Auto earnings momentum likely to stay strong into next year, says Elara's Jay Kale

India’s auto sector is entering a phase of structurally stronger growth after the goods and services tax (GST) reforms, with demand momentum holding up well beyond the festive season and setting the stage for higher volumes and earnings into 2026-27 (FY27), according to Jay Kale, Executive Vice President-Research at Elara Capital.Kale said the acceleration is visible across segments, with 2025-26 (FY26) already seeing sharp upgrades in volume growth estimates, particularly in passenger vehicles (PVs). Growth expectations for PVs have moved from just 1–2% at the start of the year to nearly 8–9%, reflecting sustained demand even after the festive quarter. For FY27, Elara Capital expects passenger vehicle volumes to grow 9–10%, while medium and heavy commercial vehicles (M&HCV) are seen growing 6–7%, suggesting the momentum is carrying forward into the next financial year.

Addressing recent volatility in Maruti Suzuki shares, Kale said the stock’s decline appears to be driven more by profit booking than fundamentals. He highlighted strong operating leverage in the October-December quarter of 2025 (Q3FY26), supported by double-digit volume and average selling price growth. Despite some pressure from commodity costs and lower export contribution, Elara Capital expects Maruti’s margins to improve sequentially, with Q3 earnings before interest and taxes (EBIT) margins seen at around 9.2%.Also Read: Bajaj Auto sees export momentum and market share gains in premium motorcycles

Kale acknowledged that rising commodity prices remain a near-term headwind for the auto sector, particularly for two-wheelers, four-wheelers and electric vehicles (EVs). However, he stressed that sustained demand is the key factor in protecting margins over time. “If demand momentum sustains, then you will expect companies to pass this raw material pressure,” he said, adding that quarterly margin volatility is likely, but full-year profitability should remain largely intact.

On two-wheelers, Kale stated to a revival in volumes following goods and services tax (GST) linked price cuts, with momentum holding up even after December. He said this trend is especially visible at Eicher Motors, where improved volumes in key models have set the stage for stronger earnings. “Now EBITDA growth will start outperforming volume growth,” Kale said, stating that this shift could act as a rerating trigger for the stock.