With India poised for its worst monsoon in eight years due to the driest August in more than a century, a slew of products dependent on rural demand are bracing for a very challenging festive season ahead that kicked off with Onam this week.
That is, more than 50% of two-wheelers and about 40% of passenger cars and SUVs are rural dependent segments preceded only by tractors with 100% sales. The rural pockets are responsible for more than 70% of volumes for the entry level (100-110cc) motorcycles, which make up half of the category’s sales.
The deficit in south-west monsoon rainfall between June 1 and August 30, has expanded to 9% from the long-period average, according to the India Meteorological Department (IMD). However, states like Kerala with 48% deficiency are staring at a drought like situation followed by a grim state in Karnataka with 21% and Maharashtra with 11% deficiencies.
Retail volume data sourced from the centre-controlled Vahan portal for BS-6 passenger vehicles point to a fall by the end of August compared to the same month last year. At around 268,000-270,000 units, the segment will be falling short of last year’s August which had clocked volumes of 273,000.
Despite this, passenger vehicle (PV) makers are pumping in stocks in anticipation of a robust festive demand. At 55 days, PV inventory has been at a four year high since July and is expected to further grow in the run up to the festive season, which typically accounts for 35-40% of the year’s total sales.
Manish Raj Singhania, president, Federation of Automobile Dealers Association said, “Dealers are placing orders for 2-3 months forward in anticipation of good demand. But shortage of rainfall will further dampen the chances of demand revival in rural markets. But historically, rural markets have responded well during festive periods.”
While two-wheeler volumes in August will be better than the August of last year, they will still be falling short of pre-Covid-19 volumes. Vahan estimates suggest that the BS-6 two-wheeler segment will close with volumes of 1.14 million units in August, which though will be higher than the same month last year, will be less than the 1.33 million clocked in August 2019.
Amit Goel, Co-Founder & Chief Global Strategist, Pace 360, said “The regions with either significantly deficient or excessive rains account for about 25% of the tractor and two-wheeler sales of the country. Besides, the most important months for tractor sales are now behind us.”
So far, rainfall deficiency has had no impact on tractor volumes. In August retail volumes of agricultural tractors are expected to be 15% higher than the same month of last year, as per Vahan.
Hemant Sikka, president, farm equipment sector, Mahindra & Mahindra, said, “Overall, the kharif sowing has progressed well except for pulses. Supported by several other key drivers like robust government support for agricultural and rural growth, increase in minimum support prices, and favourable terms of trade for farmers, we maintain an outlook of low single-digit growth.”
