Ind-Ra maintains stable outlook for auto sector for rest of FY19

Ratings agency Ind-Ra today maintained stable outlook for the automobile sector for the remainder of FY'19.

India Ratings and Research (Ind-Ra) however said an upward trend in interest rate and fuel prices would increase cost of ownership for end-consumers and hence curtail PV demand to a certain extent and also affect smaller CV fleet operators.

Maintaining the stable outlook, Ind-Ra said it was in line with earlier expectations of moderate sales volume growth in passenger vehicle (PV), double-digit growth in commercial vehicle (CV) and steady growth in the two-wheeler segment (2W) on a year-on-year basis.

"While the growth momentum in CVs is likely to continue, thanks to improved economic activity, increased infrastructure development and improved mining activities, the growth rate is likely to moderate in 2HFY19 due to a higher base," the ratings agency said in a statement.

Amid several regulatory changes undergoing in the industry, CV growth would remain susceptible to clarity regarding the new axle load norms and vehicle scrappage policy, it added.

Demand for two-wheelers and PVs would continue to be driven by increasing disposable income.

In two-wheelers, the growth rate in motorcycles is likely to outpace the growth rate in scooters, primarily due to a favourable monsoon as well as an increase in rural income, it added.

On the challenges ahead, Ind-Ra said the upward trend in interest rate and fuel prices would increase the cost of ownership for end-consumers and hence, curtail the PV demand to a certain extent, especially in the entry-level segment, where consumers are price-sensitive.

"Even the smaller CV fleet operators are likely to be affected, as the increase in freight rate is unlikely to be commensurate with the increase diesel prices, thus impacting their profitability and demand for additional fleet," it said.