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Slowdown in auto sector; this analyst highlights three key reasons

FE Online
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The auto sector has been witnessing a downtrend across all categories. In the April-June quarter, the passenger vehicle or PV sales declined 18.42 per cent to 7,12,620 units compared with 8,73,490 units during the same period of last year. Vehicle sales across all categories saw a downfall by 12.35 per cent to 60,85,406 units in April-June period against 69,42,742 units during the same period of last year. According to Nilesh Shah, Managing Director of Kotak Mahindra Asset Management Company,  India can’t let the auto industry suffer as the sector contributes 49 per cent to the manufacturing gross domestic product (GDP) of the country. In an interaction with CNBC TV8, Shah detailed the reasons behind the downfall in the auto sector. 

Availability of finance is a big issue in the current scenario when there is a liquidity crisis in the NBFC sector, according to Shah and the government needs to resurrect the issue by ensuring proper bank recapitalisation of PSU banks and at the same ensuring that the government funding doesn’t turn into another set of non-performing assets. Increase in insurance is another major reason for the slowdown in demand in the auto sector. 

Transition to BS VI norms are also posing challenges before the auto industry, said Shah. Shah said corrective action needs to be taken for the revival of the auto sector. According to TVS Motor’s annual report, the auto industry will undertake a significant change in migrating from BS-IV to BS-VI emission norms which will commence from April 1, 2020. Hence, in the second half of 2019-20, BS-VI transition will pose some challenges and the company is gearing itself to meet the same. Commenting on the economy, Shah said subdued oil prices are good for the economy, Monsoon in July is more encouraging than June. 

Today, the S&P BSE Auto opened lower at a level of 17,274.94, down 2.7 per cent from the last close. While Tata Motors and Maruti are trading in the green, Cummins India, Hero MotoCorp and TVS Motor are trading in the red. The headline indices - Sensex and Nifty had a lower start. While the Sensex opened marginally lower at 38,961.86 against the previous close of 38,896.71, Nifty too opened lower at 11,622.80 mark.