Fitch expects the demand in auto sector to recover with normalisation of economic activity
A less severe economic impact from the pandemic’s second wave and resilient buyer sentiment will support a swift rebound in India’s automotive demand after curbs are eased, according to Fitch Ratings. This should drive double-digit growth across most segments in the financial year ending March 2022 (FY22) from a low base. Sales volume is expected to remain below the peak in FY19.
“We believe less stringent curbs and lower business disruption will limit the economic fallout compared with last year. The drop in auto sales volume in 1Q FY22 from 4Q FY21 will be slower than the decline of more than 70 per cent in 1Q FY21,” said Fitch.
Buyers are more optimistic due to improved visibility on a longer-term economic recovery and reversal of pay cuts as corporate spending normalises from 2020.
Fitch said agricultural fundamentals remain firm, notwithstanding the higher infection rate in the second wave in rural India compared with last year. This should also increase financing availability, notwithstanding lenders’ caution.
“We expect the impact from the higher cost of ownership due to rising fuel prices and price hikes to be limited, except in the more vulnerable categories such as two-wheelers. Indian automakers’ margins will improve in FY22 on favourable operating leverage, while price increases will offset higher input prices.”
Fitch said the global semiconductor shortage will have a limited incremental impact on Indian automakers as the timing of its worst effects during 1Q FY22 coincides with weak demand. The policy to encourage scrapping of older vehicles is unlikely to spur meaningful replacement demand, it added.
But further infection waves may delay the expected recovery in automotive sales. However, the drop in new infections in May limits the possibility of more stringent or prolonged lockdowns for now.
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