Commenting on the recovery, Icra senior vice president and group head-corporate sector ratings Subrata Ray said that with the impact of demonetisation wearing off and both major product segments gradually reporting an uptick in their growth rates, the new fiscal year has started off on with a growth of 7.3 per cent in April 2017.
"Among the various two-wheeler product segments, both scooters and motorcycles were significantly impacted by the demonetisation exercise, while mopeds continued to report growth on their low base," he added.
On the outlook, Icra said as the demonetisation impact wanes off and overall demand recovers, the domestic two-wheeler volumes is expected to grow by 8-10 per cent during FY18.
It further said pent up demand consequent to the deferment of purchases during the third and fourth quarter of FY17 augur well for demand revival on the rural front.
Urban sentiments are expected to draw support from staggered pay revision for state government employees and pensioners as well as muted CPI inflation, it said.
Expected improved demand from rural segment is on the basis of improved farm sentiments following two seasons of good crop, forecasts of normal monsoons and benefits from rural employment guarantee schemes trickling in, Icra added.
"The industry witnessed a de-growth in both the key product segments - motorcycles and scooters during the last five months (Nov-Mar 2017) of the (last) fiscal," it said.
In contrast, Icra said the industry had posted a strong double-digit growth across all the product segments between April and October 2016.
"On an annual basis, this has led to the slowing down of growth in the domestic two-wheeler industry to a relatively modest 6.9 per cent during FY17," it added.