Banks are making plans to get the country’s auto sector back on track.
Everyone will remember that Covid period when the real estate market was completely broken. Demand was in an abyss and real estate developers were on the verge of collapse. Then, the banking sector joined this sector and contributed significantly in boosting the real estate sector by offering various offers along with reducing interest rates. Something similar is now being seen with the automobile sector. Slowdown in rural demand for automobiles has led banks and financial companies to plan to make various offers for the festive season including low interest rates, free insurance and extended repayment tenures.
The situation of the sector is bad
According to experts, the Indian industry is flush with inventories worth around Rs 80,000 crore. Tractor sales, which tend to rise after good crop yields and farm produce sales, have fallen in the past two months, prompting caution on the part of lenders in rural markets. A large chunk of sales of two-wheeler maker Hero MotoCorp and carmakers Maruti Suzuki, Mahindra & Mahindra and Tata Motors, the sales leaders in these markets, come from rural areas. It is also seen struggling. A top executive of a finance company based in South India told a media report that currently rural customers are focusing on products with lower ticket size, so used cars and tractors are seeing a better trend in these suburban markets.
Cash flow will improve
Even with the arrival of the festive season (August-October), the rural market remains under pressure due to delayed consumer purchases, poor consumer sentiment and persistent heavy rains. Shripad Jadhav, President (Retail Agriculture and Gold Loans), Kotak Mahindra Bank, said that overall, the monsoon story looks good, which will boost rural development. We expect cash flow to improve with the upcoming crop production. Tractor and passenger vehicle penetration in rural markets remains low. With aspirations rising in these markets, we are optimistic about the future.
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What is being planned?
Industry experts said they are hopeful that rural consumers will start buying new products from the fourth quarter of the current financial year. A Mahindra Finance spokesperson said in a media report that with a good monsoon, we expect rural sentiment to pick up further as the festive season approaches. Our offerings will cover remote areas as well as regional markets. Brokerage Jefferies has given a “hold” rating to Mahindra Finance stock with expectations of good rural demand in the second half of 2024. Experts say that if heavy rains continue in September, it could cause damage to crops and weaken the purchasing power of rural areas. Federation of Allied Automobile Dealers (FADA) President Manish Raj Singhania said that weather-related anomalies are affecting the automobile retail market.
Inventory of 80 billion rupees
Singhania said that in August, India recorded 15.9 per cent excess rainfall across the country, 31.4 per cent excess rainfall in northwest India and 7.2 per cent excess rainfall in east and northeast India. On the other hand, a slight decline of 17.2 per cent was recorded in central India and 1.3 per cent in peninsular areas. Singhania said that weather-related anomalies have had a direct impact on India’s automobile retail market, which recorded a marginal growth of just 2.88 per cent year-on-year in August. Inventory has reached worrying levels – stocking days now rise to 70-75 days and total inventory stands at 780,000 vehicles, valued at Rs 77.8 billion. The two-wheeler market witnessed a 7.29 per cent month-on-month decline in August, mainly due to excessive rainfall and flooding, which affected demand.
Challenges also lie ahead
As the festive season approaches, there are several challenges that could impact automobile sales in the near term. According to the country’s meteorological office, India received 16 percent more rainfall than normal in August, with additional rains expected in September. This excess rainfall poses a major threat to crops nearing harvest, especially those sown in late June with a maturity cycle of 75 to 90 days. A senior official at a Mumbai-based financial company said continued heavy rains could have a negative impact on rural sales as reduced agricultural production could also reduce purchasing power. While the festive season and improving rural demand offer promising growth opportunities, continued weather uncertainties and high inventory levels may dampen the overall recovery.
