ICRA Forecasts Moderate Growth for Indian Automotive Sector in 2026-27
Domestic passenger vehicle (PV) volumes in India are estimated to grow by 4–6 percent year-on-year in the fiscal year 2026–27, according to a recent analysis by ICRA. This projection is supported by sustained demand momentum, although growth is expected to moderate compared to previous years due to a higher base and elevated inventory levels.
A Tale of Two Halves for the Current Fiscal Year
Srikumar Krishnamurthy, senior vice president and co-group head of corporate ratings at ICRA, highlighted the contrasting performance of the Indian automotive industry in the current fiscal year. The first half witnessed subdued demand, while the second half is experiencing a strong recovery, driven by policy support and healthy rural demand.
"Industry sales volumes have been robust over the past few months, aided by the GST rate cut, pent-up demand, supportive rural output, and a conducive financing environment," Krishnamurthy stated. He added, "Although demand sentiment remains optimistic, volumes are reaching levels that would weigh on the potential for outsized growth in 2026-27."
Detailed Segment-Wise Projections
ICRA expects PV wholesale volumes to grow by 5–7 percent in 2025–26 before moderating to 4–6 percent in 2026–27. Utility vehicles continue to outperform other categories, supported by shifting consumer preferences and new model launches. Additionally, the share of alternative powertrains—including CNG, hybrids, and electric vehicles—is rising steadily amid regulatory pushes and evolving customer preferences.
Two-Wheeler Industry: Recovery Followed by Normalization
The two-wheeler (2W) industry is currently witnessing a gradual recovery, with growth estimated at 6–9 percent in 2025–26, aided by healthy agricultural output and improved financing availability. However, growth is expected to normalize to 3–5 percent in 2026–27.
ICRA noted that premiumisation is shaping demand trends in this segment. While entry-level motorcycle demand remains under pressure due to affordability constraints, premium motorcycles and scooters have recorded a sharp recovery.
Commercial Vehicles: Bus Segment to Lead Growth
Commercial vehicle (CV) wholesale volumes are projected to expand by 7–9 percent in 2025–26, led by the light commercial vehicle and bus segments. Replacement demand and infrastructure activity remain supportive, though regulation-led price hikes may limit stronger growth for trucks.
For 2026–27, the CV segment is estimated to grow by 4–6 percent overall, with bus volumes expected to outperform at 7–9 percent growth, driven by replacement demand from State Road Transport Undertakings.
Electrification Emerges as a Key Structural Theme
Highlighting broader industry trends, Krishnamurthy said, "The Indian automotive industry is currently at crossroads amid changing consumer preferences, technological advancements, and focus on sustainability." He added, "ICRA expects the growth trajectory to continue in 2026-27, even as growth is likely to remain modest across segments. Over the medium term, vehicle electrification is expected to be a key structural theme, with EV penetration rising steadily across segments."
Overall Outlook: Moderate Growth Ahead
Overall, while growth is set to continue into 2026–27, it is expected to remain moderate as the industry adjusts to a higher base and evolving demand dynamics. The forecast underscores the resilience of the Indian automotive market amidst global challenges and shifting trends.
