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Wait for ‘Achhe Din’ seem to be getting longer for the economy. The festival season did not see any appreciable pick-up in demand. Consumer demand especially in the automobile sector was a disappointment.
Investment strategists and fund managers have been bullish on the automobile sector in the hope that it will be the biggest beneficiary of a pick-up in economic activity. Automobile sector sales for the month of October 2014 do not justify that bullishness. October 2014 had two of the biggest festivals – Dussehra and Diwali in a single month. Sales not picking up during this period, despite the fact that auto majors continued to offer discounts are not a positive sign for the sector as well as the economy.
Arvind Sanger of Geosphere Capital in an interview with CNBC TV18 said that the current rally in the Indian market is more of hope and expectation. He adds that after a while the hope rally will fade and the effects of growth will need to be seen in terms of the economic data coming out – whether in terms of rise in consumer spending or rise in industrial spending.
Market leader Maruti Suzuki managed to increase its volume by only one per cent as compared to the previous year but its volume decreased by two per cent when compared with the previous month, much lower than the 10 per cent growth witnessed in September 2014. According to broking firm Ambit, domestic volumes of the top-six passenger vehicle players put together decreased one per cent on a year on year basis. The top six players posted a growth of 21 per cent in August 2014 (YoY basis) which fell to 11 per cent (YoY) in September 2014. In the month of October 2014, which was supposed to be the most crucial month, the top six players have shown a negative growth of one per cent.
There were however some sparks of growth in Honda which recorded an 18 per cent growth followed by 6 per cent growth by Hyundai. Indian manufacturers like Mahindra & Mahindra and Tata Motors were the worst hit with their sales dropping by 16 per cent and 18.6 per cent respectively.
The worrying factor is that even the two wheeler segment (numbers do not include Bajaj Auto numbers but includes exports) did not do well in October. This segment which posted a YoY growth of 27 per cent in August 2014 and 30 per cent in September 2014 registered a marginal decline in sales in October 2014.
The only segment which continued to grow is the medium and heavy commercial vehicle (MHCV) segment, which is the only positive sign of a pick-up in economic activity. MHCV segment posted a YoY growth of 21 per cent in October 2014 as compared to 16 per cent in September and 7 per cent in August 2014.
Ambit report says that the strong despatch volumes reported in August and September 2014 was to some extent driven by the inventory build-up for the festival season. But the October numbers posted by the passenger car segment was still lower than their estimates.
Clearly the industry is not yet out of the woods. Analysts are still upbeat on the sector and would like to give the players some more time before they change their recommendations. The fact however remains, that with the festive season behind us there is little reason to be hopeful in the immediate future. The next big trigger for the sector will be in budget or if the RBI decides to cut interest rates. Till such time one only hopes that the hope rally does not turn into despair.
