India Auto's Q2 Riddle: Festive Cheer Meets Hidden Headwinds! Will Your Portfolio Navigate This Shift?

India's automotive sector presented a varied picture in the second quarter of fiscal year 2026 (Q2FY26). While the festive season and a September GST cut aimed to boost consumer spending, the performance was not uniform across all segments.

Passenger vehicles experienced a noticeable slowdown, with sales volumes declining by 1.5% year-on-year. This weakness was particularly pronounced in the northern and southern regions, which saw declines of 2-5%. Western India showed some resilience with a 2% volume growth, and states like Gujarat, Rajasthan, and Punjab reported mid-single-digit increases. However, major states such as Delhi, Karnataka, Andhra Pradesh, and Telangana faced steeper declines of 5-8%.

In contrast, the two-wheeler segment registered robust growth, with volumes rising by 7.7% year-on-year. This surge was attributed to channel stocking before festivals and increased demand following the GST rate reduction. Northern and western India led this recovery, with volume growth of 9.4% and 13% respectively. The share of scooters in total two-wheeler volumes also climbed, especially in the West and South, indicating a shift in consumer preference.

The commercial vehicle segment also showed signs of recovery. Medium and heavy commercial vehicle sales picked up, and demand for light commercial vehicles increased by approximately 10% overall.

**Impact** Despite short-term support from festive sales and GST relief, Kotak Institutional Equities maintains a 'cautious' outlook on the auto sector, primarily due to persistent structural challenges in the passenger vehicle market. Investors should monitor evolving demand dynamics and macroeconomic factors. Rating: 7/10

**Difficult Terms Explained** * **Q2FY26**: The second quarter of the financial year 2026. In India, the financial year typically runs from April 1 to March 31. So, Q2FY26 covers the period from July 1, 2025, to September 30, 2025. * **GST cut**: A reduction in the Goods and Services Tax rate, a form of indirect tax levied on the supply of goods and services. * **Structural headwinds**: Long-term challenges or difficulties that affect the fundamental growth or stability of an industry or market. * **Passenger vehicle**: Cars, SUVs, and vans intended for personal use. * **Two-wheeler segment**: Motorcycles and scooters. * **Commercial vehicle**: Vehicles used for business purposes, like trucks and buses. * **YoY**: Year-on-year, a comparison of a metric to the same period in the previous year. * **Basis points**: A unit equal to one-hundredth of a percent. 180 basis points equals 1.8%. * **Scooter mix**: The proportion of scooters within the total sales of two-wheelers.