The Indian medium and heavy commercial vehicle (M&HCV) sector is set for considerable growth, with projections showing an 8% year-on-year increase in volumes for FY26 and a further 10% in FY27. A recent report by Nomura indicates that improving industry fundamentals, such as rising freight rates and a high average age of trucks, will drive demand for vehicle replacements. This optimistic outlook suggests the industry is entering a new upcycle, with fleet operators benefiting from enhanced profitability and cash flow, which supports new vehicle purchases.
Industry Growth Projections
According to Nomura’s report, the M&HCV industry is on the brink of a robust upcycle, anticipating growth of 8% in FY26 and 10% in FY27. This follows a period of moderate growth, signaling a shift in market dynamics. The report attributes this anticipated growth to several key factors, including rising freight rates and improved affordability due to lower Goods and Services Tax (GST) rates. Furthermore, the average age of trucks in India, approximately 10 years, creates a pressing need for replacements. As fleet operators aim to modernize their vehicles, demand for new M&HCVs is poised to rise significantly, particularly in FY27-28.
Improving Fleet Economics
The analysis reveals a significant improvement in fleet operator profitability, primarily due to better freight rates and cost efficiencies linked to GST. Consequently, fleet operators are experiencing stronger cash flows, enhancing their capacity to invest in new vehicles. This trend is vital for the industry’s recovery, as increased profitability encourages operators to update aging fleets with newer models. The report stresses that while the current phase marks the early stages of a commercial vehicle upcycle, strong potential for a cyclical upturn remains, supported by improving demand visibility.
Impact of the Dedicated Freight Corridor
Nomura’s report also addresses concerns regarding the impact of the Dedicated Freight Corridor (DFC) on commercial vehicle demand. While the Eastern and Western DFCs near full operational capacity, the report suggests that demand risks from the DFC are limited. Non-bulk cargo, which makes up nearly 30% of total freight, continues to depend heavily on road transport. Given the diverse freight base served by commercial vehicles, the report does not anticipate a significant reduction in overall truck demand. However, it notes that certain sub-segments, such as tractor-trailers, may experience some normalization after a notable increase in their market share in recent years.
Structural Drivers of Recovery
The report highlights several structural drivers positioned to sustain recovery in the Indian M&HCV industry over the coming years. Essential factors include ongoing replacement demand, improving fleet economics, and favorable macroeconomic conditions. As the industry progresses through the early stages of the upcycle, the potential for accelerated growth hinges on broader economic improvements, including increased consumption and lower interest rates. Overall, Nomura maintains a positive outlook for the commercial vehicle sector, emphasizing its strong growth potential in the near future.
Digihunt is not a financial advisor and this is not investment advice.