Auto Industry Growth Seen at 3–6% in FY27 as High Base Weighs: ICRA

India’s automotive sector is expected to enter a slower growth phase in FY27, with wholesale volume growth projected at 3% to 6% in FY26 to 27 as the industry moves beyond the strong recovery seen in the latter half of FY26, according to ICRA.

The moderation is largely due to a higher base and normalising demand across passenger vehicles, two wheelers and commercial vehicles.

The first half of FY26 saw a slowdown in demand, but the following months saw a significant uptick thanks to lower GST rates, better sentiment in rural areas, and simpler financing requirements.

Why Is Growth Expected To Moderate Next Fiscal?

ICRA noted that the rebound in FY26 was driven by a combination of policy support and pent-up demand. GST rationalisation lowered vehicle prices, rural incomes improved following healthy agricultural output, and financing conditions remained supportive.

However, wholesale volumes have already climbed to elevated levels. With that base effect in play, incremental expansion is likely to be more measured in FY27.

Inventory levels in certain segments are also relatively higher, which could limit aggressive production growth.

How Are Key Segments Expected To Move Next Year?

ICRA forecasts that passenger vehicle wholesale volumes will rise 5-7% in FY26 due to GST-led price relief, stable replacement demand and the continuing trend of personal vehicle usage.

The launch of new models along with the change in consumer preferences has helped utility vehicles to continue being the growth driver.

For FY27, however, passenger vehicle growth is projected to slow to 4–6%. The moderation reflects a higher base and relatively elevated inventory levels in the system. Changes in car types are also evolving with the addition of volume patterns.

The two-wheeler market will likely witness a 6-9% growth in FY2025-26. The primary causes of this are robust farm output, easier access to credit, and enhanced affordability.

Electric two-wheelers are gaining popularity and the demand keeps increasing. However, the market is still closely watching the supply side issues.

The 7–9% growth in commercial vehicle wholesale volumes in FY26 is expected to be driven in part by buses and light commercial vehicles. In addition, as safety and pollution regulations have become more stringent over time, car prices have increased, impacting affordability.

For FY27, commercial vehicle growth is estimated at 4–6%, with medium and heavy trucks expected to grow faster than light commercial vehicles.

ICRA also expects electric vehicle penetration to increase by FY30. The shift is likely to be led by two-wheelers, three-wheelers and buses, helped by policy backing and the gradual expansion of charging infrastructure.

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What Do Latest Industry Projections Suggest?

According to the Society of Indian Automobile Manufacturers (SIAM), passenger car sales may increase by 5–6% in FY26 and FY27.

CRISIL Ratings, however, has taken a more upbeat stance on two-wheelers. It has projected volume growth of 7–9% in FY27, a trajectory that could lift annual industry sales beyond 29 million units.

According to CRISIL, overseas shipments may account for around one-fifth of total volumes, with Latin America, Africa and South Asia expected to remain supportive markets.

Put differently, the industry may be shifting from a recovery phase to a more normalised pace of growth.

Sources:

Business Standard

Moneycontrol