Uneven monsoon's impact on rural demand a concern: ICRA on auto sector

India's domestic automobile industry is expected to record moderate growth in volumes in FY24, but a sustained recovery in demand sentiments remains to be seen, amid concerns over the impact of an uneven monsoon on rural demand, ratings agency ICRA said on Tuesday.

The industry has been on a comeback trail over the past two years, aided by a recovery in economic activities and increased mobility although the pace of revival across the various automotive segments has been somewhat mixed, ICRA said in a statement.

The passenger vehicle segment reached all-time high volume levels in FY23, aided by preference for personal mobility and stable semiconductor supplies and the demand sentiments are expected to remain healthy in the segment, 6-9 per cent year-on-year (YoY) growth in FY2024, it added.

Similarly, the commercial vehicle industry's overall industry volumes are expected to approach pre-pandemic highs, even as the growth is expected to remain at modest levels in FY24, 2-4 per cent YoY, on a healthy base.

The segment had witnessed a robust growth in volumes in FY23 on a curtailed base, ICRA said.

In contrast to these two segments, the two-wheeler industry has continued to struggle with industry volumes still below the pre-Covid peak levels, the ratings agency added.

"We expect growth across the automotive industry segments to remain at moderate levels in FY2024. While the passenger vehicle volumes would continue to trend upwards, aided by favourable demand drivers, the two-wheeler industry is also expected to record moderate growth in volumes aided by a low base," ICRA Senior Vice President & Group Head - Corporate Ratings Shamsher Dewan said.

Even as the demand sentiments in the commercial vehicle industry remain steady, the volume growth is expected to remain low on a healthy base, he added.

"The impact of an uneven monsoon precipitation on rural demand across segments remains monitorable, even as the government's efforts on rural infrastructure development, crop procurement etc. remain positive," Dewan said.

With rising per capita incomes, demographic profile, low vehicle penetration, favourable policy environment, including infrastructure development expected to help grow the industry demand at a steady pace, ICRA had projected a CAGR of around 6-9 per cent across the automotive segments over the medium to long term.