Mumbai: The Seventh Central Pay Commission bounty, softening interest rates, lower fuel cost and low inflation are expected to drive sales growth in passenger cars and two-wheelers in the financial year 2016-17 after the gradual recovery seen in select segments last year.
However, headwinds from rural India could limit growth as demand is critically dependent on a normal monsoon and tightening safety and auto emission norms, that will have a bearing on the overall trend, said Crisil rating agency in a research report on the auto sector.
On the positive side, the industry will get a further boost from the tailwinds from improving macros and steady replacement demand from large fleet operators that will support sales growth in medium and heavy commercial vehicles. The utility vehicles (UV) segment has seen maximum action in terms of player interest and new model launches
The growth momentum in medium to heavy commercial vehicles will decelerate in fiscal 2017 as regulatory changes advanced demand to fiscal 2016 despite improvement in macro economic parameters.
Amongst the regulatory requirements is the BS-IV that will be applicable in the south and a few states in the west in April 2016 with pan India applicability in April 2017. Also the skipping of the BS-V and adopting BS-VI by April 2020 is expected to increase expenses of the auto companies.
The other factors impacting costs is the reduction in the life of the models and shortening model refreshment cycles impacting costs; R&D spends of leading Indian players now average closer to global players at 4-6 per cent of total revenues,
The report says light commercial vehicles (CV) will gradually revive in the second half of 2016-17 assuming normal monsoon and improvement in financing scenario, the report predicted.
CV sales are expected to rise 10-13 per cent compounded annual growth rate over a low base in 2014-15 on gradual revival in economic growth; there will, however, be increasing competition from railways in the long-term, after the commissioning of the dedicated freight corridors.
The key long term trends to watch out for are: GST implementation, the progress of the freight corridor project, and changes in emission and scrappage norms.
