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West Asia crisis appears to be resolving; El Niño impact likely to be the next headwind

* Domestic segmental growth rates in May’26 were ~12% for ICE 2Ws and ~27% for PVs.

* In the 2W ICE segment, among the top four players, TVSL (+21.6%) and EIM (+24.1%) were able to post strong double-digit growth in May’26.

* Scooters continue to outperform motorcycles in 2Ws. Further, the 150cc+ segment is the key growth driver within motorcycles, as rising inflationary pressure is hurting consumer sentiment in the entry segments.

* In PVs, both cars and UVs are growing in healthy double digits so far in the first two months of the fiscal.

* In PVs, MSIL (+40%) and TMPV (+42.2%) outperformed in May’26. Key underperformers for the month included MM (supply constraints), Hyundai, and Toyota.

* 2W retails remained steady as the GST 2.0 impact and marriage season helped offset dampened consumer sentiments due to heatwave conditions and inflationary pressure. PV retails, on the other hand, remained strong and faced minimal impact from the near-term headwinds.

* Our top OEM picks are MSIL, TVSL, and MM. Among auto ancillaries, our top picks are MSWIL, SAMIL, and Endurance.

ICE 2Ws: Motorcycles weigh down growth in May’26, despite a low base

* Domestic 2W ICE sales grew 12.1% YoY in May’26, albeit on a low base as volumes were flat YoY during the base month of May’25. Though wholesales are still lower than the peak of FY19/May’18, the gap has narrowed to ~3%. For YTD FY27, 2W ICE sales have been up ~19% YoY.

* Despite a low base, motorcycle volumes were up 7.2% YoY during the month, while scooters outperformed with a ~21% YoY growth. Mopeds have seen a recovery in wholesales, posting ~30% YoY growth for May’26 over a low base.

* Among the major players, TVSL posted an ~22% YoY growth, RE posted a healthy ~24% YoY growth, while HMSI posted 10% YoY growth. HMCL and BJAUT were the key underperformers, posting single-digit growth each

Valuation and view

* The demand environment so far this fiscal has been a mixed bag, with PVs seeing strong demand momentum while 2Ws are not. However, the important highlight for this month has been that the West Asia conflict seems to be finally nearing an end. While crude is already settling at lower levels, this is also likely to help drive down raw material costs as well, which has been driving weak Investor sentiment for the auto sector in the recent past. While one big problem seems to be resolved, the other headwind that has now emerged is the impact of El Niño, which is already driving a material monsoon deficit across the country. If this sustains, it is likely to hamper rural consumption sentiments in this fiscal.

* In these circumstances, companies with strong fundamentals, a healthy launch pipeline, and the ability to outperform peers and/or be attractively valued will remain preferred bets. Our top OEM picks are MSIL, TVSL, and MM. Among auto ancillaries, our top picks are MSWIL, SAMIL, and Endurance

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