Sector Watch: Rising input costs, supply woes — what’s next for auto stocks?

Experts said that although the risk of impact from the rising cost of inputs and supply disruption is likely not to affect the fourth quarter of FY2026, the ripple effect in terms of the high-cost inventory risk is expected to show up on the financials in the upcoming quarter of Q1 FY2027.

The sectoral benchmark index, Nifty Auto, has lost 6.8% so far in 2026, closing 0.33% lower at 26,522.30 points after the market session on April 20, compared to 26,435 points at the previous close. The Nifty Auto index failed to outperform the benchmark NIFTY50 which has lost 6.81% in 2026.

March PV sales data

Overall, the Indian automotive industry witnessed a healthy rise in monthly sales for the month of March 2026, driven by high demand for utility vehicles in the domestic market, as small car sales recorded flat growth despite the GST 2.0 impact.

Industry leader, Maruti Suzuki India’s total passenger vehicle sales witnessed a 19% YoY rise to 227,942 units in March 2026, compared to 191,180 units in the same period a year ago. The rise in sales was primarily fuelled by the utility vehicle segment, which recorded a 42% growth in March this year.

Mahindra & Mahindra’s total passenger vehicle sales witnessed a 25% rise to 60,272 units in March 2026, compared to 48,048 in the previous year.

Third-largest automaker by market capitalisation (M-Cap), Bajaj Auto’s March 2026 sales data showed that the company’s two-wheeler sales rose 20% to 221,021 units, compared to 183,659 units in the same period last year.

TVS Motor Co’s March 2026 sales rose by 25% to 498,134 units, compared YoY with 400,120 units in the same period last year. The fifth-largest company by M-Cap, Tata Motors PV sales witnessed a 28% YoY growth to 66,192 units, compared to 51,616 units in the previous year.

Margin threat for automakers

Mumbai-based independent analyst Ajay Bodke explained that the auto sector will be impacted by the West Asia crisis, as the cost of operations for customers will rise due to the rise in crude oil prices.

“Right now, we are shielded by the government, as there has been no increase in auto fuel prices at the pump level. But the belief is that after May 5, once the election results (West Bengal, Tamil Nadu, Kerala, Assam, Puducherry) are announced, if the crude prices were to remain elevated, and considering the kind of losses that refiners are facing in India, it's only a matter of time before the government increases the prices at the pump level,” said the capital markets expert.

Investors will have to keep the demand for the auto sector in check if the government raises the prices at the pump level in the upcoming quarters.

The expert also explained that if the supply chain disruption continues for long, in turn keeping the prices of industrial commodities like steel, copper, aluminium, and crude oil derivatives like plastics and advanced polymers elevated, then it is likely to affect the company's margins over time.

“The companies don't operate on just-in-time inventory, and to absorb these kinds of supply disruption-related shocks, you need to have adequate inventory in stock. But inventory will last only for say one or two months or a quarter at the most,” he said.

The analyst also predicted that if the supply disruption continues for a few more weeks, then the impact of the same is expected to affect the upcoming quarter, as the existing low-cost inventory will get replaced by high-cost inventory.

What’s next for auto stocks?

Analysts from the global investment group, CLSA, in a recent note said that the early demand for the auto sector in April 2026 is exceeding expectations amid the geopolitical crisis and OEM price hikes in the market.

“Amid geopolitical overhang & recent OEM price hikes, early April demand has held up better than feared. Retail volumes for 2Ws, 3Ws and CVs grew YoY at mid-single digits in the first half of April-26, while M&HCV goods and tractors stood out, clocking mid-to-high-teens growth,” said CLSA analysts.

Experts also expect that the passenger vehicles segment to remain the weak link, with the retail volumes down 9% year-on-year due to price pressure on entry-level OEMs like Maruti Suzuki India.

“Offsetting this, EV penetration continued to build, reaching 5.8% in PVs and 8.3% in 2Ws. We stay constructive on CVs (TMCV, AL) & maintain a positive stance on M&M and BJAUT, backed by exposure to stronger demand pockets,” said analysts from CLSA.

US-based investment giant, Morgan Stanley, experts are also positive due to conviction in the volume ‘up-cycles’ in the sector, but they also noted that the automotive companies are likely to face major headwinds in the upcoming Q1 of FY2027 due to supply chain pressure from West Asia.

“Autos are facing multiple headwinds from cost pressures to risk of supply-chain disruptions to tightening regulations. All that will hit Q1 gross margins, but the volume up-cycle will enable OEMs to gradually pass through cost pressures,” said the analysts from Morgan Stanley.

Top auto stocks in focus

Shares of Bharat Forge, an auto parts maker, were trading more than 3% higher over the last five trading sessions on NSE. The company’s shares closed 0.31% higher at ₹1,866.20 after the market session on April 20.

The automotive component maker’s stock was trading over 1% higher over the last five trading sessions on the Indian stock market. The company’s stock closed 2.91% lower at ₹576.55 on Monday.

Tube Investments’ stock has been trading over 6% higher in the last five stock market sessions. The company’s shares closed 2.97% higher at ₹2,873.10 on April 20.

Bajaj Auto stock was trading 0.3% lower over the last five market sessions. The company’s stock closed 0.3% higher at ₹9,803 after Monday’s market session.

Maruti Suzuki shares have risen around 3% over the last five days. The company’s stock closed 0.02% lower at ₹13,450 after Monday’s market.

M&M’s stock was trading 0.1% lower in the last five market sessions. The company’s stock closed 0.67% higher at ₹3,221.60 on April 20.