Q1 cost pressure strains Maruti, Hyundai, Mahindra margins; can automakers recover amid commodity woes?

Automotive companies like Maruti Suzuki, Hyundai Motor, Mahindra, and Force Motors, among others, witnessed significant margin pressure in their April to June quarter earnings for the financial year 2026-27, due to rising cost of materials and expenses in the period.

Experts predict a cautiously optimistic outlook for the auto sector in the upcoming period, as demand momentum is expected to aid margin recovery once the cost pressure begins to potentially ease post Q2 FY27.

Key focus of investors will remain on monitoring the market demand trends, price movement, and export performance, among several other factors in the upcoming period.

Can demand momentum sustain amid supply pressure?

Analysts from leading investment firm HSBC said that although the passenger vehicle (PV) demand witnessed strong momentum, and commercial vehicles (CV) recorded some replacement demand post price hike announcements, the overall environment is impacted due to the West Asia crisis.

On the PV front, the experts said that the segment is set to maintain strong demand tailwinds while companies are likely to face supply challenges in the upcoming period.

“PVs maintain a strong demand momentum, Maruti continued to replenish inventory, while M&M WS was slightly above retail. Tata Motors’ Sierra demand remains strong, but supply remains a challenge,” said HSBC analysts.

“Passenger vehicle volumes are likely to grow by 4–6%, while two-wheeler volumes are expected to increase by 3–5% over the period,” said Saikat Kumar, Partner & Board Member at Red Lions Capital DIPMarket.

The HSBC experts also said that in the case of CVs, the broader outlook is positive over the medium term amid expectations of replacement demand to return to normal levels.

“Commercial vehicle demand saw some replacement demand post price hike announcements from OEMs, but overall demand remains impacted by instability due to the Middle East conflict. We remain positive over the medium term as replacement demand should return as conditions normalise,” said HSBC analysts.

Commodity pressure

In the Q1 FY2026-27 period, the commodity index spot prices surged 10-12% in the case of two-wheelers and four-wheelers, and a 13% increase in the case of CVs and electric vehicles (EVs).

With spot prices increasing 1-3% compared to Q1 levels so far, HSBC estimates suggest that major original equipment manufacturers (OEMs) should expect some margin headwinds in Q2 FY27 as well after an impact in the June quarter.

Financial statements from leading automakers suggest that the companies were witnessing an overall margin contraction in the Q1 results due to the higher raw material costs resulting from the supply chain disruption in the period.

These heightened costs and supply chain disruptions were a result of the still-ongoing conflict between the United States and Iran in West Asia.

How did auto companies perform in Q1 results?

What’s next for automakers post Q1 earnings?

Saikat Kumar, Partner & Board Member at Red Lions Capital DIPMarket, an independent investment research firm, said that the outlook remains cautiously positive after Q1 earnings, as OEMs reported healthy revenue growth while margins declined in the period.

The expert also said that with easing input prices in the future, the automakers are expected to witness gradual margin recovery from the second quarter of FY27 onwards.

“Easing input prices are expected to support a gradual recovery in margins from Q2 onwards. With demand remaining resilient, the sector is still well positioned to deliver FY27 volume growth of approximately 8–12%,” Kumar told Upstox.

Kumar also explained that Indian automakers are expected to manage cost pressures effectively through a combination of selective price hikes, greater localisation, operating leverage, and a richer product mix.

Looking ahead, investors should keep a close watch on demand trends against the backdrop of the upcoming festive season, pace of rural demand recovery, commodity price moves, EV adoption, export performance, interest rate trends, and margin recovery trajectory.

Nifty Auto vs NIFTY50 returns

NSE data showed that the sectoral benchmark Nifty Auto index has historically outperformed the broader NIFTY50 index over the last five years, with strong demand momentum from market investors amid dynamic trend.

Nifty Auto index has risen 184% in the last five years, over 90% in the last three years, and more than 22% in the past one year, according to the exchange data.

In contrast, the benchmark NIFTY50 index has gained 51% in the last five years, risen over 26% in the last three years, and was near flat levels in the past one-year period.

On a year-to-date (YTD) basis, the auto index has risen 2.3%, while the NIFTY50 has lost nearly 6%, as of the data collected on Thursday’s trading session.