As we all know, the automobile sector is one of the promising and India’s most vibrant and ever growing industries accounting for more than 22% of the country’s manufacturing gross domestic product.
Why growth in auto sector would be beneficial for share market
India is one of the biggest markets for several global automaker, and almost all global brands have started selling and manufacturing their vehicles in the country. The importance of the sector is evident from the fact that India is expected to be the world’s third-largest market for automobiles by 2020, according to Deloitte.
How was 2014?
Year 2014 was a tough one for the auto sector with sales in the first-eleven months of 2014 being 10% down. The year was filled with sales fluctuations with stretches of decline followed by patches of respite. Apart from the sales decline, the auto industry faced several hardships in the form of vehicle recalls, concern for safety and other tragic incidents. Overall, we could say that there were more decline than the positive patches. However, in the last few months, signs of a turnaround were visible.
According SIAM (Society of Indian Automobile Manufacturers), for November, the industry witnessed a growth rate of 9.52% compared to the last year. Maruti Suzuki contributed the most to the rise in sales for the month of November. Maruti Suzuki, who is also the biggest passenger carmaker in the country, posted an impressive growth of 19.5% for November. Also, the car maker had a good year in terms of stock price, which was on the uptrend.
How will 2015 be?
After the not so pleasant 2014, the question that arises now is, whether or not the rough phase will continue for the auto sector, and it can see a downfall again in the coming months? So, the answer is “No” as the companies engaged in the sector are seeing a recovery in the demand owing to lower fuel prices and continuous excise duty relief by the government. Separately, the benchmark for the auto sector i.e. CNX Auto surprises us all, in a positive way. Despite the overall slowdown in the year, the indices have been in the uptrend.
Also, despite the challenges, some of the big brands announced massive investment to improve the overall environment of the sector. Automakers such as Maruti Suzuki, Mahindra & Mahindra, Bajaj Auto, Hero MotoCorp and Volkswagen made big commitments in terms of investment.
Some of significant investments and developments announcement in the sector were, Ashok Leyland plans to invest Rs 450–500 crore by way of capital expenditure. Also, Tata Motors are planning a ‘hub-and-spoke’ model with India as a key manufacturing base along with mini-hubs overseas.
Also Read : Indian Elections 2014 and the Equity Market
After a prolonged decline, Indian auto industry appears to be back on the growth track. It is expected that in the year, the industry would built a solid growth building on the foundation provided by the investments announced in the year passing-by.
Creating an environment to end the challenging conditions and maintaining the growth momentum require efforts from both the companies operating in the sector and from the government. At the time, when it was most needed, government came forward in support of the industry, and the companies will be hoping this support from the policymakers to continue.
Indian auto sector presents a huge potential, and an auto dealer survey by UBS suggested that the auto industry would observe a 12% over year growth in FY15 owing to the upcoming festival season and decline in the fuel price. Moreover, industry experts believe that the investment and the launch of hybrids vehicles in the coming time would help the industry in maintaining the growth momentum.
Open Lowest Brokerage
Trading Account Now
[email-subscribers namefield=”NO” desc=”Subscribe now to get latest updates!” group=”Public”]