New Delhi [India], August 18 (ANI): The automobile sector witnessed a muted performance in the first quarter of FY26, with demand lagging expectations in most segments except tractors, according to a report by Motilal Oswal Financial Services.

The report mentioned that the domestic volumes for the auto segment, excluding tractors, declined 6 per cent year-on-year (YoY) in 1Q. Weakness in urban demand was the key factor behind the underperformance, led largely by two-wheelers.

It stated 'Demand lags expectations in most sectors except for tractors'.

The 2W segment recorded an 8 per cent YoY decline in volumes in the first quarter of the current FY26, while both passenger vehicles (PVs) and commercial vehicles (CVs) saw a 1 per cent fall each.

Three-wheeler volumes remained flat during the quarter. In contrast, tractors stood out with a healthy 9 per cent YoY growth.

Within the 2W category, the report highlighted that the motorcycles declined 9 per cent YoY, while scooters posted a 5 per cent decline. Except for the >250cc motorcycles, all other segments recorded lower volumes.

In PVs, car volumes fell 11 per cent YoY, while utility vehicles (UVs) posted a modest 4 per cent YoY growth, raising their share in overall PV volumes to 66 per cent in the quarter.

For CVs, the medium and heavy commercial vehicle (MHCV) goods segment declined 4.5 per cent YoY, and the light commercial vehicle (LCV) goods segment slipped 1 per cent YoY. Only the bus segment recorded growth, up 8 per cent YoY.

On the financial front, operational performance across the coverage of Motilal Oswal universe was largely in line with expectations. Total revenue for the sector grew 4 per cent YoY, driven by a 3 per cent growth in OEMs and 6 per cent growth in auto ancillaries.

Looking ahead, the industry body had projected PVs to grow 2-4 per cent, CVs in mid-single digits, and 2Ws in high single digits in FY26. Tractor OEMs expect high single-digit growth, supported by rural sentiment. However, performance so far has been below expectations.

After the first four months of FY26, 2Ws declined 4 per cent YoY, PVs fell 1 per cent YoY, and CVs remained flat, while tractors stayed in line with forecasts.

Rising input cost inflation may further weigh on margins, while export-focused ancillaries face demand uncertainties due to tariffs. (ANI)