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 According to CareEdge Ratings, the Indian auto ancillary industry is expected to grow by around 8-9% in FY27 with its market size increasing from around Rs 9,835 billion in FY26 to Rs 10,681 billion in FY27, supported by healthy OEM demand across major segments, increasing component content per vehicle, resilient replacement demand, higher localisation, and expanding global sourcing opportunities.

CareEdge Ratings notes that the Indian auto ancillary industry is entering a sustained investment-led growth phase, supported by expanding domestic vehicle production and increasing value addition across the automotive supply chain. The transition towards electronics-intensive and cleaner mobility platforms is expanding the addressable market for component manufacturers, while localisation initiatives are creating opportunities across segments to reduce import dependence. The sector's established cost pass-through mechanisms with OEMs and improving operating efficiencies provide a degree of earnings resilience. However, the ability to keep pace with technological advancements, continued dependence on imported critical components, and evolving global trade policies will remain key credit monitorables.

Ranjan Sharma, Senior Director, CareEdge Ratings said, "India's auto component industry has emerged as an increasingly important part of the global automotive supply chain, supported by its manufacturing competitiveness, engineering capabilities, and expanding domestic market. With the auto ancillary industry market size expected to surpass Rs 10.6 trillion in FY27, the sector is well positioned to capture a larger share of global sourcing opportunities. Continued progress in localisation of critical components and development of advanced manufacturing capabilities will be key to enhancing value addition and strengthening India's long-term position in the global automotive ecosystem”.

The Indian auto ancillary industry continues to benefit from healthy automotive demand, supported by rising vehicle production, increasing vehicle ownership, replacement demand, and premiumisation. Total vehicle production increased from around 23 million units in FY22 to 34.7 million units in FY26, reflecting broad-based growth across vehicle segments. Domestic OEMs remained the primary revenue driver, accounting for around 67% of industry revenues in FY26, while exports and the aftermarket contributed around 22% and 11%, respectively. In addition, the growing preference for SUVs and premium vehicles, coupled with stricter safety and emission norms, is increasing component content per vehicle and supporting demand for higher-value systems. It notes that the aftermarket is expected to provide stability to the industry, supported by an expanding vehicle parc, rising average vehicle age, premiumisation, and increasing demand for replacement parts and regular maintenance. India's growing integration into global automotive supply chains is expected to further support industry growth, with exports projected to rise to approximately Rs 2.3 trillion in FY27.

CareEdge Ratings notes that the EV adoption in India has accelerated significantly, with overall vehicle registrations increasing from around 1.7 lakh vehicles in FY20 to 24.5 lakh vehicles in FY26, resulting in EV penetration rising from 0.71% to around 8.28% over the same period. This rapid adoption, particularly across the two-wheeler and three-wheeler segments, is gradually reshaping the industry's value pool towards higher value-added and technology-intensive components. The conventional ICE-linked components are expected to remain the backbone of the industry over the medium term. At the same time, the increasing electronics content in EVs is expected to create significant opportunities for technology-intensive component manufacturers. Batteries account for 40-50% of EV costs, while electronics constitute around 23% of the bill of materials (BOM), compared with less than 10% in conventional ICE vehicles. While EVs are expected to remain a key growth driver, India's mobility transition is likely to remain multi-pathway, supported by hybrids, flex-fuel vehicles, ethanol-blended fuel platforms, CNG vehicles, and potentially hydrogen-based technologies. These developments are expected to create opportunities across fuel systems, emission-control technologies, sensors, electronic control units, and lightweight materials.

It highlights that the industry is entering its next phase of transformation, driven by electrification, localisation of high-value components, advanced electronic and software-driven components. Rising EV adoption is reshaping the component value pool towards batteries, motors, power electronics, semiconductors, sensors, controllers, thermal management systems, and embedded software. Government initiatives such as the PLI-Auto Scheme and PM E-DRIVE schemes are expected to accelerate domestic capacity creation and gradually reduce import dependence on critical automotive technologies.

Arti Roy, Associate Director, CareEdge Ratings said, “The industry's ongoing transition towards electronics-intensive and cleaner mobility platforms is creating new opportunities across EV-linked components, advanced electronics, powertrain technologies, and other high-value automotive systems. CareEdge Ratings expects the Indian auto ancillary industry to grow by around 8-9% in FY27, supported by healthy OEM demand, increasing component content per vehicle, resilient aftermarket demand, higher localisation, and expanding global sourcing opportunities. Companies with diversified customer relationships, wider product portfolios, strong engineering capabilities, prudent capital allocation, and the ability to adapt to the evolving component value pool are expected to remain better positioned.”

Touching upon the financial performance of the top 50 listed auto ancillary companies in India, CareEdge Ratings notes that the operating performance of the top 50 listed auto ancillary companies in India is expected to remain healthy, with aggregate income projected to increase from approximately Rs 4,325 billion in FY26 to Rs 4,714 billion in FY27. Profitability is expected to remain broadly stable, supported by operating leverage, an improving product mix, and cost pass-through mechanisms with OEMs. However, volatility in raw material and higher freight costs, evolving US tariff policies, geopolitical developments, and continued dependence on imported battery cells, semiconductors, rare earth minerals, and other technology-intensive components will remain key monitorable.

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