Rating agency projects cautious recovery driven by anticipated GST rate cuts and sectoral demand dynamics.
28 Sep 2025 | 6353 Views | By Shruti Shiraguppi
ICRA has projected moderate growth across India's commercial and passenger vehicle segments for FY2026, citing anticipated GST rate reductions and improving sectoral demand as key drivers, according to the rating agency's latest automobile industry assessment released recently.
The rating agency expects commercial vehicle wholesale volumes to grow 3-5% year-on-year ...
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ICRA has projected moderate growth across India's commercial and passenger vehicle segments for FY2026, citing anticipated GST rate reductions and improving sectoral demand as key drivers, according to the rating agency's latest automobile industry assessment released recently.
The rating agency expects commercial vehicle wholesale volumes to grow 3-5% year-on-year for light commercial vehicles and 0-3% for medium and heavy commercial vehicles in FY2026, while passenger vehicle industry volumes are forecast to increase 1-4% during the same period.
In August 2025, commercial vehicle wholesale volumes increased 6.0% year-on-year, while retail volumes rose 3.2% year-on-year. However, growth was moderated by purchase deferrals among fleet operators anticipating GST reductions. Over the first five months of FY2026, CV wholesale volumes showed modest 1.3% year-on-year expansion.
Within the commercial vehicle segment, light commercial vehicle retail volumes grew 8.2% year-on-year in August 2025 with 0.8% sequential growth. The medium and heavy commercial vehicle segment recorded 9.2% year-on-year retail sales growth despite demand dampening from prolonged monsoons.
The passenger vehicle segment experienced contrasting trends, with both wholesale and retail volumes declining sequentially and year-on-year in August 2025 as customers delayed purchases expecting GST cuts. Inventory levels remained elevated at approximately 56 days by month-end, according to the Federation of Automobile Dealers Association.
SUVs maintained dominance as the preferred segment, accounting for 65-66% of overall passenger vehicle volumes, with utility vehicles continuing as primary volume drivers.
Export volumes demonstrated strong performance, rising 25% year-on-year in August 2025 and 15% year-on-year in the first five months of FY2026, reflecting growing overseas demand for Indian-manufactured vehicles.
The bus segment is expected to outperform other commercial vehicle categories with projected 8-10% year-on-year growth in FY2026, supported by replacement demand. ICRA anticipates gradual recovery in the medium and heavy commercial vehicle segment as construction and infrastructure projects resume momentum.
The Indian automobile industry faces mixed conditions with supportive factors including economic environment improvements, construction and mining sector resurgence, and continued festive season demand. However, the light commercial vehicle truck segment confronts headwinds from rising preference for pre-owned vehicles and competition from electric three-wheelers.
Recent trends indicate inventory accumulation at dealerships, suggesting cautious positioning ahead of anticipated policy changes. Despite these challenges, fundamental sectoral drivers remain healthy, positioning the industry for gradual volume recovery.
"The outlook for both the Indian Commercial Vehicle and Passenger Vehicle segments in FY2026 is cautiously optimistic, with moderate growth anticipated for both," according to ICRA's assessment.
The rating agency expects recovery alongside GST rate cuts and ongoing new model launches, supported by demographic demand shifts and prospective policy support in the coming months.