The worst may be over for the struggling auto sector that is expected to see some improvement from the second half of the next year, with a likely fall in interest rates and deferred purchases materialising into better sales, says a report.
“While an immediate upturn in the auto industry is not expected, the worst may be behind us. Expectations of improvement in economic environment from the second half of 2014 along with potential interest rate cuts are likely to provide support to auto sales in the year ahead,” global research firm Dun & Bradstreet said in a note.
“We expect the deferred purchases to get converted into actual sales, mainly after the initial two quarters of the new year, owing to pick up in industrial activity and increase in infrastructure spending,” it added.
This year witnessed broad-based slowdown in auto sales owing to sustained deceleration in economic activity and consequent weakness in consumer and business sentiment.
Growth in domestic automobile sales slackened to 1.2 per cent in 2013 (January-November), compared to growth of 6.2 per cent during 2012 and 14 per cent in 2011.
The research firm expects the consumer sentiment to improve in rural areas, which would act as a positive trigger for certain segments and companies within the auto industry.
However, it said increasing competition is likely to keep margins under pressure.
It expects the light commercial vehicles, guided by small commercial vehicles, to witness strong growth in 2014 owing to replacement demand and improving demand from smaller cities.
For the passenger car vehicles, it anticipates a decline in diesel cars, due to the higher pricing of such cars.
“With the differential between petrol and diesel prices getting narrower, the coming year would witness the share of diesel cars to gradually decline. The higher prices of diesel vehicles will also act as a negative trigger,” it said.
The report said the export environment is likely to be challenging with India signing non-tariff barriers and preferential duty agreements with certain countries.
“Exports are likely to further lose some steam in light of the non-tariff barriers and preferential duty agreements inked by EU with certain African and Latin American countries.
“The latest move would act as a deterrent for auto companies, who had begun to make strong inroads into these economies. Export environment for automobiles is expected to remain challenging in 2014,” it added.