Auto Industry Sees a Turnaround in Q2 FY26 as Festive Cheer and GST 2.0 Lift Sentiment

The second quarter of FY26 proved to be a mixed yet ultimately encouraging period for India’s automobile sector. The industry began the quarter on a cautious note amid tepid consumer sentiment and challenging weather conditions, but momentum picked up sharply toward the end. The onset of the festive season, coupled with the rollout of GST 2.0 and its lower tax rates from late September, rejuvenated market confidence, leading to a notable surge in retail activity, bookings, and overall sales. As the industry enters the second half of the fiscal year, optimism is on the rise, backed by improving demand across segments.

Passenger Vehicles Accelerate After a Slow Start

After several quarters of subdued activity, the passenger vehicle (PV) segment finally showed strong signs of revival in September 2025. The implementation of GST 2.0, which brought down effective tax rates for several vehicle categories, played a major role in boosting affordability and consumer sentiment. The festive season provided an additional push, resulting in a sharp increase in bookings and retail deliveries.

Among automakers, Tata Motors delivered a standout performance, clocking its highest-ever monthly sales in September. The company’s electric vehicle (EV) portfolio witnessed a remarkable 96% year-on-year surge, reaffirming its dominant position in India’s growing EV market. Maruti Suzuki, which had been struggling with weak demand for entry-level models, saw a meaningful revival in hatchback sales, signaling renewed interest in the small-car segment. This rebound in compact cars is particularly noteworthy, given that the category had been under pressure for nearly two years amid a consumer shift toward SUVs.

The combination of tax incentives, festive discounts, and improved supply conditions helped automakers clear inventories and restore momentum. With order books filling up rapidly, the PV segment is expected to carry this positive sentiment into the third quarter.

Two-Wheelers Lead the Charge

The two-wheeler (2W) segment emerged as the strongest performer in Q2, hitting new sales highs in September. The premium motorcycle subcategory, led by Eicher Motors, continued to witness robust demand, driven by aspirational buyers and expanding exports. Simultaneously, scooters have regained traction as urban mobility improves and female participation in commuting rises.

TVS Motor Company maintained its growth trajectory with healthy volumes across both motorcycles and scooters, consolidating its leadership in the scooter market. However, the electric two-wheeler (E2W) category experienced a month-on-month decline in September following a strong August, suggesting that consumer preference still leans toward internal combustion engine (ICE) vehicles despite policy incentives.

Bajaj Auto, which had faced supply disruptions in August due to a shortage of rare earth magnets, rebounded strongly in September with double-digit growth. TVS Motor retained its top position in the E2W space with a 21.6% market share, while Ola Electric, which had briefly climbed to the second spot in August, slipped to fourth place. Ather Energy and Hero MotoCorp continued to gain ground, expanding their presence in both urban and semi-urban markets. Overall, the two-wheeler segment’s resilience remains a key pillar of the industry’s recovery.

 Commercial Vehicles Maintain Steady Growth

The commercial vehicle (CV) segment extended its positive trend through the quarter, supported by strong infrastructure activity and higher government spending. Fleet operators have returned to the market to expand capacity amid rising freight movement and construction demand. Improved financing availability and better utilization rates have also contributed to the CV rebound. The outlook for the segment remains constructive, with expectations of sustained growth through FY26, especially as the logistics and infrastructure sectors continue to expand.

Three-Wheelers and Tractors Keep the Momentum

Demand for three-wheelers remained robust during Q2, reflecting the ongoing expansion of last-mile mobility and urban transport solutions. Players like TVS have capitalized on this surge, strengthening their presence in passenger and cargo categories alike. The growth of e-rickshaws and small-load carriers has added further depth to the segment’s performance.

Meanwhile, tractor sales continued to hold firm, aided by a GST rate cut from 12% to 5%, which improved affordability for rural buyers. Strong agricultural sentiment, favorable monsoon patterns, and improved rural incomes have all contributed to sustained demand. The rural economy’s resilience remains a major support for the broader automobile sector.

Exports Show Renewed Strength

On the external front, exports witnessed a steady uptrend as global demand improved. Major automakers reported healthy year-on-year growth in overseas shipments, driven by recovery in key markets across Africa, Latin America, and the Middle East. The normalization of supply chains and currency stability have further aided export competitiveness. With global sentiment gradually improving, exports are likely to remain a strong growth lever in the coming quarters.

Outlook: A Promising Second Half Ahead

With the festive season in full swing and consumer sentiment on the mend, the auto sector is poised for a robust second half of FY26. The full benefits of GST 2.0 are yet to be fully realized, suggesting additional tailwinds for demand in the months ahead. Urban consumption, which had moderated earlier in the year, is expected to rebound, while rural demand should remain healthy on the back of strong agricultural performance and government spending.

Manufacturers are optimistic that the recent recovery will translate into sustained momentum, especially with new model launches, improved financing conditions, and a supportive policy environment. If current trends persist, FY26 could well mark the beginning of a new growth cycle for India’s automobile industry—one driven by innovation, diversification, and renewed consumer confidence.

Market this week

Source: BSE and NSE

• Indian equities extended gains for the third straight week, marking their biggest weekly advance in four months, driven by renewed FII buying, sustained DII inflows, softer crude prices, and Fed rate-cut expectations.
• Investor sentiment, however, remained cautious amid US government shutdown risks, lingering US–China trade tensions, and fresh concerns over the global banking sector.
• Sectorally, gains were led by Realty (+4%), Capital Markets (+4%), FMCG (+3%), and Auto (+2%), while Media (-2.7%), IT (-1.8%), Metal (-0.5%), and PSU Banks (-0.5%) saw mild profit-taking.
• On the flows front, FIIs turned buyers in the latter half of the week but still recorded net outflows of ₹586.76 crore, whereas DIIs extended their buying streak to the 26th week, investing ₹28,044.45 crore in equities.
• Overall, markets maintained a positive bias supported by strong domestic participation and easing commodity prices, even as global uncertainties kept investors vigilant.

Weekly Leaderboard

Source: BSE

 Stocks that made the news this week:

Reliance Industries Ltd (RIL) reported a strong performance for the September quarter, driven by solid growth across its oil-to-chemicals (O2C), Jio, and retail businesses. Consolidated EBITDA rose 14.6% year-on-year, supported by a resilient, domestic-focused portfolio and continued strength in India’s economy. Jio crossed the 500-million subscriber mark, underscoring its leadership in the telecom space. Chairman Mukesh Ambani highlighted that new energy, media, and consumer brands will be the company’s next growth drivers, focused on innovation and technology to deliver value to Indian consumers.

Eternal Ltd, the parent company of Zomato, saw its stock fall 4% on October 16 after announcing Q2 FY26 results. The company reported a net profit of ₹65 crore, down 63% year-on-year, even as revenue surged 183% to ₹13,590 crore. The sharp profit decline was attributed to a 189% jump in expenses and slower-than-expected recovery in food delivery growth. Founder Deepinder Goyal said near-term growth remains challenged by soft discretionary spending, competition from quick commerce, and volatile weather conditions impacting demand.

Meanwhile, silver prices dropped over 6%, marking their biggest fall in six months, as investors took profits following a sharp rally earlier in the week. The retreat was triggered by easing US credit concerns, improving trade sentiment between the US and China, and rising bond yields, which reduced demand for safe-haven assets like gold and silver. Comments from President Donald Trump and strong earnings from regional banks helped stabilize markets, while the unwinding of a historic silver squeeze in London further contributed to the pullback.