India’s automobile industry, already headed into a year of moderation after a strong FY26, may face fresh headwinds as forecasts of a below-normal monsoon linked to El Niño raise concerns around rural demand and inflation. Private weather forecaster Skymet has projected rainfall at about 94 per cent of the long-period average in 2026, with the El Niño impact expected to intensify in the second half of the June–September season.

Rating agencies have flagged the monsoon as a key downside risk for rural-linked segments. ICRA expects tractor industry growth to slow sharply to 1–4 per cent in FY27 from 22.8 per cent in FY26, citing the potential impact of a weak monsoon on farm output and incomes.

Early signals of stress are also emerging at the company level. Analysts at HSBC Global Research have cut tractor volume estimates for Mahindra & Mahindra by 5–7 per cent for FY27, citing the “looming spectre of El Niño." The company’s SUV portfolio is expected to cushion the impact partly. Maruti Suzuki, too, remains exposed to rural demand trends, with any disruption to farm incomes likely to weigh on demand even as it prepares for capacity expansion.

Harshvardhan Sharma, who leads the Automotive Retail Consulting Practice at the Japanese global consulting firm Nomura, also says, “El Niño introduces a clear downside risk to the rural demand engine that underpins tractors, two wheelers and the entry end of passenger vehicles.

Agriculture still accounts for the largest share of employment in India at 43.0 per cent, so any weather-led disruption to farm incomes quickly shows up in discretionary mobility purchases. After an FY26 in which two-wheeler retail grew to 2.14 crore units and tractor retail to 10.5 lakh, the key issue is whether rural purchasing power loses momentum rather than whether overall auto demand breaks sharply,” he further explained

Analysts across the board indicate that two-wheelers, the most rural-dependent segment, are likely to be the first to feel the impact, especially given that growth is already expected to taper after a strong FY26. Entry-level passenger vehicles could also see delayed recovery, while SUVs may remain relatively resilient, supported by urban demand and premiumisation.

Rohan Kanwar Gupta, Vice President and Sector Head, Corporate Ratings, ICRA Limited, also says that an occurrence of El Niño could adversely impact monsoon precipitation and thus the same poses a downside risk to the prospects of the rural economy.“ A weakness in farm cash flows could weigh on demand for the automotive industry, especially in tractor and two-wheeler segments.”

Even as the impact will remain sensitive to the extent of monsoon underperformance, the support provided by the government to help cushion the impact of weak farm flows would also remain monitorable. Gupta of ICRA further explained.

The Reserve Bank of India has flagged El Niño as a key upside risk to inflation in FY27, pointing to the potential impact of weather disruptions on food prices and overall consumption.

A below-normal monsoon could add a fresh layer of uncertainty to the auto sector’s FY27 outlook. CRISIL expects industry growth to moderate after a strong FY26, with passenger vehicle expansion seen easing off a high base.

“Our base case assumes a normal monsoon, but any disruption, whether from weather patterns or delays in the sowing cycle, can impact the rural economy and, in turn, consumption across segments, including automobiles,” said Hemal Thakkar, senior director and Senior Practice Leader of CRISIL.

Rural demand critical for two-wheelers and entry-level cars remains closely tied to farm incomes and crop output, both vulnerable to rainfall disruptions. While premium segments such as SUVs may remain relatively insulated, any sustained pressure on agricultural output, coupled with rising food inflation, could weigh on overall consumption.

Commercial vehicles may see a lagged impact if rural freight weakens, while three-wheelers, particularly electric models, could prove more resilient due to their strong operating cost advantage, analysts at other rating agencies told businessline.

Published on April 9, 2026