TL;DR
India's auto sector expects a shift in earnings leadership by FY27-28 due to rising costs and moderating demand, favoring companies with strong portfolios and cost control.
A report by Systematix Institutional Equities indicates that India's automobile sector is likely to experience a shift in earnings leadership between FY26 and FY28. This anticipated change is attributed to increasing raw material costs and a slowdown in demand growth, which are expected to exert pressure on overall profitability within the industry.
The report suggests that FY27 will be a year of normalization rather than a reversal of trends. The boost in vehicle sales observed from Goods and Services Tax (GST)-related measures is expected to moderate, even as long-term demand drivers continue to evolve. Companies with robust premium vehicle portfolios, upcoming new product launches, efficient operations, healthy balance sheets, and effective control over commodity costs are predicted to achieve stronger earnings growth despite a moderate increase in sales.
Two-wheeler manufacturers are specifically projected to lead earnings growth in the September quarter, despite the impact of rising commodity costs limiting the benefits of strong sales. Medium and heavy commercial trucks also recorded significant year-on-year growth in wholesale volumes, while tractor volumes saw a decline.
