Will India's auto sector ride out storm post-festive season; automakers take cautious approach

The auto sector continues to clock good dispatches for the last 3-4 months and is likely to see a healthy performance in festive seasons. The encouraging trend has come as a good sign for the auto manufacturers that have been struggling for the last four years. Major auto manufacturers including Hero MotoCorp, Maruti Suzuki, Hyundai Motor India, and Tata Motors have seen a jump in sales of entry-level motorcycles, cars, and utility vehicles in rural and urban markets after the central government started unlocking the economy in May.

The monthly sales number of leading automakers are promising. Dispatches from last month showed that Maruti Suzuki topped the 1.8-lakh mark while wholesales from Hero MotoCorp were at a record 8 lakh. Korean companies, Hyundai Motors, and Kia Motors sales were at their peak, while Bajaj Auto and TVS Motor Company also registered a robust dispatch growth.

Uncertain times ahead

Even after healthy numbers, the auto sector is on a wait and watch mode. Rural demand for two-wheelers has already peaked in August and early September. The push in October and November months likely to be sustained thanks to the festive season. What needs to be seen is the demand post-November. Another issue that is expected to hit the auto sector after festive sales are the state of the Indian economy.

The country's GDP is estimated to be shrinking around 10% this year and, the unemployment rates that are higher than normal, particularly in urban centers, may hit demand in the future. Further, the extended work from home in major cities has also dented sales. Dealers accepting too many dispatches may also have sold on discounts to clear inventory if sales are not on expected lines post-festive season.

Automakers are also taking a cautious approach and feel that sales are unlikely to sustain post-Diwali. "The impact of people wanting to buy vehicles for personal use and festivals will be over by December. The rural segment will continue to grow substantially. We don't how the urban demand will be and how much income people in urban markets will be left with. I don't see any strong urban demand after festive since people can't afford the vehicles," Mint quoted RC Bhargava, chairman, Maruti Suzuki India as saying.

Rajiv Bajaj also shares the same view as he argues that 100cc vehicle sales have struggled to reach expectations and the prospects for demand after the festival are not too promising.