ICRA projects modest growth across Indian auto segments in FY26 amid mixed demand trends
ICRA expects wholesale volumes in the passenger vehicle (PV) segment to grow by a modest 1–4 per cent this fiscal. The segment continues to grapple with elevated inventory levels, production constraints due to shortages of critical components like rare earth magnets used in EVs, and subdued consumer sentiment. Wholesale PV volumes declined by 1.4 per cent year-on-year in Q1 FY2026, and in June 2025, fell by 9 per cent sequentially and 7 per cent on a year-on-year basis, despite discounts offered by OEMs. Inventory levels increased to 55 days by the end of June, according to FADA.
Sport utility vehicles (SUVs) remain the most preferred category, contributing 65–66 per cent of total PV volumes. While steady model launches are expected to support demand, headwinds persist for exports due to forex shortages in key African markets and ongoing inflationary pressures. Nevertheless, export volumes showed sequential growth of 14 per cent in June 2025, with Maruti Suzuki and Hyundai maintaining their lead.
Two-wheeler projection
The two-wheeler segment is projected to grow by 6–9 per cent in FY2026, driven by healthy rural incomes, expectations of a normal monsoon, and recovery in urban demand. While domestic wholesale volumes declined 4.3 per cent year-on-year in June 2025 to 1.5 million units, retail volumes rose by 5.1 per cent, supported by strong rural and semi-urban demand. Electric two-wheelers saw a 5 per cent sequential growth in June, with monthly volumes at 1.05 lakh units and penetration remaining in the 6–7 per cent range. Exports also rose by 34 per cent year-on-year, although currency constraints and inflation remain potential barriers in some markets like Nigeria.
Commercial vehicle projection
In the commercial vehicle (CV) segment, ICRA anticipates a 3–5 per cent increase in wholesale volumes during FY2026, supported by improving pace of construction and infrastructure activity and a stable economic environment. After a marginal 1.2 per cent decline in FY2025, CV wholesales fell 3.8 per cent year-on-year in June 2025 but rose 1.7 per cent sequentially. Retail sales increased by 6.6 per cent year-on-year in June, indicating inventory correction at dealerships. The bus segment is expected to see relatively stronger growth of 8–10 per cent, aided by replacement demand, while trucks are likely to post modest gains.
While demand trends remain mixed and EV production continues to face raw material bottlenecks, ICRA said the upcoming festive season and new product offerings could help support overall automotive industry volumes in the near term.>
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