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NEW DELHI : Weak two-wheeler sales, particularly those of entry-level motorcycles and scooters in the month of January are pointing to an underlying stress in the rural and semi-urban economy.

Vehicle registration data released by the Federation of Automobile Dealers Association of India (FADA) for the month of January revealed registrations of two-wheelers shrank 10% in January this year compared to the same month last year, and tractor registrations fell 13% for the same period.

While tractor sales were low owing to the high-base from a record sales run for tractors in 2021, the impact of dampened consumer sentiment is also weighing on the market.

In contrast, sales of commercial vehicles were up 20.5% in January year-on-year, and 3-wheeler sales increased 30% year on year, helped by a rapid conversion of passenger three-wheelers to electric vehicles.

Passenger cars registrations were down 10% in January despite robust demand, mainly on account of low dealership inventories, as carmakers grapple with a semi-conductor shortage to ramp up production.

The dichotomy in poor demand for entry-level cars and commuter segment two-wheelers and a healthy turnaround in the commercial vehicles, as well as resilient demand for PVs in urban pockets reveals a widened urban-rural divide as the country emerges from a third-wave of the Covid-19 pandemic.

 “We are seeing stress in the rural economy and the divide in urban and rural demand is very evident. Urban demand and customer interest is growing day-by day but entry-level customers are still not back to pre-Covid levels. We are seeing that manifest in lower sales of entry-level segment 2-wheelers, i.e. 120 cc and below", Vinkesh Gulati, President, FADA told Mint.

“On the other hand, sales of premium bikes normally sold in tier-1 towns and metros are consistent – we see either growth or stable demand in those segments, but that is not able to offset the slump in the commuter segment. There is a similar trend in the passenger car market too, where entry-level demand is shrinking and urban demand for sub-compact SUVs is growing", he added.

Gulati added that given there was no direct budgetary support to this segment (two-wheelers), there is no immediate trigger for demand and the segment may struggle for as long as the next six months. Measures like highway construction & MSP guarantee to farmers will show-long term impact and the marriage season may instigate some buying, Gulati said, but there will be a double-digit or high-single digit decline in sales for the next few months.

 “Two-wheeler demand is adversely impacted due to a delayed harvest, threat of the third wave of the coronvarius, income loss for MSMEs, traders and also a delayed replacement cycle due to the noise around EVs," said Jay Kale, Senior Vice President, Elara Capital told Mint.

He said that demand will recover in the April-June period when North India witnesses the auspicious season for weddings, but double digit growth will only be seen in FY23, albeit on the low-base of FY22 and once the factors mentioned above abate.

On the revival of CV sales, Kale said that demand momentum in the M&HCV market is improving due to construction activity picking up and fleet operators seeing better gross profit for the last 2-3 months. Despite an uptrend in demand, sales volumes are still below their peak, and are expected to reach FY19 volumes only in the next 3-4 years.

While semiconductor shortages continue to play spoilsport for car retails, PV customers are relatively less impacted due to Covid-19, unlike two-wheeler buyers. However, according to Kale, actual retail sales need to be monitored as supplies improve to fully gauge the current demand.

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