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Auto sector sees no fireworks this Diwali

With market analysts feeling that the Reserve Bank is unlikely to pause on its tight monetary policy, the auto industry sees no respite even during the forthcoming festive season and expects further slowdown in sales in the months ahead.

August 22, 2011 / 11:22 PM IST

With market analysts feeling that the Reserve Bank is unlikely to pause on its tight monetary policy, the auto industry sees no respite even during the forthcoming festive season and expects further slowdown in sales in the months ahead.


"We don't expect any significant sales growth this festive season. The market has been dented by high fuel prices and interest rates. Any further rate hike will impact sales during the festive season," Icra senior analyst for automotive sector Shamsher Dewan told PTI.


PwC India head for automotive practice, Abdul Majeed concurred. "The chances of another interest hike next month has dampened the prospects of the auto industry during the upcoming festive season. This comes at a time when the market is already reeling under pressure from high interest rates and rising fuel costs," he said.


Given the rising interest rate scenario, coupled with higher fuel and commodity prices as well as inflation, the industry expects sales to remain depressed in the coming festive season too, Majeed said, adding sales will continue to grow in single-digit.


The market analysts see the Reserve Bank going in for another rate hike at its mid-quarterly policy review on September 16 to fight sticky inflation. The monetary authority has already raised interest rates 11 times since March 2010 in its bid to battle high inflation.


In July, headline inflation slipped a tad to 9.22% from 9.44% in the previous month. But food inflation has started moving up again in recent weeks due to supply disruptions following incessant rains in some parts of the country, further escalating the chances of another rate hike by the apex bank.


The central bank has recently been very vocal in stating that fighting inflation remains its main concern and that it would choose lower growth over high inflation.


Majeed says sales were hit during the April-July period due to increase in interest rates and fuel prices among other factors like appreciating input costs. Steel prices have risen nearly 15% in the first quarter of the fiscal.


Meanwhile, auto majors like Force Motors, Volkswagen and Maruti have already launched new variants to lure cagey buyers onto the shopfloor during the festive season to rev up their already sagging sales.


The festive season begins next month and peaks in October with Diwali. Traditionally car sales rise during this period as new purchases are considered auspicious at this time of the year.


"Continuous interest rates hikes and rising fuel prices have kept away consumers from buying vehicles. The frequent interest rate hikes are bothering us," industry umbrella body SIAM president and M&M president Pawan Goenka had said last week.

Car sales fell over 16% in July to 1,33,747 asagainst 1,58,767 units in the same month last year, after scorching sales numbers last fiscal.

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