Sales of passenger vehicles and two-wheelers in India are expected to continue to grow in high single digits in the near term, riding on low ownership cost supported by good monsoons and higher public-sector wages, according to ratings agency Fitch.
Research and development spending of automobile manufacturers are, however, expected to remain high as they focus on new models complying with stricter BS-VI emission, it added.
"Auto sales in India stabilised quickly after the government demonetised large denomination notes in November 2016," Fitch said in its 2018 outlook of Asia Pacific automotive manufacturers and suppliers.
Commenting on the road ahead for India, the agency said it expected "passenger vehicle and two wheeler sales to continue to grow in high single digits in the near term, benefiting from sustained low cost of ownership and healthy rural spending, which is supported by good monsoons and higher public-sector wages".
On the commercial vehicles front, it said sales of medium and heavy commercial vehicles (MHCV) grew 20 per cent year-on-year in the quarter to September 2017 after declining in 2016.
Commercial vehicle (CV) sales are expected to benefit from the government's infrastructure spending and more- efficient interstate movement of goods after the GST came into effect, it said.
For component suppliers, it said they would benefit from growth in India and key overseas markets, including the CV market in the US, which showed signs of recovery in 2017.
With India set to adopt BS-VI emission norms by 2020, Firth said it expected automakers' R&D spending to remain high as they focus on new models.
"India's adoption of stricter emission standards by April 2020 will require R&D spending and capex to recalibrate automakers' and component suppliers' platforms," it said.
Leading automakers intend to invest in electric vehicles (EVS) after the government took steps to promote the switch to EVs over the long term, the rating agency said.
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