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India/Pakistan sales
October 2022: +21.9%; 389,139 units vs. 319,108
units
YTD 2022: +21.4%; 3,836,223 units vs. 3,158,808
units
- The Indian subcontinent’s light vehicle sales were up 21.9% in
October 2022 compared with October 2021. Sales in the Indian
automotive market in October surged 26.9% y/y, while In Pakistan,
light vehicle sales dropped 47.7% y/y. The high growth rate in
India was owing to the easing of component supplies (thus more
production) and the festival fizz helped demand. In Pakistan, the
drop in production was because of a shortage of components and
completely knocked-down (CKD) kits, as the government tries to
control the current-account deficit and thus restrict kits imports.
In both markets during January-October 2022, demand outstripped
supply and OEMs tried to reorganize models and trim plans to
maximize production owing to the chip crisis. The ongoing conflict
between Russia and Ukraine is affecting high-frequency indicators,
such as the exchange rate, crude oil prices, and interest rates.
Also, consecutive price hikes on account of annual inflation and
increasing commodity prices are the biggest deterrents to growth
going forward. The Reserve Bank of India (RBI) increased the repo
rate by 150 basis points after May. However, it will likely take
two to three quarters for the impact to be visible on consumer
purchases. Another further hike of 75 basis points (total) is still
assumed and incorporated in the forecast. - India sales in January-October 2022 remained strong and the
market was up 22.8% relative to the same period in 2021. The rising
salaries in the IT and service sectors and accumulation of savings
owing to the cut in expenses has boosted consumers’ ability to
cover the down payment on a vehicle. Although interest rates have
started rising but they remain on the lower side. These lower
interest rates and new model introductions by key OEMs are alluring
customers to purchase a new car. Exchange rates may also put
reverse pressure on costs as the rupee is continuously falling
against the US dollar. Also, the chip crisis is easing, and
production is in full swing. On the macro side, the Indian economic
growth forecast should be strong in 2022 at about 6.4%. The
preference for personal mobility, bookings, and low inventory in
the network are the key drivers that will help the industry grow.
In 2022, the Indian market will likely grow 21% y/y. - In Pakistan, automotive sales dropped in October by 47.7% vs
the same month in 2021. The drop was because of the unavailability
of components and kits leading to shutdowns at most OEMs. The
government’s effort to control current-account deficit and save
foreign exchange reserves led to a cut in the import of components
and kits. In August, OEMs were allowed to procure 60% of the quota
(quota is the average of imports in March-June) and 70% of the
quota for September. This has disturbed the supply chains in
Pakistan but import quota for kits have improved now. Meanwhile,
the depreciation of the Pakistani rupee, coupled with supply chain
interruptions, is further leading to price hikes across OEMs.
However, despite heavy prebuying in 2021, sales continued to rise
0.6% YTD in 2022. This reflects the need for mobility is on the
rise, and increased purchasing power will make people buy more
cars. Also, the entry of new players and growing demand for
vehicles have helped the industry rebound. However, in the medium
term, a deterioration of macroeconomics is likely, but sales will
rebound owing to pent-up demand created due to cut in import of
kits in 2022. In the medium-to-long term, there is positive
momentum for the car industry, and the government is focused on
pushing the industry. Changes in private-sector policies will also
help drive sales in the country.
India/Pakistan production
October 2022: +24.7%; 431,723 units vs. 346,105
units
YTD 2022: +24%; 4.49 million units vs 3.61 million
units
- The Indian subcontinent’s light vehicle production in October
2022 will likely record 431,723 units, a rise of 24.7% in
production over October 2021. We expect its calendar year (CY)
production to rise 20.6%, with over 5.29 million units built,
mainly owing to the low comparison base of 2021 and expected strong
recovery in the remaining part of the year. - The improving preference for personal mobility and improved
consumer confidence in rural and semi-urban markets has bolstered
the Indian market, and it posted its best-ever production numbers
in YTD 2022, even surpassing full production of CY 2021.
Additionally, low dealer inventory rates have extended the waiting
period from three months to twenty four months for best-selling
models such as the Mahindra & Mahindra (M&M) XUV 700,
Maruti Suzuki Ertiga, Hyundai Creta, Kia Seltos, and the Tata
Nexon. However, the current inventory levels have been filled now.
The waiting periods have started to come down to three to six
months, and most of the vehicles are available within three months
of booking. Even discounts are back with some of the carmakers.
Dealers are also noticing a slowdown in booking rates and high
cancellation rates in the Indian market. As expected, the
pre-filled festive season inventory was consumed only by 5 days as
the dealer’s inventory reduced from 40-45 days to 35-40 days. - Following the second wave of COVID-19 infections, the demand
since July 2021 significantly improved as the dealership network
was fully operational and helped carmakers revive demand. However,
semiconductor shortages impacted the production lines starting
August 2021. - In October, automakers slowed production owing to the high
amount of festive holidays. In November, we expect the market to
continue its strong production output with a 20% growth rate. The
supply chain is still disrupted and will likely impact
Renault-Nissan-Mitsubishi and Volkswagen (VW) in the coming months.
The mismatch in supply and demand will likely continue in the
coming months; however, it may have a minimum
impact—particularly in India. IHS Markit analysts noticed in
2021 how Tata Motors and Mahindra purchased semiconductors from the
open market to run their production lines. We expect Maruti Suzuki
will also buy semiconductors from the open market in 2022. The
production schedules for Maruti Suzuki, Hyundai, Tata Motors, and
M&M suggest strong production line rates in the coming months.
