Retail sales of automobiles in India increased 8% sequentially in March to 1.68 million vehicles as companies offered discounts and other incentives to lure buyers and reduce dealer stocks, showed data issued by the Federation of Automobile Dealers Associations (FADA) on Wednesday.

Retail sales however fell compared with March last year because of the high base and prevailing weak market sentiments.

Retail sales of two-wheelers rose 10% month-on-month (m-o-m) in March to 1.32 million units, while those for passenger vehicles grew 5% to 242,708 units.

Sales of commercial vehicles grew at a modest 2% m-o-m to 61,896 units amid the prevailing liquidity crunch at non-banking financial companies (NBFCs), which has squeezed financing options for fleet owners.

Retail sales of automobiles started to decline since last September when customer sentiments turned negative as crude oil prices started moving north, and the rupee depreciated against the dollar to an all-time high which impacted returns in the stock markets.

The bankruptcy of Infrastructure Leasing & Financial Services Ltd, meanwhile, led to a liquidity crunch as NBFCs became over cautious in lending. As a result, vehicle sales fell to a six-year low during Diwali and Navratri last year.

With dealer inventories touching record high, companies had to cut production and offer increased benefits or discounts on vehicles to clear stocks.

The average inventory for passenger vehicles is, however, still in the range of 45-50 days, much higher than the inventory of 30 days typically maintained by most manufacturers, according to FADA. Two-wheeler makers managed to halve their inventories to 45-50 days from almost 90-100 days in January and February by enforcing production cuts at factories.

Showroom sales of passenger vehicles dropped 10% from the year-earlier in March, while sales in the two-wheeler segment fell 7%. Retail sales of commercial vehicles fell around 12% from the year earlier in March.

However, FADA, a lobby group for automobile dealers, said it expects customers to resume automobile purchases after the Lok Sabha elections, which conclude on 23 May.

“We at FADA believe that the worst for the automobile industry is now behind us and expect demand to stay at the current level in the months to come. We believe inquiry to conversion ratio to improve with a stable government at the centre and improvement in the liquidity situation," said Ashish Harsharaj Kale, president of FADA.

The subdued demand condition prevailing in the market was reflected in the wholesales data issued by the Society of Indian Automobile Manufacturers (Siam) on Monday.

Factory dispatches of passenger vehicles grew by just 2.7% to 3.37 million units in fiscal year 2019 (FY19)—the slowest since FY14 when sales fell 6%.

Anticipating continued pressure of sales volumes, Siam has projected a growth of around 3-5% in passenger vehicle sales for this fiscal year.

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