minda’s revenue may rise nearly 20%, while ASK Automotive could see a sharp 30.5% increase, largely tracking strong two-wheeler demand. However, margin expansion for ancillaries may lag due to delayed pass-through of input costs.

Cost headwinds, global risks temper outlook

Despite strong topline growth, rising input costs—particularly in aluminium, copper, and precious metals—are expected to exert pressure on margins. While operating leverage and lower discounting may offset some impact, OEMs have already initiated price hikes from April.

The ongoing West Asia conflict had limited impact in Q4 due to existing inventories, but uncertainties around fuel prices, freight costs, and component supply could weigh on Q1FY27. Additionally, a weaker rupee may support export-oriented players.

After a strong run driven by GST-led affordability, the sector is likely to enter a more cautious phase, with growth expected to moderate from elevated levels and cost dynamics becoming a key monitorable, as per the research firm.