Automobile sector margins expected to recover beyond second quarter of FY27, says report

Automobile sector margins are expected to experience a gradual recovery beyond the second quarter of fiscal year 2027, as price increases by manufacturers help offset the pressure of higher commodity costs. This outlook was shared in a report released by Motilal Oswal Financial Services.

According to the report, automobile companies and component manufacturers have continued to face financial pressure due to elevated commodity costs. However, a significant portion of this impact has already reflected in the first-quarter results. Original equipment manufacturers (OEMs) have turned to price increases to provide some relief to their bottom lines, leading analysts to anticipate a gradual revival in sector margins beyond the second quarter.

During the second quarter of FY27, automobile sales demonstrated strong performance across multiple segments. This momentum was supported by a favourable base from the previous year and increased dispatches ahead of the festive season. Additionally, sustained freight activity helped the commercial vehicle segment achieve double-digit growth despite broader macroeconomic challenges.

Specific segment data from the second quarter highlighted passenger vehicles recording a year-on-year growth rate of 31.2 per cent, while commercial vehicles expanded by approximately 29 per cent. Meanwhile, internal combustion engine (ICE) two-wheelers registered a growth of 10.4 per cent. September 2026 also saw robust growth across categories, aided by a low base effect from the previous year when OEMs had deferred dispatches to capitalize on goods and services tax (GST) rate cuts. During that month, ICE two-wheelers grew by around 11 per cent year-on-year, and passenger vehicles posted growth of approximately 22 per cent.

Despite the strong demand momentum witnessed during the first half of FY27, the report cautions that growth rates are likely to moderate in subsequent quarters as the low base effect normalizes across segments.

Furthermore, the report highlights potential external risks that require close monitoring by industry stakeholders. These include the probable impact of El Niño during the current year and the potential escalation of the West Asia crisis. While margin recovery is anticipated through strategic pricing adjustments, these geopolitical and environmental factors remain critical variables for the automobile sector moving forward.

"The projected margin recovery in the automobile sector highlights the importance of strategic pricing actions by OEMs to counter rising commodity pressures. While strong demand and festive dispatches have driven healthy volume growth in segments like passenger and commercial vehicles, businesses must remain agile. External headwinds such as El Niño and geopolitical tensions in West Asia underline the need for robust supply chain risk management as companies navigate the coming quarters." — Dr. Shishir Gupta, Founder & CEO, StartupLanes