Nomura on Auto Sector: These stocks to benefit from government initiatives!

Global financial services firm Nomura, in its report on the Auto sector, said that it expects some auto and auto components makers to benefit from the government's ₹1.46-lakh-crore PLI (Production Linked Incentive) scheme to boost domestic manufacturing. The following table shows the companies in the Original Equipment Manufacturers segment and the Auto parts segment which Nomura expects to be the potential beneficiaries.

Details of the PLI Scheme 

• Last month the government announced its plan to offer incentives to 10 sectors, over a five-year period. The sectors included automobile, solar panel, speciality-steel, textile units, food processing plants and specialized pharmaceutical product makers.
• The highest amount of ₹57,042 crore was allocated to provide incentives to the automobile and auto components industries.

Impact on the Auto sector

• As per Nomura, the scheme focuses on boosting exports and give a global edge to Indian companies and is likely to give an annual benefit as nearly 2% of industry revenue on average.”
• Additionally, Indian manufacturers are expected to gain market share globally in segments such as two-wheelers, forgings and tyres. For the passenger vehicles, the impact might be limited as the key markets which are essentially the developed markets have excess capacity. 
• Indian auto industry is set to recover from the devastating effects of the Covid-19 pandemic and see stronger growth in FY22, said Nomura. However, the passenger vehicle segment may reach the 2018-19 levels only in 2023-24.

Even before the pandemic struck and triggered the economic downturn, Automobile sector was struggling for years. The cycle now has seemed to turn and the sector has seen a quick recovery. Post lockdown numbers were aided by pent up demand, the festive season and changing consumer preferences towards personal mobility. Two-wheelers have outperformed all other segments with commercial vehicles remain under pressure. Going forward the industry needs a couple more quarters of good growth to establish that a strong recovery has started and the post lockdown numbers were not just because of the pent up demand.