Two-wheeler sales, the most robust in the auto universe, have surely slowed. Sales have declined in the past few months, but will it worsen or is the worst behind us is the moot question. The July index of industrial production numbers show consumer demand is slowing, as durables and non-durables grew at 1.4% and 0.1%, respectively- the weakest in five month.

A few weeks back, a research study conducted across 100 large distributors by Mumbai-based brokerage Ambit Research Pvt. Ltd. pointed out that between July and August 2012, a clear moderation in growth is visible in discretionary spends like watches, paints, spirits and jewellery.

Two-wheelers, especially motorcycles, have now joined that trend. Data collated by Asian Markets Securities Ltd (AMSEC) shows that monthly motorcycle sales growth in domestic markets has been declining when compared to the corresponding year-ago period since January. Led by Bajaj Auto Ltd and TVS Motors Ltd, the falling trend line in sales was also seen for Hero Motocorp Ltd, albeit a tad later.

The situation worsened in August, with domestic sales contracting by around 8% from the year-ago period. A month-on-month comparison shows that sales have dipped in the past three months. Moreover, year-till-date motorcycle sales (including exports) during fiscal 2013 grew by a sombre 2.5%. Strangely, only scooter sales bucked the trend, growing at 22%, which lifted overall two-wheeler sales by 5.6%.

High inventory levels at the dealer and industry end have also led to production cuts across manufacturers. But then, high inventory is common ahead of the festive season in this segment.

The numbers indicate a clear slowdown in the two-wheeler sales. But, there’s a ray of hope that the forthcoming festive season and the second half of fiscal 2013, could well be the inflection point. There are reasons to back this argument.

Several new launches are expected in motorcycles, which comprise three-fourths of two-wheeler sales. Past trends indicate that new launches result in market expansion. Moreover, global entrants are also making strong inroads to increase the size of the pie. Honda Motors and Scooters India posted a robust 49% growth in the five months ended August, albeit on a smaller base.

A section of analysts also say two-wheeler firms have started pushing sales through retail finance. Some have tied up with non-banking finance firms to offer lower rates of interest compared to banks. Meanwhile, the central bank data indicates retail auto lending continues to be robust, with year-on-year growth at 20.5% as at end-July. Any dip in interest rates therefore could see an uptick in this.

Another factor that could arrest falling two-wheeler sales is that the monsoons do not seem to be as adverse as expected a few months ago. Further, according to Abhishek Banerjee, analyst, AMSEC, “poor mass transportation and infrastructure in our country will keep two-wheeler sales ticking at a better rate compared to other auto segments. At worst, customers could defer their decision to buy a two-wheeler for some time."

From an investor standpoint, one must watch out for these mitigating signals- lower interest rates, improving rural demand and growing size of market, along with any reduction in inventory levels. These could turn the tide in favour of two-wheeler sales, which seem in a better position compared to most of the other segments in the auto universe.

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