New Delhi

The Indian medium and heavy commercial vehicle (M&HCV) industry appears to be entering the next upcycle, with volumes expected to grow about 8 per cent year-on-year in FY26 and 10 per cent in FY27, driven by improving fundamentals and rising replacement demand, according to a report by Nomura.

The brokerage said a combination of higher freight rates, improved affordability following the implementation of GST, and an ageing truck fleet — with the average vehicle age estimated at around 10 years — is likely to support demand over the medium term. Replacement demand is expected to strengthen further during FY27-28.

“The M&HCV industry appears to be entering the next upcycle… though we believe this is still at an early stage,” Nomura said.

The report noted that fleet operator economics have improved meaningfully, aided by stronger freight rates and GST-related cost efficiencies. This has translated into better cash flows for operators, supporting higher confidence in new vehicle purchases and driving a gradual recovery in volumes.

Nomura said it remains positive on the commercial vehicle sector, citing improving demand visibility and strong potential for a cyclical upswing. However, it added that industry volumes are yet to surpass the peak levels recorded in FY19, underlining that the current recovery is still nascent.

Growth in FY27 could turn out to be stronger if macroeconomic conditions improve further, supported by higher consumption and a decline in interest rates, the report said.

Addressing concerns over the impact of the Dedicated Freight Corridor (DFC), Nomura said demand risks from rail-led freight movement remain limited. Although the Eastern and Western DFCs are now around 96 per cent operational, non-bulk cargo — which accounts for nearly 30 per cent of total freight — continues to depend largely on road transport.

Given the diversified freight base served by commercial vehicles, the brokerage does not expect any material impact on overall truck demand.

However, it cautioned that some normalisation could occur in specific segments. Tractor-trailers, which compete more directly with bulk rail movement, have seen their share of industry volumes rise sharply from about 9 per cent in FY21 to 22 per cent in FY25.

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Overall, Nomura said structural drivers such as rising replacement demand, improving fleet profitability and supportive macro conditions position the Indian M&HCV industry for a sustained recovery in the coming years.