According to a news report in The Economic Times newspaper, leading auto financiers are claiming that sales of passenger cars have risen smartly this month, thanks to the cut in excise duty. The article states that sales have risen by 20-25% compared with the previous month, with the prime beneficiary being the small car segment.
However, auto analysts are anything but sanguine about the prospects of the domestic passenger car segment.
An analyst with a foreign brokerage, who didn’t want to be identified, dismisses the automakers’ optimistic assessment saying that it doesn’t make any sense to compare sales with those of the preceding month because it represented a low base. On a year-on-year basis, he expects sales to drop by 15-16%. This may be lower than the decline of about 24% last month, but nothing to get excited about.
Not many consumers are in the mood to make big-ticket purchases, given the precarious economic situation. With layoffs and salary cuts on the rise, the number of consumers willing to commit to large EMIs (equated monthly instalments) is dwindling.
When car manufacturers report sales for the month of December early next week, they could well be higher than what they achieved in November.
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But it’s important to note that sales in November were much lower than market expectations as manufacturers sought to cut inventory with dealers. A month-on-month comparison, therefore, doesn’t make sense.
The cut in excise duty may have helped a bit in generating demand but also has a flip side, since the inventory lying with dealers has to be marked down to the new value and the difference will largely have to be borne by manufacturers.
The markets, too, seem hardly excited about prospects of auto firms.
Shares of Maruti Suzuki India Ltd have risen by about 10% from their lows in the beginning of the month, but that’s more or less in line with the bounce-back in the broad markets.
In terms of valuations, most auto shares continue to languish, reflecting the minimal expectations investors have from these firms.
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Graphics by Paras Jain / Mint