Ball bearing sector in India is on a roll as automotive demand soars

India's ball bearing industry is poised to grow in the coming years.

Bearings are used to reduce or eliminate friction in machines with moving parts. The automobile sector represents about 45 per cent of total demand. The engineering sector constitutes about 28 per cent of total demand; heavy industries, about 21 per cent; and the electrical sector, about 6 per cent.

India's automobile industry is growing quickly, and this is stimulating demand for ball bearings. Cheaper car prices, rising purchasing power and increased consumer access to credit are all stimulating higher demand for cars.

The automobile industry is expected to grow about 10-15 per cent a year for the next few years, which should create a knock-on effect for the ball bearing industry. India's engineering sector, expected to grow about eight to nine per cent a year, will strengthen the overall demand for ball bearings.

India as a whole is expected to grow six to seven per cent a year for some time to come, based on its recent economic performance. India's ball bearing market is thought to be about Rs30-Rs32 billion (Dh2.55-2.72 billion)in size.

The industry is expected to grow at a rate of 9-10 per cent in the years ahead, and thus represents an attractive investment. The industry itself is technologically advanced and can produce almost any kind of ball bearing. India's ball bearing industry meets about 65-70 per cent of India's domestic ball bearing demand. The remainder of the demand is supplied through imports, usually of highly specialised items.

India's ball bearing industry is made up of two parts an organised sector, commanding 55 per cent of the total market, and an unorganised sector, commanding about 15 per cent of the market. The rest of the market is catered to by imports.

This industry derives demand from both OEMs (original equipment manufacturers), as well as the replacement market. Of the total sales in this industry, around 60 per cent comes from the OEM side and 40 per cent from the replacement side.

The organised sector tends to dominate the OEM market, whereas the unorganised sector controls the replacement market. The replacement market is highly price sensitive, and thus the unorganised sector is able to maintain its dominance although some analysts believe the organised sector is catching up.

Many of India's ball bearing makers have foreign partners. Since the cost of production is low in India, the country is expected to benefit from outsourcing of ball bearing manufacturing.

Share correction

The Indian markets saw a correction last week, but trading ended on a higher note.

The Indian economic story continues to be one of growth and strength.

Metal stocks did well. These stocks increased about 7-8 per cent. Metals companies came out with strong results, and their future looks strong.

Banking stocks also did well, even though results were mixed. Consolidation among PSU banks is expected to move forward, and new private sector banks are expected to form as well. Stocks here gained about 4-5 per cent.

Auto stocks saw gains this week. Strong results here helped push the sector up by about 4-5 per cent.

Other sectors, such as pharma, IT and FMCG also ended the week with gains.

The coming week is going to be an interesting one. A pre-budget rally is expected some say the rally has already started. We need more proof, however, before we know if a full-fledged rally is in prog-ress. If markets hold to their current levels, then we can say the rally has started.

The coming week will see the markets trade in the range of 6,200 to 6,600. The budget will be the next trigger for the market.

The writer heads the Dubai office of Karvy Stock Broking Ltd.