Iran war: Auto earnings at risk as demand sputters, margin worries mount

Rising input costs, export risks to the Middle East and fears of gas supply disruptions weigh on Indian auto stocks amid the escalating Iran conflict

Listed automobile majors have been under pressure since the start of the Iran war amid concerns over supply disruption, rising input costs, the demand trajectory, and margins. 

These concerns have weighed on the Nifty auto index, which is the worst-performing sectoral index since the start of the month, shedding 14 per cent as compared to the benchmark Nifty 50’s fall of 7.8 per cent. 

Near-term worries are souring sentiment even as wholesale and retail volumes have remained strong. 

In the auto sector, most segments barring passenger vehicles have registered double-digit growth during the April 2025-February 2026 period. 

Sanchit Karekar of Axis Securities pointed out in a report earlier this month that the industry outlook remained optimistic, with strong demand projections, a reduction in the rate of goods and services tax (GST), and stable income-tax rates as key factors driving demand in FY26. 

The focus, according to Macquarie Research, will be on earnings risks emanating from demand and margins. While the brokerage has been constructive, based on expectations of healthy demand and steady/improving margins, given the growth uncertainty along with margin risk, it expects India auto stocks to underperform markets in the near term. 

The Iran war affects both the domestic market and exports. While the domestic market has held up well with robust sales across segments, exports are expected to see a slowdown in the near term. The escalation introduces incremental uncertainty, particularly for auto makers with a meaningful exposure to West Asia and North Africa. 

As a percentage of overall exports, exposure to West Asia and North Africa stands at 30 per cent for Ashok Leyland, 40 per cent for Hyundai Motor India, 12 per cent for Maruti Suzuki, 26 per cent for Eicher Motors (Royal Enfield), and 10 per cent for Bajaj Auto. 

Shridhar Kallani of Antique Stock Broking said: “In the near term, the conflict may weigh on export volumes and could also result in elevated freight rates, higher raw material costs, and supply chain disruptions due to logistical uncertainty. The evolving situation reinforces the need for calibrated supply chains and accelerated export diversification.” 

Within the sector, the brokerage prefers Maruti Suzuki India Ltd (MSIL), TVS Motor Company (TVS), and Bajaj Auto (Bajaj), supported by favourable risk-reward dynamics over the medium term. 

On the domestic front, the impact of war will be felt by both auto companies and their suppliers because gas forms a substantial part of the manufacturing process in the sector. Gas usage is significantly higher in paint shops (which usually operate at full capacity), followed by furnaces for forging, casting and various heat treatment processes for metal components. 

Kapil Singh and Siddhartha Bera of Nomura Research say MSIL, TVS, and Bajaj among auto makers and parts suppliers such as Balkrishna Industries, Apollo Tyres, Uno Minda, and Bharat Forge could be more exposed to gas shortages and higher spot gas prices if they consume more than their daily allocation. 

Tyre companies also use feedstock for energy and can manage lower gas supplies to some extent. 

While stocks in Nomura’s coverage have not reacted to this risk, investors should watch out for any production impact that might be visible over the next one week if supplies of liquefied natural gas fall short, says the brokerage. It has a “buy” rating on Mahindra & Mahindra and Tata Motors Commercial Vehicles. 

JP Morgan Research says the geopolitical conflict and rising prices of commodities are creating dual risks of production disruption and cost inflation. Potential disruption to the availability of compressed natural gas at pumps could impact consumer preference for these vehicles. Further, higher fuel and commodity costs could hit margins while weakening consumer sentiment could hurt recovery seen after the GST cuts, the brokerage adds.