10%+ surge in auto sector possible in FY26: Nuvama offers the reasons

Kolkata: The automobile sector is one of the most important sectors both in the economy and the equity markets. Nuvama has said in a recent report that the auto sector could witness more than 10% appreciation in FY26. The entire sector is benefitting immensely from a rise in consumption, thanks to the rejig in indirect taxes that has slashed end-user prices significantly and a rise in overall rural consumption, which helps growth in the tractor industry.

Nuvama has pointed out that Mahindra & Mahindra and Escorts Kubota have both revised the tractor industry growth estimates to 10–12% in the current financial year. Apart from a GST cut and buoyant rural sentiments, there are hopes of a favourable monsoon. The southwest monsoon was favourable this year too. Let's have a closer look at the Indian automobile sector. Rising rural sentiments usually help the sales of two-wheelers. Nuvama has said that two-wheelers are also looking ahead to stronger sales this year. Bosch, too, has set out an estimate for 9–10% growth in two-wheeler production -- earlier its estimate was 6–9%.

Commercial vehicle demand set to rise

The demand of commercial vehicles is often a function of government capex. And a Jefferies report mentions that capex of the Centre is up 32% year-to-date. (However, it declined in October.) Data suggest that if one excludes telecom and the Department of Economic Affairs, capex stands at 31% YTD, far more than the 6% target for FY26. This infrastructure push is supposed be conducive to the demand for commercial vehicles. Nuvama mentioned that Tata Motors expects commercial vehicles volumes to grow in high single digits in the second half of FY26 with construction and mining activity picking up after monsoons.

Bosch has also estimated a 7–10% growth medium and heavy commercial vehicle production and 5–6% growth in light commercial vehicle for FY26. Volvo expects the Indian medium and heavy commercial vehicle to expand by 6% in CY26.

Passenger vehicles grow amid tepid global markets

S&P Global thinks passenger vehicle market will remain flat in Europe and in the US it could witness a shrinkage of 3% in calendar year 2026. But India is set to grow faster. Bosch estimates 7% growth in car production in FY26, which is an upgrade from its earlier 4–7% projection. Maruti Suzuki and Hyundai continue to have BUY ratings, thanks to the steady domestic demand.

Component makers benefit

Indian component makers with global customers are also supposed to benefit. Firms such as Balkrishna Industries, Bharat Forge and SAMIL are in this list, said Nuvama. The report by Jefferies flagged the fact that roads, railways and defence now attract a lot of capex, which ensures steady demand for sectors linked to infrastructure. Strong local demand, not global trends are clearly steering demand for the Indian automobile sector and tractors, two-wheelers, commercial vehicles and passenger cars are enjoying rising demand.