Cautious lending slows two-wheeler demand but passenger vehicles steady: Analyst

The Indian automotive sector is under pressure, with vehicle registrations dropping 15% in March. The decline is sharper in the two-wheeler segment, driven mainly by tighter financing conditions.

Kumar Rakesh, India Auto and IT Analyst at BNP Paribas, said rising delinquencies have increased credit costs for lenders, making them more cautious. This shift disproportionately impacts rural buyers who rely heavily on accessible credit.

“We have seen almost a 20-30% increase in financing penetration in a short period, and now the industry is readjusting,” he said.
While two-wheelers continue to struggle, the passenger vehicle (PV) segment is showing signs of stability. The market went through a “perfect storm” in 2023-24 (FY24) as pent-up demand faded and affordability declined.

However, these challenges are now easing. “Affordability, which we track monthly, has started stabilising over the past year,” Rakesh said, indicating that PV sales could recover in 2025-26 (FY26).

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Rural demand trends show a stark contrast. Tractor sales are booming, while two-wheeler demand remains weak. Tractor buyers benefit from strong farm income growth, whereas two-wheeler customers are more diverse and include non-farm workers who face economic pressures.

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Rakesh prefers passenger vehicle manufacturers over two-wheeler companies. His top recommendations include Maruti Suzuki, which is anticipated to benefit from hybrid vehicle launches in the second half of FY26; Mahindra and Mahindra, which is experiencing strong growth in both sports utility vehicles (SUVs) and tractors, with potential for margin expansion; and Ashok Leyland, which is well-positioned for a cyclical recovery as freight activity shows improvement.

For the entire interview, watch the accompanying video