Is economy finally reviving? What the jump in 2-wheelers, cars sales shows

Various 2-wheelers and car companies have shown strong sales growth in the month of October. However, the jump in 2-wheelers and passenger vehicle sales does not necessarily indicate a revival in the economy. “Several sectors are showing signs of an upturn that is being fuelled by pent-up demand and inventory building ahead of the festive season,” Aditi Nayar, Principal Economist, ICRA, told Financial Express Online. Such trends may not sustain after the festive season is over, and momentum may flag after December 2020, Aditi Nayar added. We await concrete signs of a durable uptick in demand, she further said. 

While sales of Maruti Suzuki rose 19 per cent on-year in the month, Hyundai’s sales surged 13 per cent. Similarly, TVS registered a sales growth of 22 per cent, Hero MotoCorp sales jumped 35 per cent, and Bajaj sales rose 18 per cent to reach the highest level on record. 

“Though automobile wholesales have shown a sharp recovery in September and October this year, retail sales were still far lower (up to September). This is because OEMs are pushing inventory to dealers in anticipation of good sales during the ongoing festive season,” Vahishta M. Unwalla, Research Analyst, Care Ratings, told Finacial Express Online. Though such positive numbers do hint an economic revival, it is important to see if the momentum in automobile wholesales sustain beyond December 2020, as the festivities and pent up demand will end, and hence inventory pile up with dealers will rise by the year-end.

Sales number of commercial vehicles is a strong indicator of economic growth

It is also believed that the sales figures have grown in certain specific segments and do not strongly indicate a revival. “Surge in 2-wheelers and passenger vehicle sales are the signs of consumer demands in specific sectors where linkage of the economy is not as high as that in commercial vehicles,” Rajat Bahl, Chief Ratings Officer of Brickwork Ratings, told Financial Express Online. If commercial vehicle sales surge, it will be a very strong indicator of economic revival, Rajat Bahl added. 

Some of the factors behind the rise in the passenger vehicle sales are the pent up demand for the last many months; higher social dispensing; and demand pick up due to the festive season, he further said. Also, last year, festivals were comparatively earlier than this year, which is also believed to be among the reasons for high auto sales in October this year.  

It is to be noted while passenger vehicles and 2-wheelers are also being preferred due to an increasing trend of using personal vehicles as a precaution against coronavirus, the pick-up in commercial vehicles is not expected in the current fiscal year. The commercial vehicle segment is directly proportional to the economy and the CARE Ratings GDP expectation of -8.1 to -8.2 per cent for FY21 indicates that a complete recovery in commercial vehicles is unlikely this year, the rating agency had earlier said in a report.