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Last Updated : Jul 28, 2019 08:04 AM IST | Source: Moneycontrol.com

The rough and tough ride of wheels - is it cyclic?

In case of commercial vehicles, the slowdown in NBFC finance is also one of the major reasons which is impacting CV sales. The slow growth of our economy is also accentuating the sales drop of automobiles.

Moneycontrol Contributor @moneycontrolcom
Representative image
Representative image

Gaurav Garg

India's automobile industry is witnessing one of the most severe slowdowns in the last 20 years. According to the data released by Society of Indian Automobile Manufacturers (SIAM), ‘the current phase of decline is even worse than period of global slowdown of 2008-09 or 2011-12’s after shocks’.

The fall in automobile sales in the first quarter of 2019-20 is almost 12.35 percent. At the same time, production in this period has also fallen by 10.53 percent. As per the numbers, around 80 lakh vehicles were sold in the same period of last financial year. It has now come down to 72 lakh vehicles.

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As we know each sector goes through a cyclic phase. Similarly, we can say that the auto sector is in a down-cycle because of so many factors like falling demand, emission woes, electric vehicles. Also, the transition phase from BS-IV to BS-VI is adding extra cost of operation for companies, which cast a shadow on the pockets of both companies as well as consumers.

In the case of commercial vehicles, the slowdown in NBFC finance is also one of the major reasons impacting its sales. The slow growth of our economy is also accentuating the sales drop of automobiles.

Consumer preferences are also shifting nowadays with more and more people adopting usage of cabs instead of owning a car. The new generation wants to lead a less asset-heavy life so that they do not have many liabilities and they do not have to compromise on their disposable income. Therefore, a lot of people have turned to cab aggregators for their daily mobility needs, which has also made some impact on sales of passenger vehicle.

With regards to global outlook, the world’s largest automobile market China’s Association of Automobile Manufacturers (CAAM) declared that they are expecting a 5 percent drop in sales on Y-o-Y basis.

From taxation point of view, around 30 percent of auto components are still in the highest 28 percent GST bracket. Besides, automobiles attract the peak GST rate of 28 percent with additional cess ranging from 1 percent to 15 percent depending on the length, engine size and type of the automobile.

Recently, many state governments have also increased registration charges very steeply, which has resulted in a higher cost of ownership. Measures, like these are going to create a very negative impact on the prospects of this sector.

There is a need from the government to rationalize tax structure on this industry and introduce a standard rate of 18 percent to stimulate the sector which provides millions of jobs.

Looking forward, we can expect improved credit access from NBFCs, better hybrid models and increasing conspicuous consumption behavior of youth to bring the up-cycle in the industry. For investment purposes, it is not wise to pick any stock from deep because that may not necessarily be the best pick.

The Author is Head of Research at CapitalVia Global Research Limited- Investment Advisor.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Jul 28, 2019 08:04 am
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