Auto sector to remain robust

We all know what a cracking year 2009 turned out to be for the Indian auto sector. Pickup in economic growth and the government stimulus program emerged as the key demand boosters. So, will the sector be able to do an encore in 2010? Indeed, if a leading daily is to be believed. The Indian auto sector is likely to witness an overall growth of 10%-12% in the current calendar year. Passenger vehicles are expected to log in a growth of 12%-14%, while commercial vehicles are expected to grow at a lower rate of 5%-6%. It should be noted that growth for April-December period for these two segments has come in a lot higher at 25% and 23% respectively on a YoY basis. And hence, to that extent there could be some slowdown in growth. Furthermore, not all segments are expected to rake in similar growth rates, especially amongst CVs. It is the light commercial vehicles and high tonnage vehicles that are likely to steal the show.

So, with a robust growth in volumes, is the performance on the stock markets expected to follow suit? We do not think so. For one, the fight for market share is going to intensify, thus affecting profitability and secondly, the stock prices have run up to such an extent that the upside in volumes seem to be already reflected in the share prices. So, while Main Street will continue to chug along nicely as far as the auto sector is concerned, Dalal Street may just not follow suit.