Android Tab layout: Wrap tab indicator width with respect to tab title

Yes, it's possible to wrap tab indicator as title setting padding to 0

 public void wrapTabIndicatorToTitle(TabLayout tabLayout, int externalMargin, int internalMargin) {
        View tabStrip = tabLayout.getChildAt(0);
        if (tabStrip instanceof ViewGroup) {
            ViewGroup tabStripGroup = (ViewGroup) tabStrip;
            int childCount = ((ViewGroup) tabStrip).getChildCount();
            for (int i = 0; i < childCount; i++) {
                View tabView = tabStripGroup.getChildAt(i);
                //set minimum width to 0 for instead for small texts, indicator is not wrapped as expected
                tabView.setMinimumWidth(0);
                // set padding to 0 for wrapping indicator as title
                tabView.setPadding(0, tabView.getPaddingTop(), 0, tabView.getPaddingBottom());
                // setting custom margin between tabs
                if (tabView.getLayoutParams() instanceof ViewGroup.MarginLayoutParams) {
                    ViewGroup.MarginLayoutParams layoutParams = (ViewGroup.MarginLayoutParams) tabView.getLayoutParams();
                    if (i == 0) {
                        // left
                        settingMargin(layoutParams, externalMargin, internalMargin);
                    } else if (i == childCount - 1) {
                        // right
                        settingMargin(layoutParams, internalMargin, externalMargin);
                    } else {
                        // internal
                        settingMargin(layoutParams, internalMargin, internalMargin);
                    }
                }
            }

            tabLayout.requestLayout();
        }
}

private void settingMargin(ViewGroup.MarginLayoutParams layoutParams, int start, int end) {
    if (Build.VERSION.SDK_INT >= Build.VERSION_CODES.JELLY_BEAN_MR1) {
        layoutParams.setMarginStart(start);
        layoutParams.setMarginEnd(end);
        layoutParams.leftMargin = start;
        layoutParams.rightMargin = end;
    } else {
        layoutParams.leftMargin = start;
        layoutParams.rightMargin = end;
    }
}

EDIT: As of com.android.support:design:28.0.0, you can adjust the indicator as label easily now setting:

app:tabIndicatorFullWidth="false"

EDIT July 2019: Use the material dependency com.google.android.material:material:x.x.x

As of support library 28 you can do the following:

app:tabIndicatorFullWidth="false"
app:tabPaddingStart="25dp"
app:tabPaddingEnd="25dp"

You can set the desired padding that affects the tab indicator.

Also you can now do this:

app:tabIndicator="@drawable/tab_indicator"

this will set a custom drawable as indicator.

example of custom drawable:

<?xml version="1.0" encoding="utf-8"?>
<shape xmlns:android="http://schemas.android.com/apk/res/android"
    android:shape="rectangle">

    <solid android:color="@color/colorPrimary"/>
    <corners android:radius="5dp"/>
</shape>