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Car sales up 7 7 in May industry pins hopes on normal monsoon

The industry is pinning its hopes on a normal monsoon and softer interest rates to help boost demand.
Car sales up 7 7 in May industry pins hopes on normal monsoon

Car sales grew for the second straight month in May, though at a moderate rate of 7.7 percent, compared with 18 percent in April, and the industry is pinning its hopes on a normal monsoon and softer interest rates to help boost demand.

According to data released by the Society of Indian Automobile Manufacturers (SIAM), 1,60,067 cars were sold in May. While the growth was largely led by the Maruti Suzuki, Hyundai Motor and Tata Motors, which after two years of decline now seems to be on a recovery path, sales at others like Mahindra & Mahindra, Toyota, Nissan, General Motors and Ford Motor declined last month. Of the 16 major carmakers in India, nine posted lower sales in May.

SIAM sounded cautiously optimistic in its outlook. "We are noticing a partial recovery that is not widespread across the all major players. Only a few companies are posting consistent growth, while many segments like bikes, light commercial vehicles and utility vehicles are still not out of the red," director general Vishnu Mathur said. "A strong monsoon could expedite the recovery."

In fact, one of the bigger risks the industry is now facing is the possibility of weak rains this year. Rains have been less than normal in some of the agriculturally important regions in the first few days of this monsoon season, and unless the situation improves, this could hurt crop plantings and output, accelerate inflation and weigh on rural income. While higher inflation could reduce the chances of interest rate cuts, lower farm income would leave less money in the hands of farmers, who are among the top customers of two-wheeler companies.

A sluggish rural market already weighs on motorcycle sales. In this segment, sales declined more than 3 percent from a year earlier to 9,53,322 units in the past month. Growth in scooter sales has slowed down significantly, to just 2.6 percent last month from around 25 percent in the fiscal year ended on March 31, 2015.

A silver lining was the medium and heavy commercial vehicle (CV) market as sales rose for the tenth straight month, growing 24 percent to 20,615 units. Often considered a barometer of economic conditions, CV sales have been strong with demand coming from mining, infrastructure and freight sectors.

"We have noticed a consistent upward movement in the heavy commercial vehicle sales for the past one year that could augur well for the economy. Besides, buses have also shown a marked improvement with government agencies renewing and expanding fleet under the national urban renewal mission," Mathur said. Analysts cautioned about the sustainability of demand.

While conditions do exist to drive growth, such as increasing demand for cars in urban markets as growth in disposable income outpaces inflation, there are risks as well, said Kumar Kandaswami, senior director at Deloitte in India. "We believe the rural slowdown will impact some manufacturers depending on their portfolio and their distribution strength. Typically entry level hatchbacks and utility vehicles and smaller motorcycles would be impacted by the slowing rural demand."

SIAM officials said the introduction of goods and services tax would give an impetus as it would reduce the overall tax rate on the industry. They also expect lower interest rates — the central bank cut its policy rate by a quarter percentage point this month — to prompt people to buy cars and two-wheelers.

Car sales are likely to grow in the range of 5-6 percent in the fiscal year through March 2016, while higher double-digit growth is expected for commercial vehicles. Two-wheelers are expected to remain under strain, while in the three-wheeler segments, growth is likely to be in the high single digit.
 

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