Journal of Commerce and Accounting Research

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Detection of Financial Distress in the Indian Automobile Industry


Affiliations
1 Professor, IMS Ghaziabad, Uttar Pradesh, India
2 Associate Professor, Finance, JIMS Engineering Management Technical Campus, Greater Noida, Uttar Pradesh, India
3 Assistant Professor, Finance, JIMS Engineering Management Technical Campus, Greater Noida, Uttar Pradesh, India
     

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India became the fourth largest automotive market in 2019, displacing Germany. By 2021, India is projected to overtake Japan as the third largest market in automobiles. The Indian automobile industry, which accounts for nearly 22% of the manufacturing industry, and contributes 7.1% to the country’s GDP, faced problems related to fall in production and fall in sales in the domestic market, as well as slower growth in export. The Indian automobile industry provides 37 million employment directly and indirectly, and the performance of the industry is important for the overall economic recovery of the country. This study’s objective is to evaluate the financial distress in the Indian automobile industry. The study used annual data of selected Indian automobile manufacturing firms for the fiscal year 2015-16 to 2019-20. The sample method used in the study is purposive sampling, with ten of the largest automobile companies listed on the Bombay Stock Exchange Ltd. (BSE), in terms of market capitalisation. The Altman, Grover, Springate, and Zmijewski models are applied to find distress scores results, which will confirm if there is any change in the financial performance of the companies. The financial performance measured over the study period has not significantly changed. In addition, comparing the results of the distress models shows that the distress level predicted for the selected automobile firms are significantly the same.

Keywords

Distress, Automobile, Altman, Grover, Springate, Zmijewski
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  • Detection of Financial Distress in the Indian Automobile Industry

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Authors

Ajay Kumar Patel
Professor, IMS Ghaziabad, Uttar Pradesh, India
Shikha Jalota
Associate Professor, Finance, JIMS Engineering Management Technical Campus, Greater Noida, Uttar Pradesh, India
Swati Sharma
Assistant Professor, Finance, JIMS Engineering Management Technical Campus, Greater Noida, Uttar Pradesh, India

Abstract


India became the fourth largest automotive market in 2019, displacing Germany. By 2021, India is projected to overtake Japan as the third largest market in automobiles. The Indian automobile industry, which accounts for nearly 22% of the manufacturing industry, and contributes 7.1% to the country’s GDP, faced problems related to fall in production and fall in sales in the domestic market, as well as slower growth in export. The Indian automobile industry provides 37 million employment directly and indirectly, and the performance of the industry is important for the overall economic recovery of the country. This study’s objective is to evaluate the financial distress in the Indian automobile industry. The study used annual data of selected Indian automobile manufacturing firms for the fiscal year 2015-16 to 2019-20. The sample method used in the study is purposive sampling, with ten of the largest automobile companies listed on the Bombay Stock Exchange Ltd. (BSE), in terms of market capitalisation. The Altman, Grover, Springate, and Zmijewski models are applied to find distress scores results, which will confirm if there is any change in the financial performance of the companies. The financial performance measured over the study period has not significantly changed. In addition, comparing the results of the distress models shows that the distress level predicted for the selected automobile firms are significantly the same.

Keywords


Distress, Automobile, Altman, Grover, Springate, Zmijewski

References