Auto and component exports slump on weak global demand, says ICRA

ICRA said India's auto and component exports are under pressure from weak global demand and US tariffs, while margins remain squeezed by lower realisations and higher input costs

India’s automobile and auto component sectors are among the worst hit by weak export demand, as geopolitical tensions and steep US tariffs weigh on overseas sales, according to rating agency ICRA. The agency said that while rural demand is offering some cushion, the sector’s operating profit margins came under pressure in Q1FY26 due to lower realisations and higher input costs.

 

ICRA noted that Indian industry is expected to post modest year-on-year revenue growth of 5–6 per cent in Q2FY26, aided by resilient rural consumption, premiumisation trends, and the growing share of organised players. However, export-oriented sectors including automobiles, agro-chemicals, textiles, IT services, seafood, and cut and polished diamonds are facing headwinds from the uncertain global environment.

 

“Despite tailwinds like income tax relief and easing food inflation, recovery in urban demand remains patchy. The expected Goods and Services Tax (GST) rate cuts could provide some stimulus to demand,” said Kinjal Shah, Senior Vice-President and Co-Group Head, Corporate Ratings, ICRA.

 

ICRA cautioned that although the structure of the proposed GST rationalisation is still unclear, the anticipation of lower prices could lead consumers to defer discretionary purchases from the latter part of Q2FY26 to H2FY26, potentially creating a temporary slowdown in demand across some sectors.

 

ICRA’s analysis of 585 listed companies, excluding financials, showed that overall operating margins held steady at 18.1 per cent in Q1FY26, with sectors such as telecom, cement, and real estate seeing gains. In contrast, automobiles, consumer durables, and metals and mining witnessed margin contraction.

 

The agency said demand momentum for automobiles will hinge on the festive season and policy support through GST rationalisation. While the private capex cycle is likely to remain delayed, ICRA expects investment activity in electric vehicles, semiconductors, and electronics to continue.