ICRA Cuts FY26 Passenger Vehicle Growth Outlook to 1–4% Amid Supply Shortages, Inventory Woes

New Delhi, June 26 — Investment Information and Credit Rating Agency ICRA has sharply revised down its forecast for domestic passenger vehicle (PV) wholesale volume growth in FY26, now expecting a modest 1–4% increase, compared to its earlier estimate of 4–7%.

In its latest industry update released Thursday, ICRA stated, “The downward revision is led by concerns regarding high inventory levels and supply shortage of critical components such as rare earth magnets, induced production constraints, especially for electric vehicles.”

Despite the challenges, continued model launches by original equipment manufacturers (OEMs) are expected to lend partial support to overall industry volumes during the fiscal year.

May Retail Sales Reflect Demand Weakness

The downgrade in outlook is coupled with indications that consumer sentiment has declined. According to ICRA, in May 2025, domestic PV retail sales fell 13.6% month-on-month to 3,02,214 units from 3,49,939 units in April. This decline is attributed to weak demand stemming from geopolitical tensions in northern India, which are a result of the India-Pakistan conflict.

Despite ongoing discounts from manufacturers, demand for passenger vehicles faltered, lending credence to concerns about a decline in consumer interest.

Two-Wheeler Segment Outperforms with Rural Support

In contrast, the two-wheeler segment exhibited resilience. Retail volumes in the segment increased by 7% YoY, supported by strong rural demand in addition to a favourable harvest season.

Looking ahead, ICRA has more optimistic expectations for momentum to be picked up in the two-wheeler sector in FY26, with a forecasted 6-9% increase in wholesale volumes. Demand stability is ensured through replacement, an increase in urban markets, and healthy rural income, assuming a normal monsoon.

As the auto industry navigates a challenging combination of supply chain bottlenecks and shifting consumer preferences, FY26 appears to be a difficult year for passenger vehicle manufacturers but more favourable for two-wheeler manufacturers.

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