Auto Industry Rebounds | RBI hikes rates for the 6th time | DMart continues to lose its shine?

The first month of the calendar year 2023 witnessed a great start for the automobile industry as almost every segment posted higher sales than the corresponding period of 2022. The passenger vehicles segment saw an uptick of 21% year-on-year and 30% month-on-month. Below is the segment-wise breakup of auto sales. It is a clear reflection of the strong momentum in the automobile industry.

Segment-wise Performance

• The passenger vehicle segment saw a robust month-on-month uptick of close to 30% amid a low base due to inventory correction. In terms of wholesale numbers, companies witnessed substantial growth. Maruti Suzuki India, which contributes to almost ~44 % of total passenger vehicle sales, grew by 46.6% on a month-on-month basis. M&M posted the highest growth of 65% on a year-on-year basis among peers. The increase in M&M numbers was on the back of the fresh product Scorpio N launch.
• Electric vehicle sales also witnessed healthy volumes amid a small base. Tata Motors is a crucial player in the EV segment and reflects the overall industry trend in the electric vehicle space. The company reported 4133 units sold on Jan 23, up by 39% y-o-y.
• The commercial vehicle or CV segment continued its strong growth trajectory. The continued uptick in demand due to the fleet replacement, growth in freight availability and the government’s consistent push for infrastructure projects have helped the CV segment rise above pre-covid numbers.With all significant companies witnessing growth on a y-o-y basis. However, on a month-on-month basis, companies such as TATA Motors and Ashok Leyland faced challenges on the export front as many global counterparts were going through macroeconomic challenges.
• Within the two-wheeler segments, low-end motorcycle manufacturers like Hero MotoCorp and TVS Motors posted a decline due to slow recovery and moderation in demand. Bajaj Auto and Eicher Motors’ critical players in high-end bike manufacturers posted decent growth. It indicates that customers preferred higher-end motorcycles instead of entry-level or low-end motorcycles.

Factors in favour of the automobile industry

1) Budget FY24:

The Budget has laid the foundation for even strong growth for the automobile industry. Demand for entry-level vehicles in all segments will benefit from a significant relief on income tax rebates under the new tax regime. Allocation towards vehicle scrappage policies and exemption of import duty for manufacturing lithium batteries will lead to reduced costs for manufacturing electric vehicles.

The government’s emphasis on replacing old government vehicles will powerfully boost the automobile industry. The budget has made key announcements further boosting infrastructure projects. A 33% growth in Capex with an allocation of Rs. 10 lakh crores will directly impact the mobility and logistics sector, increasing sales of commercial vehicles, which are already witnessing a substantial uptick.

2) China Re-opens:

With China’s factory activity gaining traction and the supply of semiconductors and other parts returning, the standard waiting time for vehicles may decline. China opening is a big positive for the passenger vehicle segment in India.

3) Price hike and decline in commodity prices:

While auto companies have tried to pass on most of their inflated raw material costs to end consumers by undertaking price hikes, declining raw material prices will further help improve operating margins, thereby increasing profitability. Below are the prices of raw materials:

An Indian consumer is price sensitive hence any reduction in raw material prices of auto companies will impact future price hikes.

Way Ahead

The government also highlighted the expectation of improvement in rural wages as inflation started calming down further in FY24. It will translate into an increase in rural wages, and hence we are very hopeful that the same will positively impact the rise in 2-Wheeler sales.

Ample financing, better rabi sowing, decline in raw material price, PLI incentives, improving infrastructure and governments emphasis on enhancing mobility well be key factors to be looked upon for the automobile industry.

Nonetheless, long-term fundamentals continue to remain intact for automobile sector.

To get the OEM-wise market share data, head to our detailed blog here .

Other Significant Developments

1. Interest rates hiked for the 6th time in a row. What does it mean for the Indian economy?

The Reserve Bank of India (RBI) has increased the repo rate for the 6th consecutive time in FY22-23, garnering reactions from market experts. RBI stood true to its stance of "withdrawal of accommodation" to ensure inflation remains within target while supporting growth.

Even though this one was in line with expectations, experts stated that the 25 basis point hike is the last one in the current cycle in view of the rising inflation due to global economic tensions. Experts also opined that there will be a prolonged pause before any further such decision, which should ideally be data-driven. A hike in the repo rate means that banks have to pay more to borrow funds from the central bank.?

This would mean that EMIs get expensive by approximately 2-4%, along with an overall economic impact.

To get a better understanding of how it will impact you as an investor, click here .

2. DMart: What is ailing the multibagger retail stock?

Once considered among the most sought-after retail stocks in the Indian markets, DMart has declined 28% from its yearly high; trading close to its 6-month-low.

As the Radhakishan Damani-led company faces intense competition from Ambani-led Reliance post its Big Bazaar acquisition, we discuss the reasons behind the former's declining share price in this video!

3. At 6.8% GDP in 2024, India to be the fastest-growing economy, forecasts IMF

IMF Managing Director Kristalina Georgieva praised India as a glimmer of hope amidst the dark clouds that hover above the world today, as it not only maintains a steady growth rate during this tumultuous period but most notably, its progress is strengthened by a series of structural reforms.

Here's a quick comparative infographic:

India will be a $27 trillion dollar economy by 2047, EY projected recently. Want to know the key driving factors? Click here .

Week Ahead for Markets: What to Expect

• In the domestic equity markets, trading activity will primarily be influenced by macroeconomic factors such as inflation data, global market trends, and foreign fund movements.
• Secondly, as SEBI declared that it will update the Finance ministry on Adani probe this week, market participants will keep an eye out for the developments.
• Retail inflation data for both the US and India is scheduled to be announced this week, with India on Monday (Feb 13) and the US on Tuesday (Feb 14).
• India's consumer price index-based inflation is likely to have risen in January and is expected to reach a 3-month high of 6%. This is mostly due to the fact that the prices in December had decreased to a 12-month low.
• Apart from this, companies such as Adani Enterprises, Grasim, Eicher Motors, SAIL, Nestle India, Apollo Hospitals, Biocon, ONGC, among others will announce their Q3 results during the week.?

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