Car sales have risen some 15% year-on-year in June indicating an incipient recovery in the space at a time when fuel prices remain elevated. However, the performance of other segments primarily commercial vehicles(CV) has been extremely disappointing. Indeed, even within the passenger car space, smaller cars like the Alto and the Wagon R have done well because companies have lured first-time buyers with hefty discounts of anywhere between R25,000 and R50,000. However, that doesn’t suggest a broader revival in demand just yet, given a player like Mahindra and Mahindra actually saw a month-on-month dip of 12% this time around while a Hyundai didn’t even manage a double-digit growth rate. Unless there is a pick-up in the monsoon, firms like Maruti Suzuki that sell close to 25% of their volumes in rural markets could find themselves in a spot in the coming months.
In fact, the weak numbers from Bajaj Auto–sales, including exports—up just 3% y-o-y—are an indication of how subdued consumer demand is right now though it must be said Hero MotoCorp did report a reasonably good increase of 8% y-o-y. What is really worrying though are the anaemic CV volumes; at Tata Motors, HCV volumes dropped 6.3% y-o-y while LCV volumes crashed 32% y-o-y. These numbers, on a low base, are a sign that the economy is still in a trough. While truck rentals seem to have inched up by 2-3%, some of this could be the result of higher diesel prices. The good news is that fleet utilisation is slowly improving which means a pick-up in economic activity; demand for cement, for instance, which remained subdued throughout FY14 growing by just 3%, was better in April at 7%. The weak early monsoons—roughly 43% below the long-period average—however, could hit agricultural output and the rural economy; already the pace of growth of real wages is coming off. With visibility on demand still poor, not too many projects are taking off just yet as can be seen in the slow offtake of non-food credit at sub-15% levels. While the government may offer incentives for industry to add capacity, few promoters are likely to go ahead and commit resources before supply-side bottlenecks are removed. The higher manufacturing PMI data for June, at 51.5—up from 51.4 in May—is no doubt heartening but any sustained recovery in manufacturing could take far longer than earlier anticipated. Certainly far longer than the stock market expects.