The domestic automobile industry is expected to grow 5-8% in FY26, according to analysts at India Ratings & Research. While maintaining a ‘neutral’ outlook for the domestic automobile industry, analysts said growth will be driven by two-wheelers (2Ws) because of reviving rural demand. However, they said, slower consumption from the urban markets, especially for passenger vehicles (PVs), could keep the growth rate at moderate levels.
“Demand in personal mobility segments, especially 2Ws, will be driven by a recovery in rural demand as rural liquidity improves amid better crop production, higher minimum support price, and expectations of a normal monsoon in 2025. However, as the segment would be seeing two consecutive years of near-double-digit growth in FY24 and FY25, the growth rate could moderate in FY26,” says Shruti Saboo, Director of Corporate Ratings at India Ratings.
As per the rating agency, the two-wheeler industry will grow 6% to 8% YoY in FY26, led by improved rural demand. In the motorcycle segment, the industry would continue to see demand shifting to 110-125cc motorcycles from 75-110cc, showcasing a trend of premiumisation.
For the passenger vehicle industry, Saboo says the segment is witnessing elevated inventory levels which original equipment manufacturers (OEMs) would look at normalising in FY26. “A higher base and slowdown in urban consumption would limit PV’s growth to low single digit, though the contribution of premium vehicles will continue to rise,” says Saboo. As per India Ratings, PV volumes could grow 2%-5% YoY in FY26 (FY25: 1%-3% YoY), as the pent-up demand normalises, though utility vehicles will continue to gain volume share in FY26.
Notably, for the commercial vehicle industry, the ratings agency anticipates sales volumes to grow marginally from 1% to 4% YoY in FY26 on the likely revival in infrastructure activities which were impacted amid the general elections in 2024.
“In the CV segment, a revival of infrastructure activities would remain the key to demand. Also, a pick-up in industrial and government-led capex and favourable demand from allied sectors would support the demand. However, increased tonnage capacities and lower fleet utilisation could limit the sales of incremental vehicles,” says Saboo.
In terms of exports, the rating agency says exports are also likely to grow in FY26 as OEMs penetrate new markets namely Latin America and the Middle East; while there could be a revival in the conventional export geographies.
Meanwhile, India Ratings expects limited rating movements in the sector in FY26 and has thus maintained a ‘Stable’ rating outlook.
“Industry revenue growth could be in the range of 5%-8% YoY in FY26 (FY25: 5%-7% YoY), supported by volume growth and the increasing proportion of premium vehicles, although offset by limited price hikes by OEMs and reduced proportion of higher priced CV and PV sales. Ebitda margins are also likely to remain range-bound in FY25-FY26, led by largely stable raw material prices and vehicle prices, though benefitting from operating leverage and increased proportion of premium vehicles,” said the rating agency.