Although additional pressure on credit profiles could happen due to higher capital expenditure during the year, the outlook for the Indian auto sector is expected to be stable to negative during the current fiscal. The low growth environment will continue through the remainder of the current fiscal and part of next fiscal with a subsequent recovery from mid- 2008-09 , said Fitch Ratings in its Indian auto related special report.
The Indian auto sector had one of the longest and strongest positive market cycles in its history between fiscal 2003 and fiscal 2007, achieving a compounded annual growth rate (CAGR) of 18% for cars and 26% for commercial vehicles. However, the growth rate during the current fiscal slowed markedly due to various factors such as inherent cyclicality of the industry, high base effect, tighter liquidity and higher interest rates. The same is expected to continue for a few months, the report pointed out.
Fitch expects the passenger car market to exhibit slower growth over the remainder of fiscal 2008 but will grow with the number of new launches scheduled later in the year. A surprise factor may arise from the greater than anticipated export sales. The agency predicts that the passenger car industry will grow at around 10% to 12% over the medium term due to expected credit availability, soft discounts and new launches. In the passenger car segment, Fitch expects the compact and the lower-end of mid-sized segments to achieve stronger growth.