Stable fuel prices could revive scooter and entry-level car demand, says Goldman Sachs

India’s auto demand may see a quicker rebound in some segments if fuel prices remain steady, according to a Goldman Sachs report that reviewed how vehicle sales behaved during previous fuel-price inflation cycles. The brokerage said scooters, premium motorcycles, entry-level cars and premium hatchbacks have historically bounced back the fastest once fuel pressure eased.

Demand patterns

The report examined six fuel-price inflation phases over the past decade, using volume growth and local petrol and diesel price data. It found that once fuel hikes slowed, demand returned sooner in two-wheeler and passenger vehicle categories than in commercial vehicles.

"Based on volume growth and local petrol/diesel price data from the last six fuel price inflation episodes (5 per cent to 10 per cent inflation periods) over the last 10 years, we note that once fuel price hikes subsided, demand came back fastest in Scooters, Premium Motorcycles, Entry Level cars and Premium hatchbacks," Goldman Sachs said in the report.

The brokerage said commercial vehicle demand has usually taken longer to recover after fuel-price shocks. By contrast, passenger vehicles and two-wheelers have shown a quicker response when operating costs stabilise.

Monsoon adds risk

Goldman Sachs also pointed to weather as another factor that could shape demand in the months ahead. It said the southwest monsoon has started weakly this year.

"As of 17 June 2026, the southwest monsoon, in its first 17 days (out of a usual 110-day annual cycle), has been c38 per cent below normal levels across the country," the report said.

The brokerage warned that a poor start to the monsoon could affect rural-linked categories later in the financial year.

"This could put some downside risk on rural-exposed categories like tractor demand and entry-level motorcycles as we head into the second half of FY27E," the report noted.

Margins under pressure

The report also flagged input-cost pressure for automakers. It said metal prices are likely to weigh on margins in the June quarter, even after price hikes taken by vehicle makers.

"Our analysis also indicates the metal price inflation impact on Gross Margin in 1QFY27E is likely to be in the range of 180bps to 220bps," Goldman Sachs said. "We expect a net impact of between 40bps to 190bps on Auto OEMs Gross Margin in 1Q27E."

Outlook

Goldman Sachs said inventory levels are improving as supply chain issues ease and production normalises ahead of the festive season. It expects wholesale momentum to run ahead of retail sales for companies that have fixed supply bottlenecks, helped by replenishment and new launches. The report added that the near-term outlook will depend on fuel prices, the monsoon and cost control.

(With inputs from ANI)

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