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Sectors seeing stress to be affected by rate hike

PV, durables demand to remain intact; 2-wheelers to suffer “There’s a long waiting list of customers for passenger vehicles. Demand is chasing supply, so the rate hike won’t make much of a difference,” RC Bhargava, chairman, Maruti Suzuki India, told FE. “

Sectors seeing stress to be affected by rate hike
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The passenger vehicle (PV) segment and consumer durables may not get impacted much by the rate hike announced by the Reserve Bank of India because the demand for them is high. However, for two-wheelers, where there is already stress in terms of demand, the move would be further detrimental, industry executives said.

“There’s a long waiting list of customers for passenger vehicles. Demand is chasing supply, so the rate hike won’t make much of a difference,” RC Bhargava, chairman, Maruti Suzuki India, told FE. “However, it would adversely impact two-wheelers because of the demand problem,” he added.

Bhargava said there’s no direct linkage between RBI announcing rate hikes and banks passing it on to consumers in terms of interest rates. “It’s supply-demand and risk perception which determine rate hikes by banks,” he said.

Nikunj Sanghi, president of Automotive Skill Development Council and a major auto dealer, echoed Bhargava’s views. “Interest rates will go up and cost of ownership will also go up as a result of RBI’s move, but where there’s demand, there won’t be a problem, it will also go up. This applies to PVs. However, where there’s stress, like in two-wheelers, there will be further problems,” he said.

“The PV segment may be able to absorb this shock due to long waiting periods, but the two-wheeler segment, which has been a non-performer due to the underperforming rural market, vehicle price hikes and high fuel costs, will not be able to take one more blow of high vehicle loan costs,” Federation of Automobile Dealers Associations India president Vinkesh Gulati said.

The same applies to consumer durables like air conditioners, refrigerators and similar other appliances. Retail chain Great Eastern Retail’s director Pulkit Baid said the rate hike is unlikely to impact demand for consumer durables as it is not likely to increase the cost of loans very much. “Cost of consumer durable loans for consumers may increase very slightly, so it will not impact demand,” Baid said.

“Given that finance penetration in the consumer durable sector is low at around 20-25% and 0% financing schemes are the preferred choice, we do not see a meaningful impact of the repo rate hike on demand sentiments for the consumer durable sector,” Pushan Sharma, director, CRISIL Research, told FE. “However, there can be some indirect impact, if at all, given that purchasing power of consumers stands to be impacted to some extent,” Sharma said.

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