India's Commercial Vehicle Sector Entering Next Upcycle: Nomura

India's commercial vehicle industry is entering the early stages of a cyclical recovery, driven by improving fundamentals and supportive structural factors, according to a recent research report by Nomura.

The global brokerage firm said the commercial vehicle sector appears poised for an upcycle after several years of muted growth, with volumes expected to pick up over the next two to three years.

The India Medium and Heavy Commercial Vehicles (M&HCV) industry appears to be entering the next upcycle, and Nomura estimates volumes to grow 8-10 per cent year-on-year in 2025-26-2026-27 after a period of modest growth.

Rising freight rates, lower GST-led affordability, a high average age of trucks are likely to drive replacement demand in the next years - 2026-27-2027-28.

Also Read: Union Budget Likely To See Continuity in Centre's Capex Push: Report

Nomura highlighted a visible improvement in fleet operator economics as a key driver of the recovery.

"Our analysis shows a clear improvement in fleet operator economics driven by lower GST cuts and better freight rates, leading to higher profitability. We have been positive on the sector given the strong potential of a CV upcycle and improving demand visibility," the Nomura report read.
According to its analysis, freight rates have firmed while operating costs have remained relatively stable, leading to higher profitability across the logistics ecosystem.

The brokerage noted that despite only modest growth in revenues, operators' profits after financing costs have improved sharply, strengthening cash flows and balance sheets.

Tax-related policy changes have further supported demand, Nomura said. Recent reductions in GST taxes have lowered truck acquisition costs, improving affordability and reducing monthly repayment burdens.

Nomura estimated that these changes have structurally improved return profiles for fleet owners, particularly in medium- and heavy-duty segments, encouraging a gradual revival in purchase decisions.

Another important factor cited by Nomura is the ageing vehicle fleet. The brokerage estimated that the average age of trucks on Indian roads is now close to a decade, well above historical replacement norms. This, Nomura said, creates a strong base for replacement-led demand over the medium term, especially as maintenance costs rise and efficiency declines in older vehicles.

Regulatory developments are also expected to influence buying patterns. Nomura pointed to upcoming safety and braking regulations scheduled to be implemented over the next few years, which are likely to raise vehicle prices. As a result, the brokerage expects pre-buying activity ahead of regulatory deadlines, potentially boosting volumes in the run-up to implementation.

Export demand is also gradually improving, it added. “An uptick in infra spending, healthier demand indicators across segments, and new model launches across powertrains further strengthen the near-term outlook. LCV demand has already picked up well post the GST cuts, and exports are gradually improving, thereby providing additional tailwinds.”