Auto sales surge in September, but GST base clouds the picture. Can stocks rebound ahead of Q2 results?
The weakness was also visible across auto stocks. Bajaj Auto closed 8% lower, Mahindra & Mahindra slipped to a 52-week low, while Escorts Kubota declined up to 5%. TVS (down 3%), Hero MotoCorp and Ather Energy down 1%. Maruti Suzuki, India’s largest car manufacturer, declined 5%, while rival Tata Motors PV was down 2% and CV major Ashok Leyland also declined 2%. .
September auto sales data decoded
September delivered a mixed performance for India’s auto sector, with strong passenger-vehicle and commercial-vehicle sales offset by weakness in rural-facing segments such as tractors and domestic two-wheelers. Domestic passenger-vehicle sales jumped 21.4% year-on-year to 4,63,081 units, while Tata Motors’ commercial-vehicle volumes rose 31%. But Mahindra & Mahindra’s tractor sales fell 21% and Bajaj Auto’s domestic two-wheeler sales declined 12%, highlighting the uneven demand picture.
The weakness was more visible in rural-facing segments, where a below-normal monsoon weighed on tractor demand. Mahindra & Mahindra’s tractor sales fell 21% year-on-year to 52,100 units, while Escorts Kubota’s tractor sales declined 16.7%. Two-wheelers also saw pockets of weakness. Bajaj Auto’s domestic two-wheeler sales fell 12%, even as its overall sales increased 5% on the back of stronger exports.
The strong headline growth in passenger vehicles also needs to be viewed against a low base last year, when the GST rate cut took effect only on September 22 and sales were concentrated towards the final week of the month. This year’s festive calendar is also more spread out, with Navratri and Dussehra falling in October and Dhanteras and Diwali in November.
What are analysts saying?Vincent K A, Senior Research Analyst, Geojit Investments, told ETMarkets that the early signs of softer September growth in passenger vehicles and two-wheelers largely reflected a delayed festive season and elevated channel inventories rather than underlying demand weakness.
“The genuine soft spot is tractors, where a cumulative monsoon deficit has left visible rural stress. Late September rains won’t rescue kharif but should help rabi by replenishing reservoirs. CVs remain the standout, supported by freight, infrastructure and fleet replacement,” Vincent said.
India’s weakest monsoon in over a decade dented rural spending in September and weighed on tractor sales, data showed on Thursday, while urban demand supported passenger-vehicle sales. The June-September monsoon, which delivers nearly 70% of India’s annual rainfall, was 12.6% below normal this year, fuelling concerns over crop yields, rural demand and food inflation in Asia’s No.3 economy.
“Lower farm incomes and, as a result, rising rural indebtedness hurt purchasing power and demand for consumer goods and services, while supply shortages can push up food prices and stoke inflationary pressures,” said Rohit Azad, an economics professor at Delhi’s Jawaharlal Nehru University.
The slowdown mirrors a broader pullback in farm spending. Last week, agriculture company Rallis India said farmers were reducing purchases of pesticides, fertilisers and seeds to conserve cash after the weak monsoon and poorer harvests.
What to expect from Q2 results?
Despite September’s mixed showing, robust quarterly volumes should support Q2FY27 revenues. Margins, however, face greater pressure as cheaper raw-material inventories run out and elevated commodity costs flow through. Price increases and operating efficiencies offer partial offsets, although affordability concerns limit pricing flexibility.
Festive demand should hold up and dealer sentiment is positive, but expectations need to be calibrated given rural income risks and successive price hikes. October and November will also be measured against last year’s GST-driven surge, creating an unusually high base. The key signal to watch is retail conversion and inventory clearance across the full festive period rather than any single month’s year-on-year dispatch growth, Vincent said.
The festival calendar is more spread out this year, with Navratri and Dussehra in October and Dhanteras and Diwali in November. This should support sustained demand through October and November rather than a single-month spike.
The key monitorable is retail conversion relative to dealer inventory. Passenger-vehicle dispatches are estimated at 4.60–4.65 lakh units in September (Source: Autocar), while retail registrations are closer to 4 lakh units, implying some festive stocking, said Subhash Gate, Senior Research Associate (Auto and Auto Ancillaries), Choice Institutional Equities.
If festive retail absorption remains strong, the sector can sustain this momentum. If not, there is a risk of higher channel inventory and increased discounting after the festive period, Gate said.
But risks remain
Commodity costs remain the principal earnings risk for Q2FY27 and FY27. Steel, aluminium, copper, rubber, precious metals, energy and freight are key cost heads for vehicle manufacturers and component suppliers. Their impact could be compounded by crude-price volatility, geopolitical disruption, higher shipping costs and rupee depreciation, particularly for companies with imported raw materials or components, Gate said.
The near-term earnings pattern is likely to be one of strong revenue growth but selective margin pressure. OEMs with premium product mix, high SUV exposure, robust pricing power, scale benefits and active cost-reduction programmes should be better able to protect margins. A favourable product mix can partially offset raw-material inflation because higher-value SUVs and premium variants generally provide better contribution margins.
The risk is greater for entry-level two-wheelers, mass-market passenger vehicles, price-sensitive commercial vehicles and auto-component suppliers with limited contractual pass-through. These businesses face a difficult trade-off: passing on cost inflation through price hikes could affect affordability and demand, while delaying price action could compress gross margins, Gate added.
The focus now shifts to how quickly festive demand translates into retail sales and whether that momentum is strong enough to offset the margin pressures building across the sector.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
