The US-Israel-Iran war has rejigged India’s auto sector favourites, and the EV trade is now the only clear place to hide, says Nomura
The US-Iran war has abruptly changed the calculus for India’s automobile sector. With Brent crude surging — up from around $60 at the start of the year — Nomura’s India autos team published a note on March 9 arguing that ICE-heavy stocks face a multi-front hit on demand, margins, and exports, while EV-exposed names emerge as the sector’s clearest beneficiaries.
No More GST Tailwind
Earlier this year, GST cuts on automobiles gave the sector a meaningful lift, driving volume recovery and prompting analyst upgrades. That tailwind is now under serious threat. Nomura calculates that every Rs 5 per litre rise in petrol prices adds 2% to the cost of ownership. A Rs 10 per litre rise combined with a further 2.0–2.5% vehicle price hike from rising commodity costs would, in the report’s words, ” largely negate the positive impact from GST cuts on the cost of ownership.”
Entry-segment cars and two-wheelers, which is the volume engine of the industry, face the sharpest impact. Nomura estimates overall PV and two-wheeler industry growth could see a negative hit of around 5–8%.
EV Payback Shorter
The same rising fuel prices that hurt ICE demand accelerate the EV switch. For a Tata Punch EV buyer, the breakeven versus the petrol variant falls from 70,219 km at current prices to 59,675 km if petrol rises Rs 15 per litre. For a TVS iQube buyer versus the petrol Jupiter scooter, the breakeven drops from 15,145 km to 12,930 km under the same scenario.
“One beneficiary of higher oil prices could be a quicker shift in consumer sentiment towards EVs,” the report states. “Thus, EV plays are likely to benefit.”
Nomura’s top picks in a high oil price scenario are Ather Energy and Sonacoms. Among OEMs, TVS Motor and Mahindra are described as “relatively better positioned vs peers due to their higher EV exposure.”
The Margin Crunch
For ICE-heavy manufacturers, costs are moving in the wrong direction across the board. Nomura’s commodity cost index is already up around 200 basis points since September. Polymer prices, tyre costs, gas prices, and freight rates are all rising simultaneously. “With costs rising by 200bp+, we estimate further price hikes are required to pass on the costs,” the report states. “If demand is weak, the increased costs might not get passed on, thereby leading to margin risks.” Tyre companies face a particular squeeze — replacement segment price hikes happen with a lag, so the cost hits the P&L before any revenue recovery arrives.
Who Gets Hit
Hyundai Motor India is the most exposed on exports, with the Middle East accounting for 9.8% of total volumes and 43% of its export mix. Maruti has around 2.3% at risk. Most two-wheeler OEMs are largely insulated, with Middle East exposure below 1% of volumes. JLR inside Tata Motors faces a compounded problem — Middle East sales at 6–8% of FY25 volumes plus sharply rising EU input costs. The report notes that “for JLR the earnings impact could be significant.”
PV stocks have already given back post-GST gains and are near minus-one standard deviation on FY28 P/E — some pain is priced in. Two-wheeler and CV stocks “are still higher and could face more potential near-term downside.”
Auto ancillaries also carry downside risk as valuations are not yet near distressed levels. Nomura retains Buy ratings on Sonacoms, Unominda, and Sansera among ancillaries, citing EV adoption as a structural tailwind. Stocks that have surged the most since the GST cuts, Ashok Leyland up 53%, Sansera up 64%, Ather up 64%, are seen as most vulnerable in the current environment.
