The spotlight is on the auto sector with the lower GST rates kicking in from September 22 along with above-normal monsoon. Analysts have released a positive outlook for the Indian automobile sector for FY26, with tractors and two-wheelers expected to drive growth. ICRA estimates domestic two-wheeler volumes to grow by 6-9% YoY in FY26.
ICRA estimates 4-7% growth in tractor sales in FY26
ICRA expects tractor volumes to grow at a moderate pace of 4-7% in FY26. The rating agency highlighted that the recent GST rate cut on tractors to 5% is likely to aid demand during the festive season.
Additionally, the industry may see pre-buying ahead of the new TREM V emission norms, which will come into effect from April 1, 2026. TREM V emission norms are emission standards notified by the Ministry of Road Transport and Highways (MoRTH) and the Ministry of Agriculture for agricultural tractors and other non-road equipment to regulate their exhaust emissions.
Tractor sales jump 28.2% in August
ICRA also said growth will be supported by above-normal monsoons, which are expected to boost agricultural production. The tractor industry has already shown strong momentum. Wholesale volumes jumped 28.2% year-on-year (YoY) in August 2025, taking the segment’s cumulative growth for the first five months of FY26 to 11.7% YoY. Retail volumes also rose 30.1% YoY in August, supported by good rainfall and positive farmer sentiment.
“The early onset of monsoon has led to the country receiving rainfall at 108% of the long-period average until September 17, 2025,” the rating agency noted.
ICRA also said tractor original equipment manufacturers continue to maintain strong credit profiles, supported by expected volume growth, operating leverage, and stable input costs.
Two-wheeler industry to see 6-9% growth
ICRA said that the new GST rate, which is likely to improve affordability and boost demand during the festive season, will help the two-wheeler market recover as well.
The rating agency highlighted that the two-wheeler market is already showing signs of recovery and projected domestic two-wheeler volumes to grow 6-9% YoY in FY2026, supported by steady replacement demand, an urban demand revival, and healthy rural incomes.
Domestic wholesale volumes of two-wheeler grew 7.2% YoY in August 2025 to 1.8 million units, as manufacturers built up inventory ahead of the festive season. Retail sales, however, inched up only 2.2% YoY, impacted by excess rains and purchase deferments linked to the GST cut.
Monthly export volumes also rose 27.5% YoY in August. Electric two-wheeler sales stood at 1,04,725 units in the same month, showing modest sequential growth of 1.8%. The segment’s penetration remains in the 6-7% range.