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Paradoxically, while the traction in September auto wholesales across original equipment manufacturers (OEMs) is being attributed to the coming festive season cheer, it has failed to enthuse investors. The Nifty auto index fell, with leading OEM stocks such as Maruti Suzuki India, Hero MotoCorp, Tata Motors, Mahindra and Mahindra, Eicher Motors and Bajaj Auto trending lower (as at 1 pm in Tuesday’s trading session).
What gives?
As is usually the case, wholesale despatches from companies to the dealers expand ahead of the festive months. Companies increase their stock of vehicles in anticipation of strong retail offtake. Even so, note that September sales were only marginally higher (low single digits) across passenger vehicle (PV) and two-wheeler (2W) companies, barring commercial vehicles that recorded double-digit growth.
Furthermore, wholesales growth too is clearly from PVs, which clocked the highest-ever monthly sales in India’s auto history and surpassed the 2019 pre-pandemic high! However, dissecting PV sales shows that the euphoria is only in the sports utility vehicles (SUVs) and the multi-purpose vehicles (MPVs). Mahindra & Mahindra sold its highest-ever number of SUVs for the third consecutive month while two-thirds of Hyundai’s sales comprised these vehicles.
The country’s largest carmaker Maruti Suzuki’s sales break-up portrays a mixed bag highlighting euphoria in the premium segment car sales and pain in the lower end. This is mirrored in Maruti’s 81 per cent jump in September UV wholesales and the sharp 22 per cent drop in compact and mini car sales.
A similar trend is also seen in 2W sales. Premium category motorcycles have been posting decent sales growth while the mass-market vehicles continue to post flattish domestic sales growth or even a decline, in some months. In fact, annual 2W sales in FY2023 were still below the FY2019 levels!
Such divergence in premium and mass-market sales negates the euphoria about the improving outlook for auto firms. It also raises some pertinent questions. Is rising aspiration seeing a saturation in 2W sales that is also complicated by a desire among buyers to transition to electric vehicles? Is inflation continuing to hurt mass-market demand? Or can lower entry-level sales imply a shift by commuters to public transport systems such as metros that are improving in large cities? Are consumer patterns in the auto sector changing with buyers falling prey to the aesthetic appeal of UVs?
Whatever be the reason, the surge in premium and luxury segment vehicles will not help boost overall sales for long. OEMs at this point are clearly betting on the festive season demand to hold up sales and clear stockpiles at dealers. But one cannot ignore the headwinds from rising oil prices, food inflation that is seeming to be sticky, high interest rates that are unlikely to trend down quickly and a global slowdown that could impact the domestic job market -- all of which may dampen auto retails in the medium term.
Perhaps, the savvy investor has already sniffed the impact of some of these negatives. Note that the first fortnight of October could dampen retails as it is the inauspicious Shraddha period. This explains the jittery mood in auto counters, which might continue until the actual festive season sales give a clearer picture of the road ahead.
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