BackIndia seen as driver for global auto demand
Bullishness on passenger vehicle growth stems from the positive outcome expected from the Seventh Pay Commission
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After five years of weak demand until fiscal 2016, the Indian passenger vehicle (PV) industry is poised for double-digit growth in the forthcoming years. A Nomura Research report released on 4 June adds that with this growth, India will feature as a major growth driver of global auto demand, along with the US, Europe and China, at least over the next three years. This is good news for India, especially considering forecasts that other emerging markets are likely to struggle for some more time.
The report charts out an annual growth of 12.1%, 14.8% and 14.8% for fiscal 2017, 2018 and 2019. Bullishness on PV growth stems from the positive outcome expected from the Seventh Pay Commission. Data shows that PV market leader Maruti Suzuki India Ltd (MSIL)’s sales to government employees rose from 4% to 14% in three years after the Sixth Pay Commission was implemented in fiscal 2009. This time around, it coincides with economic and industrial recovery and also release of pent-up demand. Note that for the last five years, in spite of market penetration of cars being very low in India, sales growth was nearly flat.
Brokerages concede that utility vehicles, especially those in the compact segment, and petrol vehicles will drive PV growth (see chart). According to ICRA Ltd, going by the 101% year-on-year growth in the UV segment in April 2016, on a low base and, since most launches in the compact UV segment happened in the second half of fiscal 2016, the forthcoming months are likely to witness robust UV sales. Besides, affordability and convenience skew sales in favour of compact UVs.
Strangely, two-wheeler sales, which have been hogging the spotlight in the last few years, in spite of bad monsoons and economic slowdown, are expected to simmer down to between 10 and 13% during the period under consideration. Weak domestic sales of motorcycles and poor demand in export markets due to the dip in crude oil price will hurt growth rates.
The Nomura report expects UVs to be preferred even in developed markets like the US. Europe is likely to post stable growth, whereas China’s growth rate in auto may be U-shaped. Emerging markets like Thailand and Indonesia would see some challenges before a gradual recovery.
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