India's two-wheeler market is heading towards another year of growth, but that growth has been increasingly uneven.

Premium motorcycles, electric vehicles (EVs) and scooters are driving demand, while a portion of entry-level buyers are delaying purchases amid pressure on household cash flows and uncertain farm incomes.

The industry is expected to grow in FY27, although a high base from last year's GST-driven sales surge is likely to slow the pace in the second half. Weakness at the entry-level end, where buyers are more sensitive to income and financing conditions, remains a worry.

For now, dealers report healthy demand and comfortable inventory levels.

With the Dhanteras-to-Diwali window just ahead, manufacturers will be watching entry-level demand, which has lagged the premium end. El Niño’s possible impact on exports is a further risk to watch.

High Base Will Slow Growth

The ongoing fiscal year is expected to end with positive growth for the overall two-wheeler industry when compared to last year. However, the second half is likely to be slower than the same period in FY26.

“FY27 will end in positive territory, probably marking a higher single-digit or early double-digit growth,” Sai Giridhar, president of the Federation of Automobile Dealers Associations (FADA), told The Core.

The industry recorded retail sales of 21.4 million two-wheelers in FY26, up 13% year-on-year. But last year's second-half sales were unusually strong after the GST rate cuts took effect on September 22, bringing back buyers who had postponed purchases.

Hero MotoCorp, India’s largest two-wheeler maker by volume, expects industry growth to ease to mid-to-high single digits in the second half of FY27.

For the October-December quarter, TVS Motor expects single-digit growth in conventional two-wheelers, while Bajaj Auto expects double-digit growth to continue, but at a slower pace.

The moderation, therefore, does not necessarily signal a deterioration in demand but reflects the difficulty of matching last year's GST-driven surge.

Premium Demand Does The Heavy Lifting

The growth has mostly been concentrated in electric scooters and premium motorcycles with engine capacity of 150cc and above.

During Navratri 2026, electric two-wheelers recorded retail sales of 75,758 units, up 33.4% from 56,787 units a year earlier. TVS Motor, the segment's market leader, expects EVs to maintain their stronger growth momentum.

"Premiumisation is continuing, with demand for higher-capacity models still growing," Anurag Singh, managing director at Primus Partners, told The Core.

Premium motorcycles are also outperforming the mass market. Data from the Society of Indian Automobile Manufacturers (SIAM) shows domestic dispatches in the 150-350cc category rose 29% year-on-year to 1.65 million units in the first half of FY27, compared to 1.28 million in the same period of last year.

Financing conditions are also supporting demand.

Non-banking finance companies (NBFCs) are holding back from passing on the recent rate hike to customers, at least until the festive season ends, Giridhar said, adding that the 25 basis point increase should not outweigh the positive demand momentum.

The Reserve Bank of India’s (RBI) Monetary Policy Committee voted unanimously to raise the repo rate by 25 basis points to 5.50% earlier this month, its first hike in nearly four years.

Dealers are currently holding inventory of about 20-30 days, which he described as "comfortable."

Entry-Level Buyers Aren’t Keeping Up

While demand is skewed towards premium models, entry-level buyers, who depend on regular cash flows, have been postponing purchases, Bajaj Auto's joint managing director Rakesh Sharma said, during the company's earning conference call last week.

SIAM data also shows that against a 29% year-on-year growth in premium motorcycles, the entry-level commuter category with engine capacity typically ranging from 100cc and 125cc has marked roughly 5% growth. These are high mileage and low maintenance motorcycles, typically having a starting price of Rs 80,000.

Sharma pointed to difficult conditions due to weak monsoon rains in parts of Maharashtra, southern India and the Northeast, where weaker farm incomes could hit customers who rely on regular cash flows to meet household expenses.

"And this might play out actually more in quarter four, when the harvests are supposed to happen," he said.

Sharma added that the weakness reflects a K-shaped market, with higher-income buyers spending on pricier products while price-sensitive customers hold off.

However, Singh of Primus Partners said that the deficit is unlikely to hurt two-wheeler demand significantly this fiscal year as the shortfall is uneven across states. “This can be largely compensated by states with better monsoon and higher two-wheeler penetration.”

He further added that lower crop output also does not automatically mean lower farm incomes. “If the produce is less and demand is more, prices of the product also tend to go up, so rural incomes are not just dependent on crop yields.”

Giridhar also noted that rural incomes were no longer dependent solely on agriculture, pointing to employment in transportation, warehousing and other non-farm businesses.

Exports Carry Risk

Domestic demand is expected to remain supportive, but export markets present another potential risk, particularly if El Niño-related weather disruptions affect incomes in key markets.

“Manufacturers with significant shipments to countries affected by the weather phenomenon could be hit as disruptions weigh on incomes and demand in those markets,” Singh said.

Weather disruptions such as droughts, excessive rainfall and heatwaves in parts of Africa, Latin America and Southeast Asia, which are key markets for two-wheeler exports, could squeeze agricultural incomes and purchasing power. That could weigh on motorcycle demand there, though the extent of impact is uncertain.

This is crucial because exports have been a bright spot for most two-wheeler manufacturers, with TVS Motor and Bajaj Auto accounting for most of it.

Bajaj’s profits rose 62% year-on-year in the July-September quarter, as strong export growth and a favourable exchange rate helped it absorb rising commodity and logistics costs. Exports contribute 40% to its revenue. For TVS Motor, export sales account for about 24% of total turnover.

Neither company has specifically flagged El Niño as a risk so far, but their export exposure makes it a potential one to watch.

For now, the festive season looks set to hold up, as the dealers are well stocked, financiers are holding off on passing the rate hike, and EVs, scooters, and premium motorcycle models are carrying the momentum.

Beyond it, the sector is still expected to grow, but a high base, impact of a patchy monsoon and possible export headwinds from El Niño could keep that growth in check.