Auto Sector Earnings Likely to Surge in Q3FY26: Nuvama

India’s automobile sector is revving up for a standout quarter. After years of uneven recoveries across segments, Q3FY26 is shaping up to be one of the strongest periods for auto companies in recent memory, as robust demand aligns with operating leverage and improving affordability, according to a sector preview by Nuvama Institutional Equities.

Aggregate revenues for listed auto companies under Nuvama’s coverage (excluding Tata Motors’ passenger vehicle business) are expected to jump 22% year-on-year, while EBITDA is forecast to grow even faster at 24%, a rare convergence where volumes, pricing power and cost efficiencies are all working in favour of manufacturers.

The demand backdrop remains supportive. Lower interest rates, GST rate cuts and easier access to financing have improved affordability, while a steady pipeline of new launches has kept customer sentiment buoyant across categories. Analysts note that demand momentum has held firm through the quarter, defying broader concerns around consumption fatigue.

Commercial vehicles and tractors are leading the charge.

Domestic CV volumes are estimated to have surged 21% YoY, driven by stronger transporter sentiment, better freight availability and a revival in replacement demand after years of deferrals. Tractor volumes climbed an even sharper 23% YoY, supported by state subsidies, resilient farm incomes and healthy crop output. However, analysts warn that this pace may cool in FY27 as subsidies taper and the base effect turns less favourable.

Passenger vehicles continue to grow steadily, with domestic volumes up nearly 20% YoY, aided by a richer product mix and higher realisations from electrification. Two-wheelers—long the laggard—are finally showing signs of a broad-based recovery, with volumes rising 16% YoY, reflecting a pickup in mass-market demand as affordability improves.

Profitability gains are expected to be broad-based but uneven. Companies such as TVS Motor, Maruti Suzuki, Tata Motors’ CV arm, Mahindra & Mahindra and CEAT are likely to report strong EBITDA growth, benefitting from operating leverage and relatively benign currency movements.

Not everyone will share equally in the bumper quarter. Tata Motors’ consolidated performance is expected to be weighed down by a sharp slowdown at Jaguar Land Rover, following a cyberattack, even as its India passenger vehicle business continues to perform well.

The improving earnings outlook has already begun to shift market expectations. Brokerages have raised target prices across much of the auto universe, rolled forward valuation horizons to FY28, and upgraded several stocks on improved risk-reward dynamics.

With most segments still in the midst of their upcycles rather than at peak levels, analysts believe the sector’s momentum could extend beyond Q3 though stock selection will become increasingly important as growth normalises in pockets of the market.