India’s auto demand to recover despite Covid-19 second wave, says Fitch

A less severe economic impact from the pandemic’s second wave and resilient buyer sentiment will support a swift rebound in India’s automotive demand after curbs are eased, Fitch Ratings said, adding that this should drive double-digit growth across most segments in the financial year ending March 2022 (FY22) from a low base.

“We expect sales volume to remain below the peak in FY19. We believe less stringent curbs and lower business disruption will limit the economic fallout compared with last year. The drop in auto sales volume in 1QFY22 from 4QFY21 will be slower than the decline of more than 70% in 1QFY21,” Fitch analysts said.

They said buyers are more optimistic due to improved visibility on a longer-term economic recovery and reversal of pay cuts as corporate spending normalises from 2020.

“Fitch believes agricultural fundamentals remain firm, notwithstanding the higher infection rate in the second wave in rural India compared with last year. This should also increase financing availability, notwithstanding lenders’ caution.”

According to the report, the impact from the higher cost of ownership due to rising fuel prices and price hikes is expected to be limited, except in the more vulnerable categories such as two-wheelers. Indian automakers’ margins will improve in FY22 on favourable operating leverage, while price increases will offset higher input prices.

Further infection waves may delay our expected recovery in automotive sales, the report said, adding that the drop in new infections in May 2021, however, limits the possibility of more stringent or prolonged lockdowns for now.

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