Improvement in customer sentiment and new model launches will push up car sales growth to up to 7 per cent in FY16 and further to 8-10 per cent the year after, rating agency ICRA said today.
"We expect growth momentum in domestic passenger vehicle industry to accelerate with 5-7 per cent in FY16 and 8-10 per cent growth thereafter," it said in a note.
The expansion will be largely driven by an improvement in customer sentiment, which is correcting on lower cost of ownership because of fuel price corrections, and also the new launches which are in the pipeline, it said.
A sizeable chunk of the car sales is contributed by the first time buyers (FTB), whose purchase decision rests on the operating costs and macroeconomic factors.
The number of FTBs declined to 37 per cent in 2014, which witnessed a spurt in fuel prices and also headwinds on the macroeconomic front, from a high of 50 per cent in 2012, the rating outfit maintained.
"Over the last one year, gradual decline in fuel prices (especially petrol), easing financing norms and overall improved customer sentiment have helped in return of FTBs (in car market) in the current fiscal."
The small car segment, the FTBs` favourite, will witness improved volume traction, it said.
The used car market has been a beneficiary of the declining interest in new car market, it said, adding other factors like entry of organised players, increasing awareness and financing option have also helped.
"ICRA expects Indian used car market to outpace domestic new car sales growth in the near to medium term."