FADA's cautious optimism: Auto retail sector eyes modest gains in February

On Thursday, Nifty Auto closed at 23,287, lower by almost a percent from the last close.

As 2025 kicks off, the Auto Retail sector enters February with cautious optimism, after a promising January. According to the latest survey from FADA (Federation of Automobile Dealers Association), nearly half of the dealers (46 percent) are hopeful for growth in the coming month. However, 43 percent expect sales to remain steady, and 11 percent foresee a slight dip. This mix of expectations highlights the complex nature of the industry—where optimism is tempered by a series of ongoing challenges.

On the bright side, dealers are confident that a few key factors will help sustain momentum. The marriage season continues to drive foot traffic, while new product launches and well-planned promotional activities are expected to keep customers engaged. Add to that the improvements in inventory management, better financing options from select lenders, and a backlog of orders in certain segments like commercial vehicles, and there’s a cautious sense of optimism among the dealers. With favourable policies and a potential post-budget lift in consumer sentiment, many believe February could see stable, if not slightly elevated, sales numbers.

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However, not everything is smooth sailing. Concerns about shorter working days, weak rural liquidity, and inflationary pressures persist, creating uncertainty about how much growth can be achieved. Tight lending criteria, rising vehicle costs, and subdued demand in certain industrial sectors also weigh on the sector’s overall performance. Despite these challenges, India’s Auto Retail market is poised for modest gains if these headwinds ease, with almost half of surveyed dealers still expecting an uptick.

Turning to specifics, two-wheeler sales showed impressive growth in January, rising by 4.15 percent year-on-year (YoY) and a remarkable 27.39 percent month-on-month (MoM). Urban markets, in particular, gained market share, climbing from 41.6 percent in December to 43.7 percent in January. Urban sales outpaced rural on a YoY basis, with urban growing 4.54 percent, compared to rural’s 3.85 percent. Dealers attribute this growth to new model launches, strong demand from the marriage season, and improved financing options. However, challenges such as rising interest rates, rural liquidity issues, and overall market uncertainty continue to pose risks.

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Passenger vehicle sales also saw robust growth, increasing by 15.53 percent YoY and 58.77 percent MoM, though a portion of this surge is due to December purchases that were registered in January, taking advantage of the "2025 model year" shift. Urban markets gained slightly, from 60.8 percent to 61.8 percent market share, but rural markets outperformed urban with an 18.57 percent YoY growth, compared to urban’s 13.72 percent. Dealers are noticing improved demand but also acknowledge that last year’s heavy discounting played a role in clearing older models and driving registrations. On the inventory front, things are looking up, with levels dropping by about five days to a more balanced 50–55 days, signalling an improved supply-demand equilibrium.

On Thursday, Nifty Auto closed at 23,298, lower by almost a percent from the last close. The index has slipped 5 percent in the last six months.