India’s auto components industry is poised to maintain its steady growth trajectory, with Crisil Ratings forecasting a 7–9% revenue growth in FY26, closely mirroring the performance of FY25. This momentum is expected to be driven predominantly by strong domestic demand, particularly from the two-wheeler (2W) and passenger vehicle (PV) segments, including the increasingly popular utility vehicles (UVs).

A ₹7.9 Lakh Crore Industry Anchored by Domestic Demand

India’s auto parts sector, valued at approximately ₹7,90,000 crore (US$ 92.29 billion), is one of the pillars of the nation's manufacturing ecosystem. According to Crisil’s latest report, the growth in FY26 will be anchored by:

• 2Ws and PVs, which together contribute nearly 50% of the industry’s total revenue

• OEM (Original Equipment Manufacturer) demand, which constitutes around two-thirds of industry revenue

This robust domestic demand will act as a buffer against global headwinds, with OEM demand expected to grow 8–9%, aided by evolving regulations around safety, emissions, and electronic integration in vehicles.

Commercial Vehicles and Tractors: Modest Revival

Although not the primary growth engines, commercial vehicles (CVs) and tractors are anticipated to witness a moderate recovery in FY26. Together, these two categories account for about 17% of the total industry revenue. Their performance is closely tied to broader infrastructure development, rural economy trends, and monsoon conditions.

Aftermarket and Vehicle Ageing Trends Fuel Stable Growth

The aftermarket segment, contributing 15% of the sector’s revenue, is projected to grow at a 5–7% pace, bolstered by the ageing vehicle population. With older vehicles requiring more frequent maintenance and parts replacement, this segment continues to remain a reliable contributor to the sector’s stability.

Export Headwinds: US and EU Weakness to Weigh on Growth

While the domestic market remains strong, the export front faces challenges:

• Export growth is expected to moderate to 7–8%

• Key export markets like the United States (US) and Europe are witnessing subdued demand

• Potential US import tariffs of 25% could erode exporter margins by 125–150 basis points

The US, though accounting for only 5% of total revenue, contributes a disproportionate 28% of total export earnings, making it a critical market. These trade risks could dampen overall profitability for exporters in FY26.

Stable Profit Margins Amid Cost and Tech Advantages

Despite the potential export slowdown, operating profitability is expected to remain stable at 12–12.5%. Key factors supporting margin resilience include:

• Declining input costs: Over 70% of raw materials used in auto parts—namely steel, aluminium, and plastics—are witnessing softening prices

• Rising contribution from high-margin tech components: These include

  • Advanced Driver Assistance Systems (ADAS)

  • Infotainment modules

  • Advanced braking systems

These value-added products command higher margins and are increasingly being adopted in premium and mid-range vehicles, enhancing profitability even as volume growth remains moderate.

Electric Vehicles (EVs) and Capex Outlook

India's push toward electric mobility continues to reshape the auto parts landscape. Though EVs currently form only 4% of PV volumes, the industry is ramping up investment to prepare for a major shift:

• Estimated capital expenditure for FY26: ₹22,000 crore (US$ 2.57 billion)

• Investment priorities include:

  • Developing EV-specific components

  • Adopting automation technologies

  • Digitising supply chains

These investments are not just forward-looking but are also aligned with government initiatives like FAME II and PM E-Drive, which encourage domestic EV manufacturing and adoption.

Crisil’s Credit Outlook: Stable and Resilient

Crisil has maintained a stable credit outlook for the auto parts industry, citing several key strengths:

• Healthy accruals driven by domestic growth and value-added production

• Efficient working capital management

• Low reliance on external debt, indicating robust internal funding capability

Even amid global uncertainties and potential tariff hikes, these factors position the sector to navigate FY26 with confidence and operational resilience.

Summary and Strategic Takeaways

To summarise, the Indian auto parts industry is charting a sustainable growth path despite external challenges. The critical growth vectors include:

1. Domestic demand from 2Ws, PVs, and UVs

2. Rising contribution from technology-driven components

3. Stable profitability supported by falling input costs and improved product mix

4. Strategic capital investments into EV-readiness and automation

5. Conservative financial structuring ensuring sectoral creditworthiness

The only major red flag lies in export vulnerabilities, especially relating to the US market, which could impact a portion of the industry. However, the broader ecosystem's health and domestic momentum are likely to neutralise the drag from external markets in FY26.

Conclusion

With strong fundamentals and evolving product sophistication, India’s auto components sector is set to remain a key contributor to both manufacturing growth and employment in the country. As 2Ws and PVs continue to see rising demand, and as technology and EV investments bear fruit, the sector is laying the groundwork for long-term sustainable growth, while absorbing global shocks with efficiency and resilience.

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