Ind-Ra revises outlook of auto sector to improving for FY22 from negative

India Ratings and Research (Ind-Ra) on Friday revised the outlook for the auto sector to 'improving for financial year 2022' from negative, backed by likely revival across segments, positive consumer sentiments amid macroeconomic tailwinds after recovering from the COVID-19 pandemic.

The rating agency said it expects auto volumes to rebound at 16-20 per cent year-on-year (y-o-y) in 2021-22 after recording an estimated decline of 14-18 per cent YoY in financial year 2021.

Passenger vehicles (PVs), two-wheelers (2Ws) and commercial vehicles (CVs) could record a decline of 5-8 per cent, 13-16 per cent and 30-35 per cent YoY, respectively in financial year 2021, Ind-Ra said in a statement.

For the PV and 2Ws segment, the continued preference for personal mobility and demand across the urban and rural markets would be positive, with an estimated growth of 18-22 per cent and 16-20, respectively, in financial year 2022, it added.

"The lower growth in 2Ws than PVs could be because of their increased cost of ownership," it said.

The CV segment could record high double-digit growth in financial year 2022 of 25-30 per cent aided by an uptick in industrial production, increased infrastructure/construction activities and a low base owing to the slowdown over financial year 2020-21, the rating agency added.

"Nevertheless, the monthly sales in the CV segment are likely to achieve FY19 levels only by the second half of FY22," it said, adding it expects limited rating movements in the sector in financial year 2022 and has thus maintained a stable rating outlook.

Ind-Ra said though the details of the proposed vehicle scrappage policy are yet to be announced, it could be helpful in creating incremental demand if incentives are attractive for consumers.

"Rising fuel prices and original equipment manufacturers mulling for another price hike amid increasing input costs could act as possible headwinds for the sector," it added.