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Key Points

India's auto sector struggled in FY26 Q1, with most segments seeing declining volumes except tractors. Urban demand weakness hit two-wheelers hardest, while utility vehicles showed slight resilience. Rising costs and export uncertainties add pressure to the sector's outlook. Tractors remain the lone bright spot, supported by steady rural sentiment.

Key Points: India Auto Sector Faces Weak Demand Except Tractors in FY26 Q1

  • Two-wheelers decline 8% YoY amid weak urban demand
  • Tractors grow 9% YoY, defying sector slowdown
  • PVs and CVs drop 1% each, UVs gain modest traction
  • Rising input costs and export tariffs threaten margins
2 min read

Auto sector demand in India weak across segments except tractors: Report

Motilal Oswal report reveals declining auto demand in India, with only tractors showing growth amid urban slowdown and rising costs.

"Demand lags expectations in most sectors except for tractors – Motilal Oswal Financial Services"

New Delhi, August 18

The automobile sector witnessed a muted performance in the first quarter of FY26, with demand lagging expectations in most segments except tractors, according to a report by Motilal Oswal Financial Services.

The report mentioned that the domestic volumes for the auto segment, excluding tractors, declined 6 per cent year-on-year (YoY) in 1Q. Weakness in urban demand was the key factor behind the underperformance, led largely by two-wheelers.

It stated "Demand lags expectations in most sectors except for tractors".

The 2W segment recorded an 8 per cent YoY decline in volumes in the first quarter of the current FY26, while both passenger vehicles (PVs) and commercial vehicles (CVs) saw a 1 per cent fall each.

Three-wheeler volumes remained flat during the quarter. In contrast, tractors stood out with a healthy 9 per cent YoY growth.

Within the 2W category, the report highlighted that the motorcycles declined 9 per cent YoY, while scooters posted a 5 per cent decline. Except for the >250cc motorcycles, all other segments recorded lower volumes.

In PVs, car volumes fell 11 per cent YoY, while utility vehicles (UVs) posted a modest 4 per cent YoY growth, raising their share in overall PV volumes to 66 per cent in the quarter.

For CVs, the medium and heavy commercial vehicle (MHCV) goods segment declined 4.5 per cent YoY, and the light commercial vehicle (LCV) goods segment slipped 1 per cent YoY. Only the bus segment recorded growth, up 8 per cent YoY.

On the financial front, operational performance across the coverage of Motilal Oswal universe was largely in line with expectations. Total revenue for the sector grew 4 per cent YoY, driven by a 3 per cent growth in OEMs and 6 per cent growth in auto ancillaries.

Looking ahead, the industry body had projected PVs to grow 2-4 per cent, CVs in mid-single digits, and 2Ws in high single digits in FY26. Tractor OEMs expect high single-digit growth, supported by rural sentiment. However, performance so far has been below expectations.

After the first four months of FY26, 2Ws declined 4 per cent YoY, PVs fell 1 per cent YoY, and CVs remained flat, while tractors stayed in line with forecasts.

Rising input cost inflation may further weigh on margins, while export-focused ancillaries face demand uncertainties due to tariffs.

- ANI

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Reader Comments

P
Priya S
As someone working in auto finance sector, I can confirm the slowdown is real. Loan rejections have increased by 30% compared to last year. People are preferring to use their old vehicles longer rather than upgrading. The only bright spot is rural demand for tractors.
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Arjun K
The report misses one important point - electric vehicles are slowly gaining traction. Many urban buyers are waiting for better EV options rather than buying petrol vehicles now. This transition phase is affecting traditional auto sales.
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Sarah B
Interesting to see utility vehicles growing while cars decline. Indian families clearly prefer the space and versatility of SUVs now. The 66% share mentioned is quite remarkable! Shows how consumer preferences are evolving.
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Karthik V
The tractor growth story proves that agriculture remains the backbone of our economy. While cities struggle, rural India continues to invest in productive assets. Maybe time for auto companies to focus more on rural marketing strategies?
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Michael C
As an expat in India, I'm surprised by the scooter decline. Thought with traffic and parking issues, two-wheelers would always be in demand. Maybe ride-sharing apps are affecting this segment more than expected?
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Neha E
The commercial vehicle numbers are worrying. If goods transport is slowing down, it indicates broader economic challenges

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