India Ratings revises auto sector outlook to 'neutral' for FY23

Domestic automobile sales volume is expected to grow 5-9 per cent year-on-year in 2022-23, after three consecutive years of decline, and is likely to fall 5-8 per cent in 2021-22: India Ratings

India Ratings and Research (Ind-Ra) on Tuesday revised its outlook for the auto sector to 'neutral' from 'improving' for 2022-23, saying supply-side constraints and a muted rural demand will restrict growth.

Domestic automobile sales volume is expected to grow 5-9 per cent year-on-year in 2022-23, after three consecutive years of decline, and is likely to fall 5-8 per cent in 2021-22, the ratings agency said in a statement.

In the next fiscal year, passenger vehicle volume could grow 5-9 per cent driven by an intermittent improvement in consumer sentiments and continued preference for personal mobility, although supply chain issues could limit the growth. In 2021-22, it is likely to grow 8-12 per cent.

"Semiconductor chip shortages could persist for the next few quarters while improving gradually," Ind-Ra said.

Increased cost of ownership, a slower revival in the purchasing power of lower-end consumers and a muted rural demand could limit two-wheelers growth at 5-8 per cent for next fiscal year, it said, adding in 2021-22 it is expected to decline 10-13 per cent.

As for commercial vehicles(CVs), the ratings agency said volumes are likely to grow 16-22 per cent in 2022-23 as compared to 20-24 per cent in this fiscal year, mainly supported by medium and heavy CVs, aided by an uptick in economic activities and increased infrastructure spending.

Ind-Ra said the ongoing geopolitical tensions amid Russia-Ukraine situation could increase commodity prices, crude oil prices, and exacerbate supply chain issues.

"Furthermore, a slower recovery in rural sales and further price hikes by original equipment manufacturers could act as possible headwinds for the sector," it added.