Shweta Mungremoneycontrol.comIndian automobile industry is likely gearing up for good times after a long period of inconsistent and lacklustre performance.
According to Anand Radhakrishnan, chief investment officer, Franklin Templeton Asset Management (India) Pvt Ltd., the domestic auto sector is still positioned well for a cyclical recovery on the back of return of discretionary spending due to rising income, falling inflation and falling interest rates.
Most analysts are betting on both passenger vehicles as well as two-wheeler segments to deliver reasonably good growth in the coming year. Commercial vehicles segment is also likely to contribute to the growth.
As stated by Vinod Aggarwal, CEO-VE commercial vehicles, Eicher Motors, “going forward in 2016, the commercial vehicles (CV) industry growth will be led by expected investments in infrastructure, mainly road construction”.
Falling input costs present an added impetus to the industry. Prices of most commodity-based raw materials like steel, aluminium and rubber have significantly softened over the past one year. This has given companies the leeway to cut prices and push up the demand.
“They have capacities, they have the cost already embedded in and some of the raw material costs are also falling, so they have a tailwind in terms of margins”, Radhakrishnan says.
“Given the continued softening trend across key commodity prices, we expect automobile companies to see further margin benefits in 3QFY16. Currency rates also appear to have stabilised after substantial fluctuations in the past few quarters”, says a recent report by HDFC Securities.
The positive undertone is evident particularly in the stock prices of two-wheeler majors, which have stabilised after the initial correction.
In this year, a lot of other interesting developments will be looked forward to. A flurry of new launches is lined up to cater to the expected change in demand dynamics and to counter the stricter emission norms.
Government initiatives will also play a huge part in propping up the sector. The Automotive Mission Plan 2026, aimed at improving road infrastructure and network, providing incentives in manufacture of electric and hybrid vehicles and upgrading fuel efficiency by bringing in BS-V and BS-VI
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