Deep Shah, Equity Research Analyst and Automobile Sector Lead at Yes Securities, shared insights on the auto industry's outlook for FY27, highlighting both growth opportunities and emerging risks. Shah expects the sector to maintain a credible growth trajectory, driven by GST cuts and strong retail sales, but warns of potential headwinds such as geopolitical tensions and raw material inflation.
Shah describes FY26 as a tale of two halves, with GST cuts triggering a sharp surge in retail sales across segments in the second half. This momentum is expected to carry into the first quarter of FY27, with anticipated double-digit growth. However, as the year progresses, the base effect from last year's strong performance and new macroeconomic challenges could dampen growth.
In the two-wheeler and passenger vehicle segments, Shah forecasts steady industry-level growth of 5 to 6 percent through FY27. Discounting remains elevated and is unlikely to change materially. Commercial vehicles are expected to grow at 6 to 8 percent, supported by a low base from the first half of last year, with inventory levels running below normal at 10 to 15 days.
“Shah expects this pattern to repeat. Pre-buying activity is likely to begin building toward the end of FY27 and accelerate fully through FY28.”
Deep Shah, Equity Research Analyst and Automobile Sector Lead at Yes Securities
Tractors present a more cautious outlook, as FY26 was a record year for domestic sales and production. Shah expects volumes to remain flat in FY27, with the monsoon's impact under El Niño conditions being a critical factor.
Despite concerns about rising dealer inventories, Shah notes that two-wheeler and passenger vehicle inventories are at a manageable 20 to 25 days. OEMs are adjusting production to meet demand, and supply disruptions have prevented excessive inventory build-up.
Background
The auto industry has been experiencing a recovery phase post-pandemic, with government initiatives like GST cuts boosting sales. However, global economic uncertainties and regulatory changes continue to pose challenges.
Investors should focus on stock selection, with commercial vehicles entering the BS7 cycle and two-wheeler players with strong model pipelines offering near-term opportunities. Tractor stocks may need to wait for monsoon clarity before sentiment improves.
