Automobiles: Near-term pain on rural weakness

In the post-festival season, the automobile sector has seen muted demand, with two-wheelers feeling most heat due to weakness in rural sales. With over half its sales coming from rural markets, Hero MotoCorp's sales, which are down nearly three per cent year-to-date, are most at risk.

Given sluggish rural sales, companies across the auto segments are expected to focus more on urban-centric markets. Given its tractor portfolio and Bolero utility vehicle, Mahindra & Mahindra (M&M) is the other auto major with a major exposure to the rural space. To fill the gaps in its portfolio, the company will be shortly launching a compact utility vehicle targeting the urban markets.

The recently launched TUV300 has done well and led to improved sentiments for M&M. While in the short term, auto sales could be impacted by production disruption in Chennai and weak rural sales, analysts expect sales of passenger cars to bounce back on new launches, low fuel and interest costs and pay commission recommendations.