Car sales are accelerating in India.

A preference for traveling in a personal car over public transport and taxis during the pandemic is helping fuel industry growth as India goes through a new wave of coronavirus, analysts say.

“We believe consumer sentiment in the passenger vehicle segment remains positive due to a preference for personal mobility and a significant number of competitively priced new product launches,” said Suman Chowdhury, Managing Director analysis from Acuity Ratings & Research, based in Mumbai. .

According to data from Acuity, the overall volume of passenger vehicle sales for India’s top 11 automakers rose by around 125% in March compared to the same month last year. The rise largely reflects the weak base from a year ago, when sales were hit as the Covid-19 pandemic was setting in. But sales in March were also up from the previous month, by 4%. This “indicates continued strength in demand,” Mr. Chowdhury said.

India’s auto industry accounts for 7 percent of the country’s gross domestic product, according to the Society of Indian Automobile Manufacturers (Siam). It’s often seen as an indicator for the country’s broader economy, which plunged into recession last year due to a nationwide lockdown. It has since returned to growth thanks to the easing of restrictions and S&P Global Ratings is now forecasting an 11% increase in GDP for the current fiscal year from April 1.

The year before the pandemic, the auto industry had collapsed. In 2019, the country saw its biggest drop in car sales in more than two decades, according to data from Siam. This prompted some dealers to close showrooms, while factories have also closed temporarily.

An economic downturn in India, the growing popularity of ride-sharing apps Uber and its local rival Ola, and a cash shortage among non-bank lenders – who had become a popular source of loans for consumers – were major factors in the lending process. origin of the industry’s woes on this subject. time.

“The industry experienced a downturn before the pandemic due to weak economic growth – and its implication on job and income growth, and the impact of shared mobility,” said Jinesh Gandhi, director Research Assistant and Automotive Analyst at Motilal Oswal Financial. Services, based in Bombay.

The situation was so bad that 350,000 jobs were lost – including at parts makers and dealers – in the industry in India between April and August 2019, according to a Reuters report.

The industry suffered a further blow when the pandemic began to spread in March last year, leading to plant closures as one of the world’s toughest national lockdowns took effect, now citizens confined to their homes for months.

But the outlook for the sector has improved in recent months.

India’s largest automaker, Maruti Suzuki, reported domestic passenger vehicle sales of 146,203 units last month on Thursday. This is a 91% increase from March last year “when the pandemic impacted consumer confidence,” the company said in a statement. Sales were slightly higher than in March 2019, when it sold 145,031 units.

“The industry is enjoying a good recovery, supported by pent-up demand, a preference for personal mobility due to fear of Covid and savings on high discretionary spending, such as family vacations,” Gandhi said.

It comes as India is going through a second wave of coronavirus. The country recorded 89,129 new Covid-19 infections on Saturday, according to figures released by its Ministry of Health. This is the largest one-day peak in over six months. More than 12.3 million cases of Covid-19 have been recorded in the country since the start of the pandemic, with more than 164,000 deaths, according to Worldometer.

The current rate of infections makes people more cautious about using public transport and services such as Uber.

A strong performance of the agricultural sector throughout the Covid-19 crisis boosted sentiment among rural buyers, generating demand among them for cars. The majority of the country’s population lives in rural areas and it is still a largely under-penetrated market for car sales, Gandhi adds.

Auto loans have also become cheaper in India following two emergency central bank interest rate cuts during last year’s foreclosure, which helped boost sales.

India’s Tata Motors and other manufacturers have benefited from the improved outlook.

“Tata Motors’ passenger vehicle business recorded its highest sales on record in nine years in March 2021 and the fourth quarter of the fiscal year (January to March 2021),” said Shailesh Chandra, division president company passenger vehicles.

Its car sales rose 422% in March to 29,654 vehicles from the previous year, while its quarterly figures from January to March rose 162% from the same period last year.
“Volumes in the passenger vehicle industry are expected to remain in positive territory,” said Raghunandhan NL, automotive analyst at Emkay Global Financial Services. “Our positive outlook for the automotive sector is underpinned by expectations of a strong cyclical recovery, which is expected to last at least three years.”

The government has also announced a new scrapping policy, which could help generate some demand for new cars. This dictates that passenger vehicles that are over 20 years old and fail emissions tests will have to be scrapped.

But analysts warn that there could also be obstacles that could hamper the recovery.

Globally, the industry faces semiconductor shortage issues, slowing production.

“Demand may not yet be fully reflected in sales figures due to semiconductor supply constraints resulting in production cuts for specific models and delays in new launches,” Mr. Chowdhury.

Several car models have customer wait times ranging from one to four months, according to an Emkay study.

Vivek Kumar, analyst at JM Financial Institutional Securities, states that “the [semiconductor shortage] is unlikely to resolve completely by the end of the second half of this year ”.

There are other issues that could affect car sales in India in the future.

Mr Gandhi said that in addition to “potential threats from disruptions on the supply side … [the] vehicle cost due to commodity price inflation ‘, could also have an impact on the recovery.

In the longer term, automakers also face the challenge of having to adapt more and more as the government has ambitions to push the country to use electric vehicles. But factors such as the lack of charging infrastructure in India mean that this policy is slow to take off.

“The electrification of the Indian passenger vehicle industry appears to be at least three to five years away, given the [high] median selling price, ”says Gandhi.

In the short term, if Covid-19 cases continue to rise, there is a risk that it will derail the recovery of India’s auto sector, analysts warn. Parts of the country have already put in place new coronavirus restrictions, and any new widespread and prolonged lockdown restrictions could impact the operations and sales of automakers.

“The sharp increase in Covid-19 cases since mid-February 2021 and the impact of any strict containment measure on businesses are the main threats to the infant. [consumer] demand picks up, ”says Crisil Ratings, part of S&P Global, in a new report.