ICRA Forecasts Moderate Growth for Auto Sector in FY24, Citing Uneven Monsoon's Potential Impact on Rural Demand

According to ICRA, a ratings agency, the Indian domestic automobile industry is expected to see moderate growth in terms of volumes in the fiscal year 2024 (FY24). This comes after a period of recovery in the industry over the past two years, driven by the revival of economic activities and increased mobility. However, the pace of recovery varies across different segments of the automotive industry.

Moderate Growth in FY24: ICRA anticipates that the auto sector in India will experience moderate growth in FY24. While the passenger vehicle segment is expected to show healthy year-on-year growth of 6-9%, the commercial vehicle segment is projected to reach pre-pandemic levels but with modest growth of 2-4% year-on-year. In contrast, the two-wheeler industry is still struggling to reach pre-COVID peak levels.

Factors Contributing to Growth: The passenger vehicle segment saw strong demand in FY23, with all-time high volume levels, driven by a preference for personal mobility and stable semiconductor supplies. The commercial vehicle segment is expected to recover to pre-pandemic levels with a healthy base. The two-wheeler segment is expected to grow moderately, mainly due to a low base.

Concerns About Rural Demand: ICRA points out concerns about the impact of an uneven monsoon on rural demand. Rural demand is a significant driver of the automotive industry, and it is sensitive to factors like monsoon patterns. While the government's efforts on rural infrastructure development and crop procurement are positive, the uneven monsoon remains a concern.

Long-Term Outlook: ICRA had previously projected a Compound Annual Growth Rate (CAGR) of around 6-9% for the automotive segments over the medium to long term. This outlook is based on rising per capita incomes, favorable demographics, low vehicle penetration, and supportive government policies.

In summary, while the Indian automobile industry has been on a path to recovery over the past two years, the pace of growth in FY24 is expected to be moderate, with some segments showing stronger growth than others. The industry will be closely monitoring the impact of an uneven monsoon on rural demand.