India’s automotive industry may be poised for a sustained demand revival over the next two to three years, supported by a favourable policy and macroeconomic environment, according to a report by Incred Research.
The brokerage said a combination of income-tax rate cuts, lower interest rates and the upcoming Central Pay Commission salary revision is expected to boost disposable incomes and lift consumer sentiment, aiding a broader demand cycle recovery across vehicle categories.
The outlook comes even as the Nifty Auto Index, which surged 9 per cent following the GST rate cut in August–September 2025, has underperformed in recent months. Analysts, however, expect momentum to return. “We reiterate our Overweight rating for the sector, as forward P/E valuation is just above the 10-year mean level,” the report said.
In the second quarter of FY26, original equipment manufacturers posted strong double-digit year-on-year net sales growth, supported by an early festive season and higher footfalls triggered by the GST rate cut. Although rising raw material prices affected gross margins, operating leverage helped cushion EBITDA performance.
Industry commentary indicated that two-wheeler retail sales grew in the mid-teens during the festive period between August and mid-November 2025. Passenger vehicles, however, saw only mid-single-digit growth, lagging behind two-wheelers.
Sales boost through policies and tax reforms
Policy decisions are also expected to keep demand buoyant. The Union Cabinet in October approved the Terms of Reference for the 8th Central Pay Commission, which will recommend salary and allowance revisions for central government employees—an exercise that typically boosts spending on high-value discretionary items such as automobiles.
Separately, the GST 2.0 reforms, implemented on September 22 after the 56th GST Council meeting, brought down tax slabs for small cars, two-wheelers up to 350cc and commercial vehicles. Rates were reduced from 28 per cent plus applicable cess to a uniform 18 per cent, directly lowering the ownership cost of mass-market vehicles.
According to the report, these combined steps are likely to provide sustained support to demand and strengthen medium-term growth prospects for the domestic auto industry.
