India Ratings and Research (Ind-Ra) has revised its outlook for the Indian auto sector to negative for the 2020-21 fiscal year from stable-negative, amid expectations of weak sales and macro-economic headwinds, leading to weaker consumer sentiments.
Ind-Ra maintained that sector-specific factors like the uncertain regulatory environment, limited credit availability and increased cost of ownership following implementation of emission standards for automobiles would add to negative consumer sentiments.
According to the research and rating agency, Indian auto sector growth will range from flat to low single-digit growth in total domestic sales during FY 2020-21. Ind-Ra has forecast passenger car sales to grow by 2-4 percent during FY 2020-21 on year-on-year basis and commercial vehicle sales to decline by 5-7 percent. Two-wheeler sales will decline by a range of 0-5 percent on year-on-year basis.
As consumers will take some time to accept the increased pricing [after the adoption of BS-VI from April 1, 2020], Ind-Ra believes sales in the first quarter of FY 2020-21 will be minuscule, especially in commercial vehicles. Demand is likely to pick up from the start of the festive season in the FY 2020-21, the ratings agency said in its report.
Revenue growth and margins of auto companies will be subdued and companies will continue to incur capital expenditure in view of ongoing regulatory changes, the development of electric vehicles and continued new product launches.
In the current fiscal year, auto sales are expected to fall by 12-15 percent year on year, according to Ind-Ra.