Passenger vehicle sales volume in India likely to grow at a moderate pace of 4-7% in FY26: ICRA

Credit rating agency ICRA, in its latest report, has said that passenger vehicle (PV) sales volume in India is expected to grow at a moderate pace of 4-7% in FY2,6, with most demand drivers remaining neutral or favourable. As for two-wheelers (2W), it estimates the industry volumes to grow at a healthy pace of 6-9% in FY26, following an estimated 11-14% growth in FY25.

According to the report, 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. However, industry volume growth has been modest at about 2% against the backdrop of waning replacement demand and high inventory levels. Healthy retails have helped moderate dealer inventory holding in the past few months. Nonetheless, inventory continues to be moderately high.

The report said the industry's growth in FY25 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.

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

It said the industry prospects over the past few months have remained supported by improved rural demand following healthy monsoon precipitation. Rural demand for the industry is expected to remain healthy, with rabi sowing remaining healthy to date. A reduction in income-tax outgo following changes in tax slabs in the Union Budget is likely to support an increase in disposable income and demand.

Factors like improvement in economic activities, continued budgetary support for infrastructure spending, healthy freight availability, which further supports freight rates, and regulations such as scrappage policy and a push towards cleaner vehicles could drive replacement demand.