Weakening rupee and rising fuel prices may affect automobile sector
Moneylife Digital Team 17 July 2013
Recent RBI measures to tighten domestic liquidity conditions will be negative for economic growth outlook and will raise short-term interest rates, leading to poor credit growth for vehicle purchases, says Nomura Equity Research
 
The recent rise in fuel prices (along with the weakening rupee against the US dollar) will be leading to continued weakness in customer demand levels in the Indian automobiles sector. It could lead to downside risks to volume growth estimates for most industry segments, forecasts Nomura Equity Research in its Quick Note. 
 
According to Nomura, recent RBI measures taken to tighten domestic liquidity conditions will be negative for the economic growth outlook and will raise short-term interest rates. There are downside risks to India’s FY14F GDP growth estimate of 5.6%. This will be a dampener on vehicle, says Nomura, as credit will be costly.
 
As per data from the Society of Indian Auto Manufacturers (SIAM), industry volumes slowed further in June 2013, particularly in the CV (commercial vehicles) and 2W (two-wheeler) segments. The MHCV (medium and heavy commercial vehicles) industry volume declined by 21% compared with Nomura’s expectation of an 11% decline. Further, LCV (light commercial vehicles) volumes also remained weak and declined by 5%. Sales volumes in the two-wheeler segment have declined by 5%. Sales volumes in the passenger car segment seem to have stabilized at current low levels. The table below gives a snapshot of the volumes position in the automobile sector:
 
 
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