India’s auto components industry will clock healthy growth steered by product changes (replacing metal with plastic/high-grad and lighter metals, increasing electronic content) and regulations (emission and safety norms).

Emerging technologies such as automated manual transmission, anti-lock braking systems, electronic control units/sensors, and advanced engine designs will be highlights. Further, with safety becoming the main concern, requirement for advanced driver assistance systems for lane assistance, distance control, and vehicle-to-vehicle communication, is on the rise.

In fiscal 2019, CRISIL Research expects the auto components industry to grow 12-14% on-year over a high base, on the back of demand from domestic manufacturers across vehicle segments. Led by improved rural demand (assuming normal monsoon) and state pay commission pay-outs, we expect the demand for two-wheeler and passenger vehicle segments to remain buoyant. Higher sourcing is expected from commercial vehicle (CV) and tractor manufacturers, who have been benefiting from the government’s infrastructure push and four consecutive years of good crops.

Exports - the bulk of which is to the US and the euro zone – are expected to rise 8-10% on-year given firm global automobile demand. Exports will also improve to countries in South-east Asia and Latin America, primarily Brazil as it recovers from recession.

Several Japanese and Indian manufacturers have started sourcing components from India because of cost competitiveness owing to economies of scale. Northward trend of crude oil prices signals improvement in the Middle East economy as well. However, global trade and geo-political issues remain key monitorables. However, exports in fiscal 2019 will marginally be lower than the previous fiscal due to capacity constraints faced by auto component players as they are increasingly focussing on the domestic market.