India’s auto component sector is entering a phase of structural transformation
Domestic vehicle demand is projected to grow 5-8 per cent in FY27, moderating from the estimated 7-10 per cent growth in FY26, as the industry moves beyond the post-pandemic recovery phase and faces a higher base effect.
India’s auto component sector is entering a phase of structural transformation rather than cyclical expansion. Despite moderating vehicle sales growth, rising technology content, export opportunities, and localisation trends are expected to support a stronger growth trajectory for component manufacturers compared with the broader auto industry.
Shruti Saboo, Director at India Ratings & Research, said auto ancillaries are likely to benefit from persistent domestic market demand and continued formalisation of the supply chain following GST revision. She added that export market sentiment is also expected to improve amid favourable trade agreements, which could support investments and research and development in advanced technology components and the electric vehicle ecosystem.
The ratings agency said profitability for component manufacturers is expected to improve gradually as input costs stabilise. Prices of key raw materials such as steel, aluminium, and other metals have eased from earlier peaks, supporting EBITDA margins across the sector and improving free cash flows in FY27. Capital expenditure is also becoming more modular, while net leverage levels are expected to remain broadly stable.
Increasing content per vehicle
One of the most significant advantages for component manufacturers is the rising value of parts per vehicle, as automakers incorporate more electronics, safety systems, and advanced materials to meet regulatory and consumer expectations.
India Ratings identified premiumisation across segments as a key demand driver, particularly in passenger vehicles where sport utility vehicles (SUVs) and higher-end models dominate sales.
This shift means that each vehicle sold carries higher-value components, enabling suppliers to grow revenues even when overall vehicle volumes expand at a slower pace.
Improving export outlook
Exports are also projected to support growth in the sector. India’s auto component exports have been gradually recovering and are likely to improve further in FY27 as global manufacturers diversify their supply chains and trade agreements reduce tariff barriers.
Currently, North America accounts for around 32 per cent of India’s component exports, followed by Europe at 30 per cent and Asia at 26 per cent, highlighting the sector’s growing integration into global automotive supply networks.
As international automakers seek alternatives to traditional sourcing hubs, Indian suppliers are increasingly positioning themselves as competitive manufacturing partners.
Persistent structural risks
Despite the positive outlook, structural vulnerabilities remain. India’s auto industry still imports about 30 per cent of its component requirements, with China, Germany, and South Korea being the largest suppliers of critical parts.
This dependence exposes manufacturers to geopolitical disruptions, currency volatility, and supply chain risks, challenges that became evident during the global semiconductor shortage and pandemic-era logistics disruptions. The ratings agency has said that companies may therefore need to maintain higher inventory levels to safeguard production, which could increase working capital requirements.
Published on March 5, 2026