India’s auto sector poised for modest FY2026 growth: PVs at 1–4%, two-wheelers at 6–9%, CVs at 3–5%, driven by festive demand, rural recovery, and infrastructure momentum.
01 Aug 2025 | 2604 Views | By Sarthak Mahajan
The Indian automotive industry is expected to witness moderate growth across key segments in fiscal year 2026, according to a recent analysis by ICRA. The passenger vehicle (PV), two-wheeler, and commercial vehicle (CV) segments are projected to see wholesale volume increases of 1–4%, 6–9%, and 3–5% respectively in FY2026, supported ...
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The Indian automotive industry is expected to witness moderate growth across key segments in fiscal year 2026, according to a recent analysis by ICRA. The passenger vehicle (PV), two-wheeler, and commercial vehicle (CV) segments are projected to see wholesale volume increases of 1–4%, 6–9%, and 3–5% respectively in FY2026, supported by improving demand conditions and economic stability.
The passenger vehicle segment is anticipated to register a modest 1–4% year-on-year (YoY) growth in wholesale volumes during FY2026. This outlook comes despite challenges such as elevated inventory levels and supply constraints for critical components like rare earth magnets, which are essential for electric vehicle (EV) production.
Wholesale sales in the PV segment declined by 1.4% YoY in Q1 FY2026, with June 2025 data showing a 7% YoY and 9% sequential drop. Automakers offered discounts to stimulate demand, but consumer sentiment remained subdued amid macroeconomic uncertainties.
Retail sales for the quarter were flat compared to the same period last year. Inventory levels rose slightly, reaching 55 days by the end of June 2025, as reported by the Federation of Automobile Dealers Association (FADA). Sport utility vehicles (SUVs) continued to dominate, accounting for 65–66% of total PV sales, with utility vehicles (UVs) expected to remain key volume drivers in the near term.
Exports showed signs of recovery, growing 14% sequentially in June 2025 on a low base. Maruti Suzuki India Limited retained its position as the top exporter, followed by Hyundai Motor India Limited. However, export demand faces risks due to foreign exchange shortages in select African markets and ongoing inflationary pressures.
ICRA noted that a steady pipeline of new model launches by original equipment manufacturers (OEMs) could support demand in the coming months, particularly during the upcoming festive season.
The two-wheeler industry is forecast to grow between 6% and 9% in wholesale volumes in FY2026. This growth is underpinned by sustained replacement demand, anticipated improvement in urban consumption, and healthy rural incomes, aided by expectations of a normal monsoon season.
Domestic wholesale volumes in June 2025 stood at 1.5 million units, reflecting a 4.3% YoY and 4.8% sequential decline. In contrast, retail sales grew 5.1% YoY, supported by strong demand in semi-urban and rural areas, though they dipped sequentially — a trend typically observed at the onset of monsoon.
Electric two-wheelers (e2W) recorded a modest 5% sequential increase in June 2025, reaching 105,282 units. Monthly e2W penetration remains in the range of 6–7%. Exports from the two-wheeler segment rose approximately 34% YoY, although growth is partially constrained by forex shortages and inflation in certain markets, including Nigeria.
The domestic commercial vehicle sector is expected to rebound with a 3–5% YoY growth in wholesale volumes in FY2026, following a marginal 1.2% decline in FY2025.
Within the CV segment, buses are projected to see the highest growth — 8–10% YoY — driven by replacement cycles. The light commercial vehicle (LCV) truck segment is expected to grow 3–5%, while medium and heavy commercial vehicle (M&HCV) trucks may see 0–3% growth.
Wholesale CV volumes declined 3.8% YoY in June 2025 but improved 1.7% on a sequential basis. For Q1 FY2026, domestic CV wholesale volumes were down 1.7% YoY due to weak demand. Retail sales, however, showed resilience, rising 6.6% YoY in June 2025, indicating inventory drawdown at dealer levels, though they fell 3% sequentially.
In the M&HCV segment, retail sales grew 3.4% YoY in June 2025, despite a 7.4% sequential decline. The early arrival of monsoons impacted sales, while the low base from June 2024 — affected by general elections — contributed to the positive YoY comparison.
The LCV retail segment saw an 8.8% YoY increase in June 2025, with volumes remaining stable compared to the previous month, signaling steady demand. However, the segment faces challenges from increasing competition from electric three-wheelers and a growing preference for pre-owned vehicles.
ICRA’s report highlights that while the Indian automotive industry is on a recovery path, growth will be tempered by structural and external factors, including component shortages, inventory overhangs, and global economic headwinds. However, domestic demand drivers — particularly in rural and semi-urban markets — along with infrastructure development and new product launches, are expected to provide moderate support to volumes in FY2026.