Auto sales tipped to grow in high single digits in FY27

“While the government has done a commendable job in insulating the domestic market, particularly on fuel prices and lending rates, prolonged disruptions could weigh on demand,” Sai Girdhar, Vice President, FADA, said.

Importantly, inventories in March normalised sharply to around 28 days from about 52 days in March 2025 reflecting closer alignment between wholesale dispatches and retail demand. Rural demand is currently outpacing that in urban markets.

However, Giridhar cautioned that a prolonged disruption has a direct correlation with vehicle sales first impacting two-wheelers and passenger vehicles, and subsequently the CV segment.

Strong performances across segments

Strong performances across segments propelled retail sales of automobiles to new levels of nearly 30 million units in 2025-26, a rise of 13.3%.

Passenger vehicles sales during the year crossed the 4.7 million mark for the first time, posting a rise of 13%, benefitting from the launch of new models, continued urbanisation and a shift towards SUVs and alternative power trains.

Electric vehicles (EVs) gained further traction across segments. Passenger vehicle EV penetration rose to 4.25% for FY26 and crossed 5.11% in March, according to data from the Federation of Automobile Dealers Associations (FADA).

The sales in March were the best-ever monthly performance. “March 2026 has been the best-ever March in the history of India’s auto retail sector, while FY2026 has also emerged as an all-time high year for the industry,” Girdhar said.

Two-wheelers lead the recovery

Two-wheelers led the recovery, growing 13.4% to reclaim pre-Covid levels, supported by improved rural cash flows and better affordability. Rural markets continued to narrow the gap with urban demand, supported by improved farm incomes and affordability gains. “Rural demand is currently outpacing urban markets, supported by GST adjustments. However, any upward pressure on prices due to input costs or exchange rates could dampen sentiment,” Girdhar said.

Commercial vehicles staged a strong comeback during the year, crossing 1million units after several years on the back of infrastructure-led demand. “The CV segment recorded its highest-ever annual sales in FY2026. For March, it was the third-best performance on record. The last comparable peak was in March 2020 at around 0.12million units,” Girdhar said. Retail offtake of CVs stood at 10,60,906 units, up 11.74%, with medium and heavy CVs driving growth. In March, the segment recorded a sharp 25.5% increase.

The tractor segment emerged as the fastest-growing category, crossing the 10-lakh mark for the first time at 10,50,077 units, up 18.95% year-on-year. The growth was driven by a strong monsoon, robust rabi sowing and improving farm economics.

Three-wheelers continued their record run, posting their third consecutive annual high at 13,63,412 units, growing 11.68%, with EVs accounting for over 60% of sales. Construction equipment remained the sole laggard, declining 11.7% to 71,227 units due to project delays and a high base.

The year was marked by a clear split in momentum. The April–August period saw muted growth of 2–5% as buyers held back purchases ahead of anticipated GST revisions. Demand accelerated sharply from September after tax cuts improved affordability, with the festive season setting the tone. October recorded retail volumes of over 4 million lakh units, and the momentum sustained through the final quarter with strong double-digit growth, indicating a structural demand recovery rather than a seasonal spike.

“Growth was relatively muted at around 3% between April and September, but we ended the year with a strong 13.3% expansion. This was largely aided by GST-led price corrections of nearly 10% in some cases, which significantly improved affordability,” Girdhar said.