Analysts see auto demand rebound in H2 FY26 on GST relief and rate cuts

India’s automotive sector is expected to shift into higher gear in the second half of FY26, as a combination of policy support, rural revival and new launches align to lift demand across segments.

 

Brokerages see repo and CRR rate cuts, along with a likely GST rate reduction as key triggers, particularly for two-wheelers and small passenger vehicles (PVs).

 

Two-wheelers are expected to benefit the most from the demand upswing. Tax relief in the recent budget, improving rural sentiments and a pipeline of premium electric two-wheelers are expected to accelerate sales, B&K Securities said.

 

Royal Enfield and TVS Motor have already reported strong volume growth in Q1 FY26, while Hero MotoCorp is banking on the festival season and GST cuts to revive demand after recent weakness.

 

Passenger vehicles are set to draw traction from a wave of new SUV and EV launches. Mahindra & Mahindra (M&M) reported double-digit growth in Q1 on the back of strong demand for new models, while Maruti Suzuki delivered steady exports but flat domestic volumes. Tata Motors, however, saw a year-on-year decline. With high retail inventory prompting discounts, analysts expect momentum to improve once GST cuts translate into lower on-road prices.

 

Commercial vehicles (CVs) have faced headwinds from monsoon disruptions, subdued infrastructure activity and weak mining demand. However, brokers see a recovery in the second half, aided by last-mile connectivity, e-commerce growth and the government’s infrastructure push. Tractors, meanwhile, remain a bright spot, buoyed by higher MSPs, strong farm output and above-normal monsoons driving an increase in reservoir levels.

 

Jefferies estimates a 7–10 per cent GST cut could reduce vehicle prices by 6–8 per cent, sparking a meaningful demand boost. It has raised FY26–28 industry volume forecasts by 2–6 per cent and earnings projections by 2–8 per cent for leading players. Among OEMs, TVS Motor is expected to deliver the fastest 27 per cent earnings compound annual growth rate (CAGR) over FY25–28, followed by M&M at 19 per cent, with Maruti Suzuki also well-placed to benefit from exports and upcoming hybrid launches.

 

B&K Securities also highlighted new growth drivers for ancillaries such as Subros, FIEM Industries and ZF Commercial Vehicle Control Systems, which are expected to ride on rising PV production, regulatory-driven technology adoption and strong aftermarket demand.

 

With policy support, rural recovery and product pipelines converging, analysts agree the industry is entering a more favourable demand cycle in H2 FY26.