India’s automobile sector is likely to enter a phase of calibrated growth in FY2027, with expansion expected to slow across segments after a strong, policy-supported FY2026, according to ICRA. The moderation reflects a high base effect, even as underlying demand fundamentals remain intact.

CV momentum peaks

The current upcycle has been led by favourable policy interventions, particularly GST rationalisation, which has improved affordability and lifted consumer sentiment. This has been most visible in the commercial vehicle (CV) segment, where both wholesale and retail demand have remained robust. Wholesale CV volumes surged 23.8% year-on-year in February 2026, while cumulative volumes for the first eleven months of FY2026 rose 12.5%, signalling sustained freight and infrastructure-led demand.

ICRA expects the CV segment to outperform earlier projections of 7–9% growth in FY2026, before moderating to 4–6% in FY2027. The easing trajectory is likely to be influenced by elevated borrowing costs and a gradual shift towards pre-owned vehicles, particularly in the light commercial vehicle category.

Two-wheeler recovery holds, but growth to normalise on higher base

In the two-wheeler (2W) segment, a broad-based recovery is underway, supported by improving rural incomes, enhanced financing access and lower acquisition costs following GST rate adjustments. Domestic wholesale volumes are projected to grow around 9% in FY2026, before tapering to 3–5% in FY2027. Retail demand has held steady, underpinned by replacement cycles, though inflationary pressures linked to geopolitical uncertainties could pose risks.

Auto components anchor stability with ₹28,000–32,000 crore capex push

The auto component sector is expected to provide relative stability, with growth estimated at 7–9% in FY2027. The industry is likely to undertake capital expenditure of ₹28,000–32,000 crore, largely funded through internal accruals, as companies continue to invest in capacity expansion and electrification.

While direct exposure to West Asia remains limited, the region’s significance for passenger vehicle exports—accounting for roughly a quarter of shipments—poses indirect risks. Any disruption could cascade into component demand, alongside pressures from supply chains, energy costs and currency volatility.

ICRA noted that while FY2026 growth has been largely policy-driven, the sector’s medium-term outlook remains supported by structural factors such as electrification, replacement demand and rural recovery. However, FY2027 is expected to mark a return to more sustainable, mid-single-digit growth levels.