Auto Sector Margins Likely to Recover Beyond Q2 FY27 as Price Hikes Offset Cost Pressures: Report

New Delhi, Oct 26 (KNN) Automobile sector margins are expected to recover gradually beyond the second quarter of FY27 as price increases by manufacturers help offset higher commodity costs, according to a report by Motilal Oswal Financial Services.

However, the potential impact of El Niño and a further escalation of the West Asia crisis remain key risks to the sector's outlook.

Automobile companies and component manufacturers continue to face pressure from elevated commodity costs. While much of the impact has already been reflected in first-quarter results, price hikes by original equipment manufacturers (OEMs) are expected to provide some relief, ANI reported, citing the report.

“As a result, we expect margins for the sector to revive gradually beyond 2Q,” the report said.

Automobile Sales Remain Strong in Q2

Automobile sales recorded strong growth across segments in the second quarter of FY27, supported by a favourable base effect and higher dispatches ahead of the festive season. Sustained freight activity also supported double-digit growth in the commercial vehicle segment despite macroeconomic challenges.

Passenger vehicle sales increased 31.2 per cent year-on-year (YoY) during the quarter, while commercial vehicle sales grew around 29 per cent. Internal combustion engine (ICE) two-wheelers recorded growth of 10.4 per cent.

In September 2026, sales continued to grow across segments, partly due to a low base in the previous year, when OEMs had deferred dispatches to benefit from goods and services tax (GST) rate cuts.

ICE two-wheeler sales grew around 11 per cent YoY during the month, while passenger vehicle sales increased approximately 22 per cent.

Growth Momentum May Moderate

The report said the first half of FY27 witnessed strong demand momentum across the automobile industry. However, growth rates are expected to moderate in the coming quarters as the favourable base effect gradually normalises across segments.

While price increases are expected to support margin recovery, the possible impact of El Niño and further escalation of the West Asia crisis remain key concerns.

“Remaining monitorable are the probable impact of El Niño expected in the current year and the escalation of the West Asia crisis again,” the report said.

The pace of margin recovery will depend on manufacturers' ability to pass on higher input costs, along with commodity price movements and broader external risks.

(KNN Bureau)