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DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.

Automobile Sector - an update

Automobile Sector.

Free-riding on high price elasticity coming to an end. A 24% reduction in vehicle prices, in the form of lower excise duties has played a significant role in the 15% volume CAGR since 2003. Nonetheless the gravy train may come to a stop, putting the onus on higher income levels to drive affordability and thereby volumes from here on. Separately on competition, we believe the size of the Indian auto market would need to be bigger before it becomes more cutthroat. Devoid of further price reductions, could growth rate slow down.

Statistical analysis attributes the bulk of the auto sales growth in India to excise duty reductions and not as much to GDP growth, implying strong price elasticity of demand. In other words, till now the bulk of the increase in affordability seems to have come from lower taxes and less from higher income levels. Going forward however,there’s not much room to cut excise duty, putting the onus on income growth to improve affordability. Growth rate…