Passenger Vehicles To Entice Growth Investors In India

Indian automotive industry is in its most dynamic stage ever as it prepares itself for a changing landscape as India grows into world’s third largest passenger vehicle market. Not to forget that the Indian automotive industry is growing amidst disruptive global trends in the sector.




Several reports are touting India becoming the world’s third-largest passenger vehicle market by 2021. The growth trajectory in the market suggests that, in less than five years, India will increase its annual production to five million. It took seven good years for India to increase its annual production from three million to four million. Needless to mention here that the growth prospects of the Indian automotive industry is linked to the incremental growth in the Indian economy, which is growing at more than 7 per cent per annum in terms of its GDP for the next three years at least.

Indian automotive industry's fortunes will depend on how the ongoing urbanisation trend, burgeoning consuming class and regulations and policies pertaining to the sector evolve in the country in the next three to five years. 


Govt support 
The government in its attempt to facilitate long-term growth in the industry and reduce emissions and oil dependence is implementing the Automotive Mission Plan and the National Electric Mobility Mission Plan (NEMMP) effectively. The objective of the Automotive Mission Plan 2026 is to triple the industry revenues to $300 billion and promote exports to $80 billion. Exports will have to grow seven-fold to achieve such lofty goals.

What this essentially means is that the sector will get more competitive globally and will reduce emissions in the long term. The government will be seeking to bring local standards up to par with the global standards to tackle emissions, thus enabling India to adopt BS-6 emissions which is equivalent to Euro 6. The target is to leapfrog from BS-4 to BS-6 by 2020. The Corporate Average Fuel Efficiency norm that India is implementing is expected to improve the fuel efficiency by 10 per cent between 2017 and 2021 and by 30 per cent or more by the end of 2022. The government has also initiated plans to curb increasing pollution from old vehicles. It has plans to incentivise adoption of scrappage policies with the help of discounts on purchase prices, lower taxes and simple compliance processes.

Government is also actively pushing adoption of alternative fuels through FAME2. FAME2 is an extension of Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) initiative.

Under FAME2, the incentives go beyond electric vehicles (EVs) and hybrid EV buyers. FAME2 incentivises electrification of the fleet of buses and taxis of public transport and intends to push the demand for all types of alternative fuels.

Festive demand
Even though the prospects remain bright for the PVs in long term, the recent festive season (Navratri/Dussera) saw muted demand. The festive demand for PVs and two-wheelers declined 15-25 per cent. The rise in ownership cost due to rising insurance, fuel price rise and the rising interest rates are seen as detrimental to the demand this festive season for the PVs. The demand for commercial vehicles was also muted this festive season.

The retail demand was lower in western and eastern parts of India, while the northern and southern markets fared relatively better even as the enquiries remained healthy for all the markets.

The erratic monsoon is also perceived to be one of the reasons behind the lagging demand for PVs and two-wheelers this Dussehra. The demand may pick up as Diwali approaches, which traditionally has seen 60 per cent of the festive season demand

Advantage India : Favourable macroeconomic and demographics trend & global manufacturing hub
Some of the key factors why the PV market can grow in India is its favourable demographics and macroeconomic trends. As of now, the automotive sector contributes more than 7 per cent to India’s GDP. As per the Automotive Mission Plan 2016-26, the aspirations are set to increase the contribution of automotive sector to 12 per cent.

Indian passenger vehicle market
Indian passenger vehicle (PV) market is expected to evolve into one of the world’s largest market. However, whether it will be the world’s third biggest market will depend on broader global trends as also local trends in India. 

Rapid urbanisation, rising per capita incomes and working population augur well for the autom India.
otive industry in India. As of now, the mini cars and the hatchbacks are the dominant players in the automotive industry. The mini cars and hatchbacks constitute around 50 per cent of the market share in India . The hatchbacks and mini cars sales has grown by 6 to 7 per cent between 2014 to 2017. The dominance of mini cars and the hatchbacks is expected to continue, however, a majority of the growth is expected to come from new segments such as compact SUVs, sedans and luxury vehicles in India.

India is promising to become a global manufacturing hub for automobile companies. Top global auto manufacturers such as Ford, Hyundai and VW are using their manufacturing base in India to produce locally and exporting the produce to both developed markets and the other emerging markets.

India has recently improved significantly in ‘ease of doing business’. With improvement in ‘ease of doing business’ ranking and programmes such as ‘Make in India’, India’s visibility has improved in the global automotive industry.

India still has a long way to go in establishing itself as a global leader in automobile manufacturing. However, India has already created a niche for itself in the global automotive industry. India is perceived by global automakers to be low-cost, high quality products manufacturer. The value proposition that India has offered in the small car and hatchback segments can be easily extended to the compact sedan and SUVs, which could prove to be growth engine for the Indian automakers.

Conclusion
The changing competitive landscape in the global automotive industry, along with India's attractiveness as a low-cost high quality producer is rendering India as an important manufacturing hub for global automakers. Increasing exports and expected improvement in demand in local markets will only make the Indian PV market more efficient and competitive. For investors, the opportunity to invest in the sector in the current market is quite lucrative. The valuations are within the investing range post the current market correction. Within the automotive space, the growth visibility, especially for the PVs is high, and hence, the listed stocks operating in the PV markets can be scanned for investments for the long term.