|
Demand for scooters, premium motorcycles and entry-level cars could recover faster if fuel prices remain stable, according to a Goldman Sachs automobiles sector report, which analysed how Indian vehicle demand behaved during past fuel-price inflation cycles.
The report said its analysis of the last six fuel-price inflation episodes over the past decade showed that consumer demand tends to return more quickly in certain vehicle categories once fuel-price pressures ease. "Based on volume growth and local petrol/diesel price data from the last six fuel price inflation episodes (5% to 10% inflation periods) over the past 10 years, we note that once fuel price hikes subsided, demand came back fastest in Scooters, Premium Motorcycles, Entry Level cars and Premium hatchbacks," Goldman Sachs said in the report. The report noted that commercial vehicle demand has historically taken longer to recover following periods of fuel-price inflation, while passenger vehicle and two-wheeler segments have generally shown a faster response once fuel costs stabilise. Goldman Sachs also highlighted weather-related risks for the sector, noting that the southwest monsoon has started on a weak footing this year. "As of 17 June 2026 the southwest monsoon, in its first 17 days (out of a usual 110 day annual cycle), has been c38% below normal levels across the country," the report said. According to the brokerage, a below-normal start to the monsoon could pose risks to rural demand-linked automobile categories in the second half of FY27. "This could put some downside risk on rural exposed categories like tractor demand and entry-level motorcycles as we head into the second half of FY27E," the report noted. The report also flagged cost pressures facing automobile manufacturers. It said metal prices are likely to weigh on margins in the June quarter despite price increases undertaken by vehicle makers. "Our analysis also indicates the metal price inflation impact on Gross Margin in 1QFY27E is likely to be in the range of 180bps to 220bps," Goldman Sachs said. "We expect a net impact of between 40bps to 190bps on Auto OEMs Gross Margin in 1Q27E." On the demand outlook, the report said inventory levels have begun to improve as production bottlenecks ease and supply chains normalise ahead of the festive season. "In the near term, we expect wholesale momentum to outgrow retail sales for OEMs that have fixed supply chain issues," Goldman Sachs said, citing inventory replenishment and new product launches as supporting factors. The report said the sector's near-term outlook will depend on the trajectory of fuel prices, the progress of the monsoon season and manufacturers' ability to manage input-cost pressures while sustaining demand. (ANI)
|
