Global financial services firm Nomura said the demand for affordable small vehicles in India is expected to witness a recovery in 2025. However, the major markets such as the US and Japan are still struggling to meet the demand.
Nomura lowered its financial year 2025 third-quarter estimate for India’s passenger vehicle (PV) industry to 1% year on year, which was 4% earlier. It maintained its estimate at 6% YoY for FY26/3F.
It said the mix continues to improve as SUVs and premium models drive Average Selling Price (ASP) growth.
The share of CNG variants has also witnessed continuous growth in the country, and the electric vehicles (EVs) acceptance has been modest so far; however, a strong new launch pipeline can drive penetration in FY26/3E.
“As pent-up demand fades away, a tepid new launch pipeline and subdued small car demand have impacted near-term momentum. This is despite the discount push and ad spending by OEMs. We expect a gradual improvement in FY26/3E on a low base,” the report added.
Nomura, in its report, said the rural demand seems to be picking up and should benefit two-wheelers (2Ws), especially given a low base. Hence, we raise our growth estimates to 12% y-y for FY25/3E (10 percent y-y earlier) and maintain 10% y-y for FY26/3E.
On the small vehicles, Nomura said weakness in small car demand, normalisation of pent-up demand, and a weak new launch pipeline have impacted volumes.
Lowering the volume growth estimate to 1% for FY25/3E, the firm added that despite the strong discount push by various OEMs, inventory levels remain elevated.
For the two-wheelers, it raised its industry growth outlook to 12% and added that factors such as rural recovery on good crop outlook, a slew of launches in ICE, and affordable models in EV continue to support the demand.