A ‘V-shaped’ recovery — akin to what China’s automotive sales saw post the coronavirus lockdown — is unlikely to occur in the passenger vehicle (PV) industry in India. Demand is expected to witness a slow and gradual recovery in volume, ICRA Ratings said on Tuesday.

The industry is pinning hopes on revival in rural income to support growth during the festival season and thereafter, with recovery being likely in the two-wheeler and used car segment as against new car purchases, ICRA said in a statement.

“Automotive sales in China recovered handsomely post easing of lockdown restrictions and the volume followed a sharp V-shaped recovery. This recovery was supported by the consumers’ uneasiness regarding usage of public transport because of possible transmission of Covid-19 infection. Vehicle penetration has strong correlation with income level, and car ownership remains a distant dream for large share of Indian population,” said Ashish Modani, V-P and Co-Head, Corporate Ratings, ICRA.

“We believe that repetition of the Chinese V-shaped recovery is unlikely in India, given the low income levels and weak consumer sentiments,” he added.

Furthermore, the per capita disposable income in India is not comparable to China or other developed markets; therefore, car ownership continues to remain a distant dream for a large share of Indian population, he added.

Covid lockdown impact

Domestic PV demand is estimated to decline by 22-25 per cent in FY21 due to multiple lockdown extensions and their bearing on economic environment and consumer sentiments, it said. Each 15-day lockdown extension has taken toll on the full-year industry demand by 3-5 per cent, ICRA pointed out.

While the demand environment is likely to remain weak for the next four-six months, the low base of Q2 FY20 (when wholesale dispatches declined by 29 per cent y-o-y) will moderate the pace of decline in Q2 FY21, it said.

The industry is banking on revival in rural incomes for recovery as urban markets may remain suppressed in the near-term, ICRA further emphasised.

“The pandemic has dented customer’s financial resources as well as their sentiments, which will impact car purchase decisions. Discretionary purchases may thus witness deferment in demand, especially in urban segments though rural markets like UP, MP and Rajasthan should perform relatively better,” ICRA said.

“The industry’s recovery prospects have been delayed due to Covid-19 and it will take minimum six-eight months for consumer confidence to scale back to the February-2020 level,” it added.

The outlook on the PV sector could turn stable if the demand environment improves on a consistent basis over the next 12 months, said Modani.

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