Domestic passenger vehicle sales expected to grow 4-7% in FY26, says ICRA

Passenger vehicle sales volume in India is expected to grow at a moderate pace of 4-7% in FY26 with most demand drivers remaining neutral or favourable, according to ratings agency ICRA.

As for two-wheelers, ICRA said it estimates the industry volumes to grow at a healthy pace of 6-9% in FY26, following an estimated 11-14% growth in FY25.

Passenger vehicle (PV) industry volumes reached an all-time high of 4.2 million units in FY24. In year-to-date (YTD) FY25, wholesale volumes remained stable led by steady production by automobile manufacturers but the industry volume growth has been modest at about 2% against the backdrop of waning replacement demand and high inventory levels, ICRA said in a statement.

Healthy retails have helped moderate dealer inventory holding in the past few months. Nonetheless the inventory continues to be moderately high, it added.

"The industry's growth in FY2025 is expected at 0-2%. Most of the demand drivers for the industry -- disposable incomes, new model launches, cost of ownership etc -- remain neutral or favourable. Accordingly, even as the base for the industry continues to remain high, ICRA estimates the PV industry volumes to grow at a moderate pace of 4-7% in FY2026," the ratings agency said.

In the two-wheeler (2W) industry, ICRA said volumes witnessed strong growth in the current fiscal at about 10% YoY growth in YTD FY2025, with the industry continuing to recover from lower levels during FY2020-FY2022.

The industry prospects over the past few months have remained supported by improved rural demand post a healthy monsoon precipitation. Rural demand for the industry is expected to remain healthy, with rabi sowing till date remaining healthy, it noted.

"A reduction in income-tax outgo post changes in tax slabs in the Union Budget is likely to support an increase in disposable income and support demand. ICRA estimates the 2W industry volumes to grow at a healthy pace of 6-9% in FY2026, following an estimated 11-14% in FY2025," ICRA said.

As far as the domestic commercial vehicle (CV) industry is concerned, it is expected to register a marginal growth in FY26.

Factors like improvement in economic activities, continued budgetary support towards infrastructure spend, healthy freight availability further supporting freight rates, and regulations such as scrappage policy and push towards cleaner vehicles could drive replacement demand, ICRA said.

"Mandatory scrapping of older government vehicles and replacement demand would drive growth in buses, while growth in LCV (trucks) is expected to be lower, impacted by cannibalisation from e3Ws and slowdown in e-commerce among other factors. M&HCV (trucks), LCVs and buses are estimated to grow by 0-3%, 3-5% and 8-10% respectively in FY2026," it said.