This will affect companies such as Hero MotoCorp Ltd, Maruti Suzuki India Ltd, Mahindra and Mahindra Ltd and Escorts Ltd who have a large exposure to the rural markets.
Most of these automakers were hoping for a robust recovery in sales this year following an improvement in economic activity after the first wave of the pandemic last year that had forced the government to enforce a strict nationwide lockdown.
India has been witnessing an explosive rise in covid infections since April. This has led several states to impose strict lockdowns. Though the caseload in the most-affected cities of Mumbai and New Delhi are showing signs of a gradual decline, rural areas have been recording a substantial rise in infections that has hit customer sentiment adversely compared to last year.
Mitul Shah, head of research, Reliance Securities, said rural India has been seeing more covid-19 cases this year. Hence, the recovery will be slower than last year and it may happen only after the September quarter.
“Sales of entry-level motorcycles, passenger vehicles and tractors might remain subdued in the second quarter. Agri output in rural is quite high and a good monsoon might also help in recovery of demand. Once the vaccination drive picks up in rural areas and cases come down, demand will be back, but it might take 2-3 months," he said.
Lockdown measures by the Maharashtra government in April hampered automobile manufacturing and sales activity. Other states such as Delhi, Haryana, Karnataka and Tamil Nadu followed suit. Top automakers such as Maruti Suzuki, Hero MotoCorp, Hyundai Motor India Ltd and others have either suspended production or reduced output significantly.
“Consumer sentiment in the rural market has been hit significantly due to the intense spread of covid. Hence, discretionary purchases like automobiles might not be the priority now. The festive season in the second half could spur a demand recovery," said an auto industry executive requesting anonymity.
Ever since the unlocking of the economy from May 2020, sales of tractors, entry-level two-wheelers and passenger vehicles saw faster-than-expected rebound due to fewer covid cases in the rural areas as well as government incentives to protect farm income. A bumper summer crop also helped push sales.
Shaukat Ali, assistant vice-president, research, Monarch Networth Capital Ltd, said unlike the first wave, the second wave is not just more lethal but has also severely impacted the hinterland. However, higher agri-commodity prices have come as a breather for the rural economy, which relies heavily on farm incomes.
“If monsoon this season remains near normal, the rural economy will show recovery though slower than last year. Rural demand for tractors is likely to show a recovery in the second half, albeit with a slower pace than previous year, given a high FY21 base and absence of re-stocking at the dealer level this time," Ali said.
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