After the sequential recovery in June, the demand for automobiles is bouncing back as the COVID-19 subsides and the revival in economic activity.
The Passenger Vehicle (PV) category is expected to record domestic sales somewhere near to July 2018 figures, while the commercial vehicles segment, after two years of slowdown, is expected to witness the demand coming back on track. However, the two-wheeler segment still remains under pressure because of the affordability factor.
According to Nirmal Bang, a trading firm, the underlying demand trends are strong, with inquiry levels witnessing a healthy pick-up across most segments. Moreover, demand recovery will accelerate in the coming months on the back of improving consumer sentiments, faster rollout of vaccination, and pick-up in economic activities.
'Overall demand for PVs is strong, supported by the increased preference for personal mobility, high order books (normal cancellation levels), and low inventory/new product launches. However, we expect Tractor segment volume to be relatively weak due to a seasonally slow month,' the firm added.
Shashank Srivastava, Executive Director (sales and marketing) Maruti Suzuki India, said the sentiment has recovered better than expected. Both rural and urban markets bounced back well in July compared to last year when demand recovered only in rural markets.
'We have a strong order book of 170,000,' he said and added that the overall sales of PVs to be at a similar level of July 2018.
The rural sentiments are robust, and the expectation of normal monsoon bodes well for tractor and two-wheeler segments. However, the two-wheeler segment still remains a cause of concern as the demand for entry-level motorcycles is not picking. But two-wheeler players who have international exposure do relatively well.
Vinkesh Gulati, President, FADA, said the overall sentiment is positive in the market. PVs and tractors are doing well. In contrast, the rest of the categories remain under pressure. However, with ease in restrictions, July auto sales will be better when compared to MoM or YoY basis.
Two-wheelers as a segment earlier contributed between 77% to 79% of the total automobile sales in India. However, the contribution has fallen by 5-6% ever since the pandemic happened. The primary reason behind the fall is that the entry-level two-wheeler is suffering the most due to rising prices of two-wheelers and fuel costs.
Nikunj Sanghi, Director, JS Fourwheelers and President Automotive Skill Development Council, said the two-wheeler demand is affected mainly due to affordability and rising fuel prices going above the roof. The price of the two-wheeler has increased by 20% after the implementation of BS-VI technology. About 70% of two-wheeler sales come from entry-level scooters and motorcycles. A similar pattern can be seen in entry-level cars too.
In terms of commercial vehicles, experts are indicating that demand will recover sharply in H2FY22 as economic activities pick up pace and financing issues and cash-flow constraints are ironed out. However, in the month of July, the demand is likely to be uneven due to a seasonally slow month.
Similarly, tractor demand is expected to taper down due to seasonally slow months, but good monsoons will yield strong results in the coming months.
Estimated July Sales of Leading Automakers
| OEMs | July 21 (E) | July-20 | YoY% | June-21 | MoM% |
| Maruti Suzuki | 146,000 | 101307 | 44.1 | 130348 | 12 |
| Mahindra & Mahindra* | 67337 | 51080 | 31.8 | 81186 | -17.1 |
| Bajaj Auto | 386500 | 255832 | 51.1 | 346136 | 11.7 |
| Hero Motocorp | 510000 | 514509 | 0.9 | 469091 | 8.7 |
| TVS | 272434 | 252744 | 7.8 | 257964 | 5.6 |
| Royal Enfield | 52000 | 40334 | 28.9 | 43048 | 20.8 |
| Ashok Leyland | 10200 | 4775 | 113.6 | 6448 | 58.2 |
| VECV | 4000 | 2135 | 87.4 | 2438 | 64.1 |
*M&M sales include Automotive and Farm Equipment
Source: Companies, Nirmal Bang Institutional Equities Research
Q2FY22 Outlook
The sentiments and demand look promising, but industry leaders are still cautious about the third wave of COVID-19 apart from the seasonality factors. In August, festivals such as Onam and Janmasthmi will aid some demand. But this year, the Sharad period (during this time, Indian buyers refrain themselves from buying new things) is falling in September, which may delay some recovery. However, all these market conditions and seasonality will depend on COVID-19 cases. There has been a rise in cases in Kerala (where Onam is celebrated) and in the state of Karnataka.
NB: Images are representational