All eyes are on festival season as slowdown hits passenger vehicle sales
For now, analysts are considering the decline in stock prices of well-performing automobile companies as an opportunity to invest as growth is yet to cool off
The passenger vehicle (PV) segment continued to witness a slowdown in sales growth for the third month in September. No wonder then that investors in auto stocks are jittery. The BSE Auto index has fallen by 14% since April, even as the benchmark Sensex gained 7.4%. The moot question is whether this quarter’s slowdown in sales will trip the upward growth trajectory seen for about 18 quarters. Or, will the festive season bring some cheer to rev up sales?
The problem here is that four of the six large automobile manufacturers by domestic market share—Maruti Suzuki India Ltd, Hyundai Motors India Ltd, Mahindra and Mahindra Ltd, and Honda Cars India Ltd—led the 2.7% year-on-year sales decline for the month. As a result, the quarter ended on a weak note with domestic sales growing by just 1.8% from the year-ago period.
Besides, dealer feedback suggests buyers have turned cautious about making PV purchases, which is a worrying sign. The unabated increase in fuel prices is a damper, with the rupee depreciating and international crude oil price hitting new highs almost every day.
The government’s move to cut fuel prices may bring some respite on this front. Interest rates are set to rise, even as vehicle insurance costs have gone up. Customers are deferring sales due to rising ownership costs.
However, there is an optimistic viewpoint too that thinks the September quarter was an aberration. Firstly, the floods in Kerala dampened sales in the state. Secondly, the last fortnight of September saw some customers stay away from buying goods since they believe this to be an inauspicious period. Lastly, there could be a base effect too. A delayed festival season this year means that some sales may have got pushed to October and will reflect in the December quarter sales growth. If so, this should become clear in a month’s time.
According to Subrata Ray, senior group vice president at Icra Ltd, “A clearer trend would be visible only after the festive season in the current quarter. Also, a key trigger for demand is the rural market, where the traction appears to be strong. Hiring trends in the information technology sector are a positive for auto sales.” He adds that the impact of higher fuel price and interest costs tends to be relatively short term, if the underlying demand drivers are strong.
It is only when inflationary pressures persist or fears of job loss set in that they affect discretionary purchases. If these factors begin to show up in data, it could be a cause for concern.
For now, analysts are considering the decline in stock prices of well-performing automobile companies as an opportunity to invest as growth is yet to cool off. In a month or so, by when the festival season sales trend will become clear, a clearer picture will emerge.
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