The outlook for the car market is more optimistic than those given by automakers themselves.
20 Feb 2025 | 1877 Views | By Yukta Mudgal
Domestic passenger vehicle growth is expected to improve to mid-single digits next financial year, while two-wheeler growth will likely moderate to single digits, according to ICRA. The credit rating agency’s outlook is more optimistic than carmaker forecasts.
At the SIAM Looking Ahead Conclave, major manufacturers projected domestic volume growth ...
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Domestic passenger vehicle growth is expected to improve to mid-single digits next financial year, while two-wheeler growth will likely moderate to single digits, according to ICRA. The credit rating agency’s outlook is more optimistic than carmaker forecasts.
At the SIAM Looking Ahead Conclave, major manufacturers projected domestic volume growth of just 1-4% next financial year.
The rating agency projects passenger vehicle sales to grow 4-7% in FY2026, following 0-2% growth in the current financial year. Two-wheeler sales are forecast to moderate to 6-9% next year, down from the 11-14% expected this year.
Improved passenger vehicle growth should be driven by higher disposable incomes from recent tax measures and new product launches, especially in the utility vehicle segment.
"We have observed that the passenger vehicle segment has always been a stable segment. Nevertheless, over the past year, it has faced several challenges such as elevated inventory levels and a shift in the vehicle and product mix have contributed to an increase in the overall cost of ownership," said Srikumar K, senior vice president and co-group head of Corporate Ratings at ICRA.
Car industry growth has slowed since 2022-23, largely due to declining demand for entry-level hatchbacks, which traditionally serve as gateways for first-time buyers upgrading from two-wheelers.
Inflation and challenges in sectors like IT have also dampened consumer sentiment. In 2023-24, sector growth fell to 8.4% with 42.19 lakh units sold, following 27% growth the previous year.
The two-wheeler industry has seen double-digit growth since 2022-23, mainly due to a low base, though the rate is declining. Growth dropped to 13% in 2023-24 and is expected to moderate further to 11-14% this year. The industry hasn't yet recovered to its 2018-19 peak.
Strong rural demand from increased rabi sowing and agricultural output, plus higher urban disposable income, will support the segment. Srikumar noted that income tax slab changes could also boost two-wheeler demand.
Increased ownership costs, financing challenges, and supply chain issues won't significantly hinder two-wheeler industry growth.
"At least in the last one year also, we have not seen much increase in the overall cost of ownership and also the fact that the commodity prices were largely soft. We expect that the cost of ownership will still remain at the similar level and no significant change in the supply chain issues compared to the last time," said Srikumar. "The financing environment remains cautiously optimistic," he added.