SME Times News Bureau | 27 Aug, 2019
Global rating agency Fitch Ratings on Monday the subdued
demand conditions that led to weak performance by Indian automakers in the
first quarter of 2019-20, will likely persist before improving in the coming
"We expect overall domestic auto sales volume to
decline in FY20, although volumes may stabilise in the coming quarters due to
government's focus on improving liquidity at lenders and recent measures to revive
auto demand," Fitch Ratings said.
Fitch Ratings pointed out that government's focus on improving liquidity and
recent measures to revive auto sales will stabilise volumes in the coming
The research note assumes significance as it comes days after Finance Minister
Nirmala Sitharaman gave a major boost to the automobile industry by announcing
a slew of measures to reverse slowdown denting the sector.
"The improved likelihood of adequate rainfall and recent cut in interest
rates should also help demand in 2HFY20. However, the lower volumes will weigh
on automakers' profitability in FY20 and could offset the benefits from lower
Last Friday, Finance Minister Nirmala Sitharaman gave a major economic boost to
diverse sectors such as NBFCs, auto, housing, MSMEs, equity markets and banking
via a slew of measures on tax surcharge, GST refunds, easier loans and demand
In terms of auto sector, Sitharaman allowed government departments to purchase
new vehicles to replace old ones.
She further announced that all vehicles purchased till March 31, 2020 shall
avail of the benefit of additional depreciation of 15 per cent. It shall
increase the higher depreciation on all vehicles to 30 per cent.
The minister said that BS IV vehicles purchased till March 31, 2020 shall
remain operational for the entire period of their registration.
She clarified that registration for both ICE and EV vehicles will continue.
At present, the sector has been impacted by a consumption slowdown which is a
culmination of several factors such as high GST rates, farm distress, stagnant
wages and liquidity constraints.
Besides, inventory pile-up at the dealership level and stock management of
unsold BS-IV vehicles have become a problem for the sector.