Domestic auto sales to moderate in FY27; post-GST demand normalisation

India’s domestic automotive sales volume is expected to grow moderately at 5-8% year-on-year in FY27. India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the auto sector for FY27. The domestic auto sales volume growth was 7-10% in FY26, driven by the personal mobility segments, mainly 2-wheelers and passenger vehicles. The country’s auto component industry revenue is forecasted to grow at 8-10% y-o-y in FY27.

The two-wheeler (2W) industry was likely to surpass pre-COVID peaks, but PV growth would remain moderate given the higher base. The ratings agency expects the commercial vehicle (CV) segment to grow on the back of strong infrastructure spending, healthy freight movement and improved fleet utilisation.

“The preponement of replacement demand witnessed after the implementation of GST 2.0 is likely to normalise, especially in 2HFY27. Nevertheless, improved affordability, easing inflation, and enhanced rural liquidity will remain positive for the sector,” Ind-Ra said.

Premiumisation would continue in both PVs and 2Ws as consumers look to upgrade their lifestyle. Electrification continues to pick up at a steady pace. However, the industry’s supply chain will remain vulnerable to ongoing geopolitical tiffs,” says Shruti Saboo, Director, India Ratings & Research.

PV volumes are likely to grow 3-5% y-o-y in FY27 compared to 6-8% in FY26, led by improved affordability post-GST cuts, strong replacement and sports utility vehicle-led premiumisation trends. The 2-W segment growth was expected to be at 6-8%, led by better rural incomes, easier financing and a continued shift toward premium motorcycles and scooters. CV sales volumes growth was expected to be at 6-8%.

Exports are also likely to grow in FY27, as original equipment manufacturers (OEMs) expand into new markets, aided by a revival in traditional export geographies. Ind-Ra believes exports would continue to grow in 4QFY26 and FY27 across the industry segments. Three-wheeler exports grew over 52% in 9MFY26. This was higher than the monthly peaks achieved in FY19, driven by strong replacement demand and increased adoption in Africa and Sri Lanka as cost-effective mobility solutions. 2Ws exports grew over 24% yoy in 9MFY26, although still below the monthly peaks achieved in FY22. Demand rebounded sharply in Africa, Latin America, and the ASEAN region, driven by the economic recovery and easing inflation.

The auto component industry growth was being driven by OEM demand post implementation of GST cuts, thrust on local manufacturing to reduce import dependence, increasing trend of premiumisation and transition to EV, steady aftermarket demand and improvement in exports growth in FY27 with favourable trade agreements, and removal of country-specific differential tariffs from the US.

The domestic auto industry imports around 30% of its total requirement from China, South Korea and Germany, with dependence on some key components. Any geopolitical headwinds or other external factors could impact the supply chain, as witnessed over FY21-FY23, the agency said.

Ind-Ra expects limited rating movements in the sector in FY27 and has thus maintained a Stable rating Outlook. Industry revenue growth was estimated at 7-9% y-o-y in FY27, in line with the volume growth, along with post-GST demand normalisation expected in 2HFY27. Additionally, EBITDA margins are likely to remain flat in FY26-FY27, due to largely stable raw material prices and vehicle prices.