India Ratings and Research (Ind-Ra) on Friday revised the outlook for the auto sector to ‘improving for financial year 2022’ from negative, backed by likely revival across segments, positive consumer sentiments amid macroeconomic tailwinds after recovering from the Covid-19 pandemic.

The rating agency said it expects auto volumes to rebound at 16-20 per cent year-on-year in 2021-22 after recording an estimated year-on-year decline of 14-18 per cent in 2020-21.

Passenger vehicles (PVs), two-wheelers and commercial vehicles (CVs) recorded a decline of 5-8 per cent, 13-16 per cent and 30-35 per cent on year, respectively, in FY2021, says an Ind-Ra statement.

For the PV and two-wheeler segments, the continued preference for personal mobility and demand across the urban and rural markets would be positive, with an estimated growth of 18-22 per cent and 16-20, respectively, in financial year 2022, it says. “The lower growth in two-wheelers than PVs could be because of their increased cost of ownership.”

The CV segment could record high double-digit growth of 25-30 per cent in the financial year 2022 aided by an uptick in industrial production, increased infrastructure and construction activities and a low base owing to the slowdown in 2020-21, the agency says.

“Nevertheless, the monthly sales in the CV segment are likely to achieve FY19 levels only by the second half of FY22,” says the statement. Ind-Ra expects limited rating movements in the sector in FY2022 and has maintained a stable rating outlook.

Ind-Ra says that though the details of the proposed vehicle scrappage policy are yet to be announced, it could be helpful in creating an incremental demand if incentives are attractive for consumers.

“Rising fuel prices and original equipment manufacturers planning another price hike amid increasing input costs could act as possible headwinds for the sector,” cautions Ind-ra.