India’s rural market is set to witness growth momentum and is expected to contribute significantly to the automotive sector. Signs of the rural market bottoming out are visible and the market is expected to stabilise after 12 months of deteriorating demand, brokerage firm Motilal Oswal said in a research note. “Higher food inflation, favourable ‘terms of trade’ for farmers, higher rural spending by the centre, along with unusually high water reservoir levels and a good start to the Rabi crop season” will give impetuous to the rural economy. As the overall demand from the rural sector is expected to stabilise, tractor sales are likely to rebound.
“We believe that tractors are best placed to benefit from the rural recovery on high correlation with farm economics as well as due to no BS-VI related challenges,” the brokerage firm said. Last year, due to uneven rain and slowdown in rural demand, tractor sales, both domestic and exports, dropped 10.4 per cent between January and November last year. According to statistics from industry apex body Tractor Manufacturers’ Association (TMA), tractor sales were down from 8,40,804 units in Jan-November 2018 to 7,23,197 units in the same period of 2019. The tractor volumes, however, are expected to recover from this decline with an estimated 8-10 per cent volume growth in FY21 for the tractor industry.
Meanwhile, passenger vehicles should be the least impacted due to BS-VI transition due to limited cost increase for petrol PVs (about 70% of industry volumes) and the scope of alternative fuels. According to the report, the rural sector in India had been growing twice the rate of the urban market for around 2-3 years now. This was mainly “driven by expansion in the distribution network and increasing finance penetration, resulting in easy product accessibility for the rural customer,” Motilal Oswal said. However, auto sales were impacted in the second half of FY19.