Autos enter 2026 with broad-based momentum as demand stays firm across segments

India’s automobile sector has entered calendar year 2026 on a robust footing, with January wholesales reflecting healthy demand traction across most vehicle categories. Lean channel inventories at the end of December, combined with steady retail demand, enabled original equipment manufacturers (OEMs) to step up dispatches at the start of the year. Growth has been visible across passenger vehicles (PVs), two-wheelers (2Ws), commercial vehicles (CVs), and tractors, underscoring a broad-based recovery rather than a segment-specific uptick.

Passenger vehicles delivered mixed but encouraging signals. While the December quarter was strong, retail trends in January moderated marginally compared with other segments, prompting continued use of discounts to sustain volumes. Even so, wholesale volumes (excluding one large unreported player) rose sharply year-on-year, aided by strong utility vehicle demand, new model launches, and inventory normalization following prior channel depletion. Export performance also remained supportive for select players, contributing to overall volume resilience.

Two-wheelers continued to outperform, with robust year-on-year growth across motorcycles, scooters, and three-wheelers. Retail momentum remained healthy, supported by improving rural sentiment, product refreshes, and expansion into new export markets. Scooter demand stood out, driven by new launches in the internal combustion engine segment and improving sentiment toward electric offerings. While exports grew at a slower pace for some manufacturers, domestic demand more than compensated, keeping overall volumes on a strong trajectory.

The commercial vehicle segment also maintained solid momentum despite a high base, with both heavy and light vehicles posting strong growth. Improving fleet operator profitability, favorable freight indicators, and positive consumer sentiment are expected to sustain demand in the coming months. On a year-to-date basis, CV volumes have grown in double digits, reinforcing confidence in a cyclical uptrend.

Tractors emerged as one of the strongest performers, extending the momentum seen since the start of the fiscal year. Higher reservoir levels, healthy crop patterns, improved minimum support prices, and better rural liquidity have translated into strong retail demand. January volumes rose sharply year-on-year, and the outlook for the remainder of the fiscal remains constructive.

Structurally, a notable trend is the pickup in demand for entry-level vehicles across both PVs and 2Ws, suggesting improving affordability and broader participation in the recovery. Following GST rationalisation, demand has remained resilient even after the festive season. With OEMs entering the final quarter with lean inventories and wholesale demand holding firm, discounts—particularly in PVs—are expected to moderate gradually.

Overall, the sector’s medium-term outlook appears favourable, supported by sustained demand, improving mix, and healthier operating leverage as volumes scale up across segments.

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TVS Motors | Share price target: ₹4,500

TVS Motor has been the only domestic two-wheeler OEM to consistently gain market share across key segments over the past decade, supported by strong execution and brand-building. This has translated into an earnings CAGR of ~23 per cent and a sharp improvement in RoCE to ~36 per cent from ~22 per cent over the past decade, highlighting the quality and sustainability of growth. 

For Q3FY26, Ebit margin has expanded from ~8 per cent in FY19 to ~12.3 per centin FY25 and ~12.6 per cent in H1FY26. Backed by cost initiatives and operating leverage, we expect margins to improve by ~150bp to ~13.8 per cent by FY28E. We estimate TVS to deliver a revenue/Ebitda/PAT CAGR of ~21 per cent/26 per cent/29 per cent over FY25–28E, driven by sustained market share gains, a strong launch pipeline and gradual margin expansion.

Maruti Suzuki | Share price target: ₹19,937

Maruti Suzuki continues to demonstrate its leadership strength in India’s passenger vehicle market, supported by a strong product mix, revived small-car demand, and expanding export base. In Q2FY26, revenue grew 13 per cent Y-o-Y with Ebitda margin at 10.5 per cent, ahead of estimates, driven by higher realizations and cost control, while PAT remained broadly in line. The GST rate cut has significantly boosted affordability in the small-car segment, leading to a strong festive season with over 400k retail sales. The newly launched Victoris and e-Vitara models have further enhanced MSIL’s SUV positioning, while exports surged 42 per cent Y-o-Y and are on track to exceed guidance. With its robust SUV pipeline, multi-technology approach (CNG, hybrid, EV), and long-term focus on achieving a 50 per cent PV market share, we reiterate ‘BUY’, expecting a 17.5 per cent earnings CAGR over FY25–28E.

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Disclaimer: This article is by Motilal Oswal Financial Services Research Desk. Views expressed are their own.