India's passenger vehicle volume to scale fresh high in FY26, utility cars to lead

A Crisil Ratings report said that this marks the fourth consecutive year of record sales, although momentum has significantly eased from the 25 per cent surge in fiscal 2023 after the pandemic.

According to the report, utility vehicles (UVs) will drive volume growth this fiscal, aided by new launches, easing interest rates, rising compressed natural gas (CNG) adoption and rural tailwinds.

"PV growth will moderate to 2-4 per cent this fiscal, but UVs will continue to cruise with 10 per cent growth, supported by new launches. With UVs contributing 68-70 per cent of volumes and bulk of upcoming models, the shift toward premiumisation is structural," said Anuj Sethi, Senior Director, Crisil Ratings.

Rural recovery, expected from likely above-normal monsoon and reduction in interest rates, should improve demand for entry-level cars, he added.

Healthy cash flows and robust cash surplus will enable original equipment manufacturers (OEMs) to fund their high capex comfortably, while keeping their balance sheets strong and credit profiles stable.

The domestic market accounted for 85 per cent of total volume last fiscal, with exports accounting for the rest.

Fuel mix is also evolving rapidly. CNG-powered PVs are gathering pace, with their share likely reaching 15 per cent this fiscal owing to low running costs and a fast-expanding network of 7,000+ refuelling stations.

"OEMs can pivot to alternative markets such as Mexico, the Gulf countries, South Africa, and east Asia though ongoing geopolitical tensions could weigh on exports' momentum," the report suggested.

"PV capex is expected to stay elevated at Rs 30,000 crore this fiscal as OEMs ramp up capacity, accelerate EV investments, and push localisation and digital upgrades. However, this high capex remains sustainable, backed by strong internal accruals and cash surplus, with capex-to-Ebitda steady at 0.5x," said Poonam Upadhyay, Director, Crisil Ratings.

The entry of global premium EV models, including Tesla would intensify competition in the premium segment, which accounts for less than 10 per cent of the overall volume, and will likely reset consumer expectations across categories, pushing Indian OEMs to accelerate technology upgrades. That said, the current high tariffs will limit imports.