Overall auto sector expected to grow at high single digit
The two-wheeler industry continues to struggle with volumes still below the pre-Covid peak levels | Photo Credit: KSL
The two-wheeler industry’s return to peak volumes is unlikely in the next two years, and the segment’s recovery pace remains uncertain, rating agency ICRA said on Wednesday.
In its outlook for the automotive sector in India, ICRA said that the pandemic-induced income uncertainty, coupled with a steep rise in the cost of ownership, constrained demand over the fiscal year (FY) 2020–2022.
The two-wheeler industry had its peak in FY19, when the market was at 21.3 million units, but it declined by 18 per cent to 17.6 million units in FY20 and another13 per cent in FY21 to 15.3 million units. It further declined by 11 per cent to 13.8 million units in FY22, it said.
“The two-wheeler industry continues to struggle with volumes still below the pre-Covid peak levels; even as improved offtake in the recent festival season has provided optimism, a sustained recovery in demand sentiments is yet to be seen,” the rating agency said in its report.
One of the reasons is also that there has been a 30 per cent price increase in entry-level two-wheeler prices over the past three years.
Going forward, a low base and an opening up of economic activity are expected to support the two-wheeler industry, and the domestic market would drive growth over the near term as the export outlook remains weak, it said.
However, in the electric two-wheeler segment, buoyant consumer sentiments and the entry of incumbent players are likely to boost volumes.
In the passenger car segment, ICRA said that relatively weak offtake has been seen for the entry-level car segment, implying that the purchasing power of the consumers at the bottom end of the pyramid has been eroded to an extent over the past few years by the significant rise in vehicle prices and disruptions caused by the pandemic.
Overall, the automotive industry is expected to grow at high single-digit levels across segments in FY24, it said.
“We expect growth across automotive industry segments to remain at high single-digit levels in FY24. While the passenger vehicle, commercial vehicle, and tractor segment volumes would continue to trend upward, aided by favourable demand drivers, the two-wheeler industry is also expected to record moderate growth in volumes, aided by a low base, “Shamsher Dewan, Senior Vice President and Group Head – Corporate Ratings, ICRA, said.
The Union Budget 2023–24 is expected to include enhanced budgetary outlays towards rural employment under MGNREGA, rural infrastructure development, enhancement of irrigation facilities, a crop insurance scheme, as well as an increase in targets for agricultural credit. With measures to help rural communities expected to be at the heart of its policies, the budget is expected to aid in boosting rural-led demand across segments, he added.