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The positive macroeconomic indicators of Indian economy, such as income tax cuts, easing lending rates, and above-normal rainfall, have not yet translated into a revival in vehicle demand in the country, according to a report by Incred Equities.
According to the report the domestic automobile dispatch volumes declined in the first quarter of the current financial year, with motorcycles and cars being the most impacted segments. It stated that "As favourable macroeconomic variables like the income tax rate cut, easing lending rates, and above-normal rainfall are yet to revive volume growth, we remain cautious at the 10-year mean forward P/E valuation of the Nity Auto Index". The report highlighted that motorcycles and passenger cars were the worst-affected segments, while growth was limited only to tractors and sport utility vehicles (SUVs). It stated "The single-digit dip in 1Q domestic automobile volume dispatches disappoints". The report added that domestic automobile volume dispatches in the April-June 2025 quarter saw a single-digit decline of 5 per cent year-on-year across most segments. Tractors were the only segment that showed positive momentum with a 10 per cent year-on-year growth. SUVs also witnessed some growth, but motorcycles and cars dragged the overall numbers down. However, there was some relief on the exports front. Export volumes across segments grew by 22 per cent year-on-year during the quarter, which helped provide some comfort to the industry. Despite weak volumes, the report expects a year-on-year growth in EBITDA for about 70 per cent of the major companies. This expected improvement is largely due to lower commodity costs and a better product mix. Raw material prices showed mixed trends during the quarter. The report also stated that the prices of precious metals and rubber rose by 3-11 per cent quarter-on-quarter, while steel and aluminium prices declined in the mid-single digits. Favourable currency movement also supported the industry. The US dollar weakened against the Indian rupee, while the Japanese yen and the euro strengthened. This is expected to benefit companies with dollar-denominated imports, at least marginally. The report also flagged short-term regulatory challenges in commercial vehicles and two-wheelers as areas of concern. Nifty Auto Index has underperformed sharply in comparison to the broader Nifty-100 index over the past 12, 6, and 1-month periods also indicate that government policy measures have not translated into vehicle sales. Given these headwinds, the report cautioned on the auto sector, especially at the current 10-year average forward price-to-earnings valuation of the Nifty Auto Index. (ANI)
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