Passenger vehicle sales volume in India likely to grow at moderate pace of 4-7% in FY26: ICRA

28 Feb 2025 Evaluate

Credit ratings agency ICRA in its latest report has said that passenger vehicle (PV) sales volume in India is expected to grow at a moderate pace of 4-7 per cent in FY26 with most demand drivers remaining neutral or favourable. As for two-wheelers (2W), it estimates the industry volumes to grow at a healthy pace of 6-9 per cent in FY26, following an estimated 11-14 per cent growth in FY25.

According to the report, PV industry volumes reached an all-time high of 4.2 million units in FY24. In year-to-date (YTD) FY25, wholesale volumes remained stable led by steady production by automobile manufacturers but the industry volume growth has been modest at about 2 per cent against the backdrop of waning replacement demand and high inventory levels. Healthy retails have helped moderate dealer inventory holding in the past few months. Nonetheless the inventory continues to be moderately high.

The report said the industry's growth in FY25 is expected at 0-2 per cent. Most of the demand drivers for the industry -- disposable incomes, new model launches, cost of ownership etc -- remain neutral or favourable. Accordingly, even as the base for the industry continues to remain high, ICRA estimates the PV industry volumes to grow at a moderate pace of 4-7 per cent in FY2026. In the two-wheeler (2W) industry, it said volumes witnessed strong growth in the current fiscal at about 10 per cent YoY growth in YTD FY2025, with the industry continuing to recover from lower levels during FY2020-FY2022.

It said the industry prospects over the past few months have remained supported by improved rural demand post a healthy monsoon precipitation. Rural demand for the industry is expected to remain healthy, with rabi sowing till date remaining healthy. A reduction in income-tax outgo post changes in tax slabs in the Union Budget is likely to support an increase in disposable income and support demand. Factors like improvement in economic activities, continued budgetary support towards infrastructure spend, healthy freight availability further supporting freight rates, and regulations such as scrappage policy and push towards cleaner vehicles could drive replacement demand.

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