Auto sector shares step on the gas pedal
In May, sales picked up some pace as retail sales grew 10%. Two-wheeler sales went up 9%, three-wheeler sales zoomed 79%. Meanwhile, Passenger vehicles had modest growth of 7% and CV also showed a similar trend by growing 7%.
The auto sector has gone through a lot, chip shortages, fuel price hikes, high input costs and the transition to BS6. All this led to tough times for the companies but now the tide seems to be turning. Although issues are still there, the situation is improving. The auto sector has performed well in Q4. There was volume growth across the board baring two wheelers. Due to the fall in raw material prices margins are improving.
In April, it lost some steam as retail sales grew by only 3.5%. The reasons might be huge buying in March and the transition towards BS6. In May it again picked up some pace as retail sales grew 10% (YOY) in May. Two-wheeler sales went up 9%, three-wheeler sales zoomed 79%. Meanwhile, passenger vehicles (PV) had modest growth of 7% and CV also showed a similar trend by growing 7%. The numbers look good on a yearly basis but it was reported that sales are below pre-pandemic level.
Going ahead, there are a few concerns like the high unemployment rate in urban areas where it was 9.8% in April from 8.5% in March. While the rural unemployment rate has declined from 7.5% in March to 7.3% in April but there are concerns about El Nino. Besides this, companies have shifted towards BS-6 norms, so it needs to be seen how quickly that will be adopted. Inflation has fallen and interest rates have stabilised but people will react to it with the lag. Hence it was reported that the management of OEMs believe we have to wait till H2FY24 for broad-based recovery.
For a whole year, the situation is reported to be positive. PrimeInvestor said in its report that retail sales in the auto sector can grow for third consecutive year in FY24. It also added that the lending cycle has improved in rural areas as small finance banks, NBFCs and micro-finance institutions have made a comeback. This could aid rural demand. The report added that commercial segment growth could be fueled by high government infrastructure spending, replacement of logistics fleet and vehicle scrappage policy.
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