Mumbai / New Delhi: India’s passenger car sales rose for the first time in three months in September, led by Hyundai Motor India Ltd and Maruti Suzuki India Ltd, as dealers stocked up before religious festivals that are peak demand periods.

Sales to dealers rose 2.8% to 108,823 from 105,822 a year earlier, the Society of Indian Automobile Manufacturers (Siam) said in a statement on Monday. Car sales declined in July and August, the first drops in more than two-and-a-half years, as higher loan rates and inflation damped demand.

Indian auto makers raised production 18% last month to meet demand expected around the 28 October festival of Diwali, which is considered to be an auspicious time for making large purchases.

The boost will be temporary as a stock market plunge and a slowing economy may keep consumers away from showrooms, said Ambrish Mishra, a Mumbai-based analyst.

“Interest rates are not going to come down, there is an economic slowdown and liquidity is still tight," said Mishra, an analyst at MF Global Sify Securities India Pvt. Ltd. “I don’t think sales will improve significantly until December."

Car makers encourage dealers to stock about 15% more vehicles ahead of holidays such as Diwali, the Hindu festival of lights, said Sandeep Singh, deputy managing director at Toyota Kirloskar Motor Pvt. Ltd, Toyota Motor Corp.’s India unit.

“We had clearly planned that there shouldn’t be a shortage of cars during the festival season," Singh said in a phone interview on Monday from Bangalore, where the company has its factory.

Toyota’s sales surged more than four fold to 3,477 last month after it shipped the revamped Corolla Altis to dealers.

Industry-wide sales growth was inflated because Diwali was in November last year. That skews the growth rate in favour of September this year as the festival falls in October.

Inflation that rose to a 16-year peak and loan rates that have almost doubled in the past five years squeezed consumer spending in India.

Car sales in the first half of the fiscal year that began in April increased 5.3% to 600,385, half the pace of last year, according to Siam data. The auto makers group last month cut its growth forecast for the year to 10% from as much as 13%. The industry only collects data on shipments from factories to dealers and doesn’t report retail sales in Asia’s fourth largest auto market.

Hyundai, the second largest car maker in India, saw sales increase 24% last month. Maruti, India’s largest car maker, reported a 0.3% increase in sales.