Auto sector growth to be cautiously optimistic

The financial crunch led by pressure on the Non-Banking Finance Sector (NBFC) is almost over and soft interest rates and benign fuel prices will bring back 8-10 per cent growth in FY20, According to the conclave by the Society of Indian Automobile Manufacturers’ (SIAM).

For FY21, however, their view is unequivocally for a temporary drop in volume forced by an 8-10 per cent increase in prices across market segments due to the BSVI roll out. The catalyst could be tax cuts and/or a practical scrappage policy by the Government. Macro indicators back demand recovery in FY20 SIAM/CRISIL forecast 12-14 per cent% growth for trucks and 8-10% for cars/ two-wheelers for FY20. The demand for trucks will remain robust in FY19/20 and should be the least affected by the NBFC meltdown and liquidity issues. A normal monsoon is another assumption for the recovery in automotive demand according to CRISIL.

BSVI may hit FY21 sales volume and earnings

Automakers confirmed that the implementation of BSVI emission norms would be an unprecedented challenge and might dent volume and earnings for FY21. This is because they would get less than a year to test all the product platforms, vehicles, vendors and components. The industry would practically stop manufacturing BSIV products from December 2019 to make sure inventories are exhausted in 4Q. The other challenge would be the availability of BSVI fuel in time. And lastly, it would be difficult to convince the buyers to pay an additional 8-10 per cent price increase for complying with new emission norms.