Pirani said the recent cut in GST rates has improved vehicle affordability and should support demand beyond the immediate recovery seen in the sector.
“While in the second half we will see growth moderate on a high base, last year we grew at high-single digit across segments. This year also we should end up with a high single-digit growth across all categories, and heading into next year, despite 2 years of good growth, growth should continue in the mid-to-high single-digit range,” he added.
However, rising commodity prices remain a key concern for automakers and could keep margins under pressure in the near term. Steel prices have continued to rise, while the broader commodity environment remains uncertain.
Commercial vehicles and two-wheelers have been relatively quicker to pass on higher input costs through price increases. Passenger vehicle makers have been slower to raise prices, although price hikes are now catching up.
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According to Pirani, the first quarter was particularly weak for margins and the pressure is likely to continue into the second quarter.
He said, “Assuming commodities were to settle here, I think the price hikes will catch up for all the segments by the second half, and the second half sequentially should see significantly better margins than the first half across categories.”
New model launches are expected to remain an important growth driver for passenger vehicle companies over the next 12 months.
Pirani said most players are preparing launches, including models in segments and powertrains where they have not traditionally been as strong. Both listed and unlisted companies are expected to bring new products to the market.
This could make the next year particularly active for the passenger vehicle market, with launch momentum becoming an important factor for companies.
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Electric vehicles are also becoming an increasingly important part of the two-wheeler market. EV penetration in new two-wheeler sales is already approaching 10%, although capacity constraints at manufacturers are limiting the pace of adoption.
Pirani expects two-wheeler EV penetration to reach around 20% by the end of the decade.
The aviation sector continues to face challenges from higher costs, particularly from currency movements and elevated oil prices.
While airlines have increased fares, Pirani said the extent of cost inflation has made it difficult for higher ticket prices to fully offset the increase in operating expenses. Higher fares have also affected demand.
A stabilisation in crude oil prices and currency markets could provide some relief. With a relatively low base for air traffic growth this year, the sector could see improved conditions next year if the external environment becomes more supportive.
For the entire discussion, watch the accompanying video
