Demand for cars and bikes in India will plunge over 20 per cent in FY21: Fitch

International rating agency Fitch has forecasted over 20 per cent decline in domestic automobile demand during this fiscal year as the industry faces several challenges and not just pandemic driven issues.

Attributing the marginal improvement in July volumes to pent-up demand following easing of lockdown restrictions, Fitch said the problems facing the auto industry remains unabated.

"The domestic auto demand continues to face several challenges and we forecast the overall industry volume declining by more than 20 per cent this fiscal year. This forecast could be revised down if the extent and the magnitude of the pandemic are worse than we expect," Fitch said in a report on Tuesday.

The economic fallout from the pandemic has exacerbated the weak consumer sentiment that was dampened by higher cost of ownership under BS 6 emission standards adopted from this April.

This is likely to constrain demand from first-time car-buyers as well as upgraders, despite their preference for private transportation due to hygiene reasons, the report said.

Likely curtailment in private and public investments will weigh on demand for commercial vehicles (CVs), particularly medium and heavy commercial vehicles which are used in more cyclical end-markets.

The pandemic has also reduced availability of financing as lenders exercise caution, particularly to weaker borrowers who form a significant customer base for CVs, it added.

After a washout in the first quarter, monthly volume for passenger vehicles (PVs) improved in July by 73 per cent from June, while that of two-wheelers rose by 26 per cent, as the lockdowns were gradually lifted.

But on an annualised basis, car volume was lower by 4 per cent in July, and for two-wheelers was 15 per cent down, against 50 per cent and 39 per cent plunge, respectively, in June, it said.

Within PVs, demand for utility vehicles increased 14 per cent year-on-year in July after a 31 per cent decline in June, indicating the shift in consumer preference towards compact utility vehicles, the report said.

On the other hand, CV volumes continued to fall more sharply in July compared to PVs, while volumes for medium and heavy CVs continued to remain weak, with the industry seeing volumes plunging 90 per cent in Q1.

However, volumes of light commercial vehicles fared better after an 80 per cent decline for the segment in Q1.

Nonetheless, cost-savings helped reduce operating losses for automakers like Maruti Suzuki, Ashok Leyland, Mahindra and Hero Motocorp, Fitch said.

Tata Motors' domestic PV and CV volumes fell by 61 per cent and 90 per cent, respectively, in Q1, leading to massive losses in the quarter, it added.