Driven by strong GDP growth, a growing middle class and a lack of public transport, the Indian market is one of the sweet spots in the global automobile sector. The Indian government recently articulated The Automotive Mission Plan 2026 (AMP 2026), which aims to make the Indian automotive industry the engine for growth of the ‘Make in India’ programme. To quote from their vision statement – “By 2026, the Indian automotive industry will be among the top three of the world in engineering, manufacture and export of vehicles and auto components… growing in value to over 12% of India’s GDP, and generating an additional 65 million jobs”.

This assumes annual industry growth of between 12% and 13.5% (optimistic) till 2026. While the targets are ambitious, they’re not far from estimates rolled out by industry associations, analysts and auto OEMs. Though we (ValueNotes) are a tad more cautious, double-digit average growth (including exports) is very likely – especially given that we’re coming off a down-cycle.

But the road ahead will not be all rosy. Several regulatory changes around environment and safety will mean substantial additional Capex from both ancillaries and OEMs, even as competition becomes more intense. Already diesel vehicles are feeling the heat, both from a narrowing price differential between petrol and diesel, as well as recent Supreme Court rulings. New safety norms will become mandatory in India in October 2017 resulting in a price increase across car segments. Manufacturers of ABS, airbags and other safety accessories will benefit, no doubt – but this may impact near term demand in FY18.

Do read about how we helped an auto component manufacturer redesign their product strategy through a user perception study.

As always, we hope you enjoy reading our newsletter, and we look forward to your comments.

Best regards.