New Delhi, Oct. 9 -- India's automobile sector is heading into the festive season with strong demand momentum, but rising raw material costs could put pressure on manufacturers' profitability despite higher vehicle sales, claimed a report by Kotak Institutional Equities.

In its automobile and components sector earnings preview, Kotak said strong retail demand following GST cuts has supported vehicle production across passenger vehicles, two-wheelers and commercial vehicles. However, higher steel, rubber and crude-linked costs are expected to weigh on operating margins.

The report stated, "RM cost spikes overshadow healthy topline growth."

Kotak expects revenues of most automobile manufacturers under its coverage to increase by around 2...