Nomura lowers PV growth forecast for Q3FY25, upgrades 2W outlook on rural demand revival

Japanese brokerage firm Nomura revised its FY25 third-quarter growth estimate for India’s passenger vehicle (PV) industry to 1% YoY, down from the earlier projection of 4% YoY. The firm maintained its growth estimate at 6% for FY26 third quarter.

Nomura highlighted that after achieving a decent 5% volume CAGR between FY19-24, the PV industry is showing signs of weakness in FY25/3. Factors such as subdued small car demand, the normalisation of pent-up demand, and a lacklustre new launch pipeline have impacted overall volumes. Despite aggressive discounting efforts by OEMs, inventory levels remain elevated, it observed.

Looking ahead to FY26/3E, Nomura expects a gradual recovery in demand. This optimism is supported by a projected improvement in India’s economic growth from 5.4% YoY in 2QFY25 to 5.9% YoY in FY26/3E, according to its economists. As a result, the brokerage retains its 6% YoY volume growth forecast for the industry in FY26/3F.

In terms of market dynamics, the brokerage said that the SUV trend remains dominant, with SUVs comprising 65% of the PV mix in 1HFY25/3, up from 60% in FY24/3. Modern, younger buyers are increasingly favouring premium, feature-rich vehicles over traditional, budget-friendly small cars, which is driving a consistent rise in average selling prices (ASPs), with a CAGR of 9% recorded between FY19-24. 

It said the OEMs are capitalising on this trend by offering additional features such as advanced safety systems, smartphone connectivity, digital technologies, and driver-assistance solutions.

Notably, even sub-4-meter SUVs are being equipped with these premium features, making them appealing to aspirational buyers. Nomura believes that OEMs with a stronger presence in the SUV segment are well-positioned to outpace industry growth. However, Nomura cautions that competitive intensity in the industry is likely to remain high, mirroring global automotive market trends.

Rural revival, affordable EVs propel 2-wheeler demand

While maintaining a weak outlook for the PV segment, the brokerage revised its FY25/3E growth forecast for the two-wheeler (2W) industry upward to 12% YoY, from the earlier estimate of 10% YoY. It attributed this optimism to the industry’s sustained healthy demand across segments.

Key factors driving this demand include a rural recovery fueled by a favourable crop outlook, a wave of new launches in internal combustion engine (ICE) models, and the increasing availability of affordable options in the electric vehicle (EV) segment.

In the electric two-wheeler (E2W) segment, OEMs have launched several mass-market variants recently, complemented by an aggressive push on discounts. These efforts, Nomura believes, have significantly boosted E2W adoption rates.

Additionally, the recently launched PM E-Drive scheme is expected to further support E2W demand. The estimated number of E2Ws to be incentivised under the scheme implies penetration levels of 5% and 7% for FY25/3E and FY26/3E, respectively, which remain below Nomura’s targets of 7% and 9%.

Nomura believes that while the scheme’s outlay may not fully cover all E2Ws, it signals a strategic shift where demand subsidies may no longer be necessary. Instead, factors such as lower GST rates, production-linked incentive (PLI) schemes, and a maturing EV ecosystem are expected to drive further penetration.

The brokerage also highlighted that OEMs are focusing on launching more affordable models, enabled by higher localization levels and declining battery prices. These efforts are expected to support a gradual improvement in adoption trends over the medium term.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.