According to the Federation of Automobile Dealers Association
(FADA), India’s average inventory for passenger vehicles ranges is
35-40days, which is a slight difference from the normal level of
40-45 days. Hence, we expect the carmakers will have another strong
month to refill the inventory. - The semiconductor impact at isolation peaked at 25% of
production in third quarter 2021, while it was down to 18% of
production in fourth quarter 2021, 7% in first quarter 2022, 5% in
second quarter 2022, and only 3% in third quarter 2022. - The Russia-Ukraine conflict brought another uncertainty to the
commodity prices. With the price of Brent crude breaking USD90-110
per barrel—and possibly rising further and remaining high in
coming months—this would lead to higher domestic inflation, a
weaker rupee, and wider current-account and fiscal deficits.
Additionally, we assume the price of Dated Brent crude oil will
drop from an average of USD103/barrel in 2022 to USD87/barrel in
2023 and 2024 as constrained supply growth slightly outpaces
sluggish demand growth. As expected, India raised (from 1% in
January to 23% in September) its imports of Russian crude as steep
discounts on Russian Urals seem highly attractive as the country
battles with a surging crude oil import bill and elevated levels of
inflation in the country. India reported a consumer price index
(CPI) of 7.37% in September 2022, which breaches the Reserve Bank
of India’s (RBI’s) range of 2-6%. In September, the RBI’s Monetary
Policy Committee raised the policy repurchase rate by 50 basis
points to 5.9% in the scheduled policy meeting. It will continue to
raise rates in the coming months as inflation pressures persist and
global financial conditions tighten, with another 25 basis points
anticipated in 2022 and 60 basis points in 2023. In 2023, we expect
GDP growth will further lag from 5.5% to 5.3%, which incorporates
the assumption of weaker external demand for India’s exports and
the impact of the RBI’s monetary policy tightening on domestic
demand. The recent excise duty cuts on petrol and diesel will also
improve consumers’ disposable incomes and pacify the CPI. Moreover,
to keep the steel prices under control, the Indian government
increased the export duty on steel manufacturers and reduced the
import duty on raw materials of steel. This should lower steel
prices in India for domestic consumption. The weaker rupee is
becoming another hurdle for the economy, and it will remain under
pressure through 2023, reflecting the large trade deficit and
interest rate differentials with the US. - The seasonally adjusted S&P Global India Manufacturing
Purchasing Managers’ Index® (PMI®) was up from the September
reading of 55.1, posting 55.3 in October. October PMI® data from
S&P Global indicated that economic growth in the Indian
manufacturing industry remained robust, and price pressures were
contained. Indian manufacturing companies bought additional inputs
in October amid efforts to rebuild stocks and fulfil greater sales.
Predictions of better sales and marketing efforts were among the
reasons cited for upbeat projections. - In this forecast cycle, S&P Global Mobility Analysts added
the 50,000 units in comparison with the October forecast.
Currently, we believe the Indian automotive light vehicle
production scenario is in better condition compared with other
global markets for CY 2022. We expect minimal disruption from
another COVID-19 wave and better semiconductor supply for the
remaining part of the year. We anticipate a slight slowdown in the
current quarter compared with the previous quarter as we approach
the year end. Indian carmakers de-contented, or reduced
semiconductor content, in vehicles to keep the production line
rolling, and this has resulted in new variants being launched in
the market that have no infotainment systems, parking sensors, or
connected features. Some of the carmakers have already launched
vehicle variants in the market. The Indian market will likely post
5.06 million units, or 22% growth, in CY 2022. However, the
continuous price hikes will likely discourage the light vehicle
market’s new demand. The high inflation prices, weaker rupee, and
increased interest rate will likely hit the Indian market in 2023.
We expect growth of 2.3% with 5.16 million in 2023. The long-term
forecast remains consistent with the previous forecast with minor
variance.
Pakistan
- In this forecast round, we revised down the Pakistani light
vehicle production forecast by 6,000 units following the floods and
owing to import restrictions in Pakistan. The recent political
instability and removal of Prime Minister Imran Khan from his
office brings fresh challenges for Pakistan on every front. The
assassination attempt on the former prime minister can further
disrupt the stability of the country, thereby further unsettling
the market. The commodity price shock following the Russian
invasion of Ukraine, a sharp rise in international commodity
prices, particularly of liquefied natural gas (LNG), has led to
procurement difficulties and power shortages in Pakistan, while
also putting considerable pressure on its external accounts and
inflation. The stalled USD6-billion International Monetary Fund
(IMF) financing program was resumed in July 2022, following the
government’s removal of contentious fuel and electricity subsidies
and the adoption of a new austerity budget for fiscal year (FY)
2023. This outcome paved the way for the IMF’s approval of the
seventh and eighth installments of the loan program, with around
USD1.1 billion in financing made available in September. The
program was also extended to June 2023, with an additional USD2.9
billion to be disbursed in the coming months. Inflation sharply
accelerated in late 2021 and rose to 27.3% in August 2022 (the
highest in 49 years) and eased to 23.18% in September 2022. With
inflation and external risks further intensifying following
Russia’s invasion of Ukraine, the SBP raised the policy interest
rate four times in April-July 2022 to 15%—the highest rate
since November 2018. The SBP will likely continue tightening
monetary policy through 2022 to keep real interest rates positive.
Recently, Toyota (Indus Motors) and Pak Suzuki announced multiple
shutdowns owing to the unavailability of parts amid import
restrictions and exchange rate volatility. We expect production to
slow down in Pakistan compared with the first half of the year, as
it struggles for forex reserves. During the first half of 2022,
production increased 33% with 143,000 versus 107,000 units in the
first half of 2021, while IHS Markit analysts expect a decline of
33.0% in the second half of 2022 with 86,000 versus 129,000 in the
second half of 2021. Hence, we now expect Pakistan’s full-year 2022
production to decline 3.0 y/y, with 228,844 units, followed by an
increase of 7.1% to 245,189 units in CY 2023.
This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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