New Delhi, July 14 | The repetition of a Chinese “V-shaped” recovery in the Indian passenger vehicle (PV) industry has been ruled out, rating agency ICRA said on Tuesday.
ICRA ruled out the repetition stating that the demand is expected to witness a gradual and a slow pace recovery in volume.
“The industry is pinning hopes on revival in rural income to support growth during the festive season and thereafter,” the report said.
“Currently reeling under an economic slowdown and coronavirus-induced lockdown, both demand and production have been disrupted, the recovery is likely to happen in the two wheeler and used car segment first compared to new car purchases as concerned buyers will want to own personal transport over public transport due to possible infection fears.”
According to the report, the industry is banking on revival in rural incomes for recovery as urban markets may remain suppressed in the near-term.
It said that COVID-19 has adversely impacted performance of almost all companies which will have bearing on salary increments and job security of employees, thereby impacting their morale.
“The pandemic has dented customer’s financial resources as well as their sentiments which will impact car purchase decision,” the report said.
“Discretionary purchases may thus witness deferment in demand, especially in urban segment though rural markets like UP, MP and Rajasthan should perform relatively better.”
Furthermore the report said the industry’s recovery prospects have been delayed due to COVID-19 and it will take minimum 6-8 months for consumer confidence to scale back at Feb-2020 level.
“Also, recovery in rural income and improvement in overall economic activity remain crucial to have any meaningful improvement in retail demand off-take,” the report pointed out.
Additionally, the domestic PV demand is estimated to decline by 22 to 25 per cent in FY2021, as multiple lockdown extension has direct bearing on economic environment and consumer sentiments.
“Back-to-back lockdown extension by government post the pandemic has wiped off volume during first two months of current fiscal (Apr/May 2020),” it elaborated.
“Each lockdown extension by 15 days has taken toll on full year industry demand by 3-5 per cent. While demand environment is likely to remain weak for next 4-6-month, low base of Q2 FY2020 will moderate pace of decline in Q2 FY2021.”