The rating agency ICRA projects a 4'7% drop in wholesale volumes for the Indian commercial vehicle (CV) market in FY25. The predicted recession comes after a period of restrained growth and a number of contributing variables, including the large base effect from prior fiscal years and a slowdown in economic activity because of the 2024 general elections. The first few months of FY25 are probably going to be impacted by infrastructure projects, which will further impair CV demand.The industry suffered a modest 0.7% year-over-year fall in wholesale volumes in February 2024, although it managed a 5.1% sequential rise. This inconsistent performance was ascribed to larger base effects and decreased building activity prior to the General Elections Model Code of Conduct's introduction. On the other hand, retail volumes decreased sequentially by 0.9% but increased by 4.8% year over year.Kinjal Shah, Vice President and Co-Group Head of Corporate Ratings at ICRA, stated that the significant growth in volumes and tonnage during FY22 and FY23 established a high base. This, combined with the economic slowdown preceding the general elections, is anticipated to contribute to the projected decline in FY25. Despite a 2.1% year-on-year growth in domestic CV wholesale volumes during the first 11 months of FY24, a slowdown in construction activities towards the end of the financial year counteracted initial gains.The medium and heavy commercial vehicles (M&HCV) segment is forecast to experience a decline of 4?7% in FY25. This segment concluded FY24 with 4% year-on-year growth, primarily influenced by an improved macroeconomic environment and increased freight availability earlier in the financial year. However, subdued demand in subsequent months led to an overall decline.Similarly, the light commercial vehicles (LCV) segment is expected to undergo a downturn, with an estimated decline of 5-8% in FY25. Factors contributing to this decline include the high base effect, a sustained slowdown in e-commerce, and competition from electric three-wheelers (e3Ws). The LCV segment witnessed a 3% year-on-year decline in FY24 due to these challenges, compounded by a deficiency in rainfall impacting the rural economy.Conversely, the bus segment is predicted to grow by 2-5% in FY25, driven by replacement demand from state road transport undertakings (SRTUs) and the scrappage of older government vehicles. This segment surpassed pre-COVID levels in FY24, recording a notable 27% year-on-year growth, supported by low base effects and increasing adoption of electric buses.According to the Federation of Automobile Dealers Association (FADA), commercial vehicle original equipment manufacturer (OEM) sales in April 2024 totaled 90,707 units, compared to 88,663 units in April 2023, reflecting a 2.3% increase.Additionally, ICRA projects a slight drop in domestic CV manufacturers' operating profit margins (OPM) to 8.5?9.5% in FY25. Lower volumes and more pricing pressure from competitors are to blame for this. Thanks to favourable commodity prices and record-high industrial volumes, the OPM increased by 250?300 basis points in FY24.The sector is expected to have more investment in the future; capital expenditures are expected to climb from Rs 37 billion in FY24 to around Rs 59 billion in FY25. Product development, technological advancements, and capital expenses linked to maintenance will be the key targets of these investments.Although the domestic CV industry's near-term outlook seems difficult, the long-term growth drivers are still strong. These include ongoing infrastructure development, a rise in mining operations, and enhanced connections between roads and highways. The replacement demand, especially because of an ageing fleet, is likely to underpin CV volumes in the medium term, although the predicted fall is in FY25.