New Delhi – India’s passenger vehicle industry recorded a strong 29 per cent increase in wholesale volumes during the first five months of fiscal 2027, but growth is expected to moderate to 4-6 per cent for the full financial year, rating agency ICRA said in a report on Thursday.
The sharp rise during April-August was supported by strong demand, new model launches and favourable market conditions. However, the industry is entering the second half of FY27 on a high base, which is expected to make further volume growth more moderate.
ICRA said recently announced price increases by automobile manufacturers could weigh on demand. A weaker-than-expected monsoon could also affect rural sentiment and put pressure on passenger vehicle volumes during the second half of the fiscal year.
Retail sales showed similar momentum, growing by around 27 per cent during the April-August period. The growth was supported by the response to newly launched models, an extended summer wedding season and the continuing impact of revised Goods and Services Tax (GST) rates.
The report said higher operating leverage, cost-control measures and price increases are expected to support manufacturers’ profitability. Passenger vehicle makers had witnessed around 200 basis points of margin compression in the first quarter of FY27.
Despite the margin pressure, ICRA expects the credit profiles of original equipment manufacturers (OEMs) to remain strong, supported by relatively low leverage, healthy liquidity positions and, in some cases, strong parent companies.
Vehicle inventories also increased ahead of the festive season. Inventory levels in August rose by about five days from the previous month to 38-40 days as manufacturers and dealers stocked up for expected festive demand. However, inventories remained significantly below the 56-day level recorded in August 2025.
Utility vehicles (UVs) continued to strengthen their position in the Indian passenger vehicle market, accounting for around 68 per cent of industry volumes during the first five months of FY27. The shift reflects changing consumer preferences as well as the growing number of SUV and other utility vehicle launches.
Demand for entry-level cars has also shown signs of recovery following the GST rate cuts, with volumes improving from the second half of FY26.
Alternative powertrains are gaining further ground, with vehicles powered by CNG and electricity together accounting for about 34 per cent of overall passenger vehicle volumes during the period. ICRA attributed the increase to the introduction of new models and improvements in fuelling and charging infrastructure.
Meanwhile, automobile manufacturers are expected to maintain elevated capital expenditure over the next few years. ICRA estimates annual OEM capex at Rs 250-300 billion, equivalent to around 5-6 per cent of revenues.
A significant portion of this investment is expected to go towards new product development, including strengthening manufacturing and technology capabilities and developing or upgrading platforms for electric vehicles.
The industry therefore enters the second half of FY27 with strong sales momentum but also faces factors such as higher vehicle prices, rural demand risks and a high comparison base.
—IANS