India's automobile sector demonstrated a strong rebound in September 2025, according to ICRA's latest analysis, with the reduction in Goods and Services Tax and the festive season catalyzing growth across multiple vehicle segments.
The commercial vehicle segment recorded robust performance with wholesale volumes rising 11.9% year-on-year and 19.4% sequentially. The GST rationalization, which reduced the tax rate from 28% to 18% effective September 22, 2025, played a significant role in this growth. Domestic CV wholesale volumes expanded 3.2% year-on-year in the first half of FY2026, supported by infrastructure project execution and logistics activity revival.
However, the medium and heavy commercial vehicle segment experienced temporary challenges, with retail sales contracting 2.2% year-on-year in September as fleet owners deferred purchases ahead of the anticipated tax reform. Despite this short-term decline, ICRA forecasts 3-5% growth in CV wholesale volumes for FY2026, with the buses segment expected to lead with 8-10% growth.
The two-wheeler segment demonstrated steady momentum with retail sales growing 6.5% year-on-year in September. After subdued sales during the first three weeks as customers awaited the GST cut, demand surged following the tax reduction, bolstered by festive tailwinds and pent-up demand. Wholesale volumes rose 6.0% to reach 2.0 million units as manufacturers increased dispatches. Electric two-wheeler volumes remained stable at 104,621 units, maintaining 6-7% penetration in the overall segment. ICRA projects 6-9% wholesale volume growth for two-wheelers in FY2026.
Passenger vehicles gained significant traction post-GST implementation, with retail sales increasing 5.8% year-on-year as improved affordability stimulated demand. Wholesale volumes grew 4.5% year-on-year and 15.7% sequentially to 370,000 units in September as manufacturers stocked dealerships for the festive period. Utility vehicles continued to dominate, accounting for 65-66% of industry volumes. Export volumes surged 30% year-on-year, though from a low base. ICRA anticipates 1-4% wholesale volume growth for passenger vehicles in FY2026.
Inventory levels remained elevated at approximately 60 days by end-September, according to the Federation of Automobile Dealers Association, as manufacturers increased supplies to meet anticipated festive demand.
ICRA maintains a stable to positive outlook for the Indian auto sector in FY2026, citing GST reductions, sustained festive demand, and steady rural incomes as primary growth drivers supporting the industry's recovery trajectory.