Automobile sales may hit a minor speed-breaker at the most if Reserve Bank of India ups policy rates later this month to rein in inflation, most industry officials said. A policy rate hike of 25 basis points–widely expected to be the centrepiece of RBI?s mid-quarter policy review on September 16 ? would prompt some banks to hike car loan rates.
Most automobile makers are not worried if rates increase a bit. A small hike in rates may be absorbed by buyers, said C Ramakrishnan, chief financial officer of Tata Motors, India?s largest commercial vehicle maker by sales. His optimism is shared by others. ?Even if banks increase their interest rates in the months ahead, sales growth is unlikely to be affected,? according to HS Goindi, president marketing, TVS Motor.
This financial year, automobile sales in India have been surging, as robust economic growth has helped maintain demand. Previous year?s low sales have also helped the growth look high. In July, 1.24 million vehicles were sold, 32% higher from a year ago. ?Right now, the economy has started to pick up and demand is buoyant for the automobile sector,? said Vaishali Jajoo, analyst, Angel Broking. She too doesn?t see demand falling sharply after a rate hike this month. ?It seems there won?t be any big impact if there is a rate hike of around 25 basis points,? she said. In April-June, the first quarter of this fiscal year, Indian economy grew 8.8% compared with 6.02% a year earlier. The higher growth was driven by robust manufacturing and services output.
Demand during the ongoing two-month-long festival season and new car launches will cushion the impact of a rate hike, according to Alchemy Research analyst Mayur Milak. And recent good monsoon rains will also help. ?Rainfall has been good, so rural demand will also be good,? he said. Up to August, or the first three months of the annual monsoon season, rainfall was 99% of the long-period average.
Monsoon rains are likely to be above average this month too, according to Met department forecast.
The optimism may fade if RBI increases rates significantly. A sharp hike could dry up retail credit, hurting sales, said Tata Motors? Ramakrishnan. Maruti Suzuki India chief general manager of marketing Shashank Srivastava agreed with the view. Maruti Suzuki, which accounts for half the car sales, doesn?t plan to offer discounts during the festival season as is typical because current demand for its vehicles is more than the capacity. ?Right now capacity is a constraint for Maruti; meeting the existing demand itself is a challenge,? he said. As the low base effect wears off, sales growth rate may soften although absolute sales will remain robust. Industry body Society of Indian Automobile Manufacturers? projection of 14% growth in 2010-11 points to growth rates falling in coming months, said Angel Broking?s Jajoo.