Road ahead for automobiles sector is full of speed bumps; here’s why future looks bleak

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Published: February 18, 2019 6:00:33 PM

The automobiles sector, which has emerged as one of the important sectors of the Indian economy, continued to post sluggish sales in January 2019 due to high interest rates, price hikes and weak consumer sentiments, CARE Ratings said in the report.

Automobiles sector will continue to move in the slow lane for some time with sluggish sales here to stay, as even the demand for commercial vehicles gets limited, on top of the ongoing difficult times for passenger vehicles and two & three wheelers, a research report said.

The automobiles sector, which has emerged as one of the important sectors of the Indian economy, continued to post sluggish sales in January 2019 due to high interest rates, price hikes and weak consumer sentiments, CARE Ratings said in the report.

The sector accounts for 7% of India’s GDP and 45% of manufacturing GDP, and employs about 19 million people both directly and indirectly. The government’s Automotive Mission Plan (AMP) 2016-26 envisions the industry to grow around four times by FY26 with approximately 10 per cent CAGR for vehicle sales volumes.

The auto industry sales in January 2019 fell by about 3.9 per cent on-year, compared with a strong double-digit growth of over 31 per cent registered a year ago, CARE Ratings report said. The sales fell largely on account of dip in sales of passenger vehicles by 4.4 per cent on-year and of two & three wheelers segment by 4 per cent on-year, the report said.

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The demand for commercial vehicles has seen a significant growth from April 2018 to January 2019 period, due to pick up in construction and mining activities and increased inter-state movement of goods, with the streamlining of e-commerce and FMCG post GST implementation. However, with most of the demand already being met, the additional demand here could be limited going forward, CARE report said.

Among other hurdles before the automobiles sector, CARE Ratings has pointed out to possible unavailability of auto components and higher grade fuel required for complying to Bharat Stage (BS-VI) norms by 2020.

Also, slowdown in credit financing due to ongoing liquidity crisis at Non-Banking Financial Corporations (NBFCs) is expected to keep disbursement to the automobile sector subdued. On the other hand, the recent rate cut by the central bank of India may help push the auto demand, noted the report.

CARE Ratings expects the sales of passenger vehicles to grow by 6-8% in the current financial year 2018-19, commercial vehicles by 25-30%, two & three wheeler by 15-17%, and tractors by 15-17%.

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