RBI Policy Applies Brakes On Auto Growth

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RBI Policy Applies Brakes On Auto Growth

Slow Recovery From COVID Shocks Will Be Dampened, Say Dealers

RBI’s move of increasing repo rate by 40 bps will apply brakes and dampen the sentiments further, said FADA president Vinkesh Gulati

MUMBAI, May 5 (The CONNECT) - RBI’s decision to increase the repo rate by 40 basis points will apply brakes on the sentiment of the automobile market which has just about began to recover from the COVID shocks, The Federation of Automobile Dealers Associations (FADA) said.

On YoY basis, total vehicle retail for the month of April’22 increased by 37% and 2-wheeler, 3-wheeler, CV (commercial vehicle), PV (passenger vehicle) and Tractor sales were up by 38%, 96%, 25% and 26% respectively.

FADA president Vinkesh Gulati said auto retail has still not recovered from the jitters of Covid. When compared with April’19, total vehicle retail was down by -6%. Except PV and Trac, which were up by 12% and 30%, all the other categories like 2W, 3W and CV were down by -11%, -13% and -0.5% respectively.

RBI’s move of increasing repo rate by 40 bps has clearly taken everyone off guard. This move will apply brakes and dampen the sentiments further,

Skymet has recently predicted a normal monsoon. This will have a positive rub-off on rural sentiment which thus far has shown lacklustre performance. Tractor and 2W sales likely to improve if monsoons are evenly distributed.

With Russia – Ukraine war continuing and China under lockdown, the global Auto Industry continues to witness supply crunch as semi-conductor shortage along with high metal prices and container shortage prevails. Customers of PV segment hence continues to witness long waiting period, Gulati said.

The 2W segment which has witnessed slight increase in sales when compared to last month is extremely sensitive to price hikes and continues to remain below pre-covid levels. It is a clear sign that Bharat has not been keeping up with India. Apart from rural distress, multiple price hikes coupled with high fuel prices are keeping price sensitive entry level 2W customers away.

The CV segment after a long downturn which began post the announcement of axle load norms in 2018 is now witnessing demand recovery as all sub-categories continue to inch north. Government’s push for infra spending further aids sale.”

The Russia – Ukraine war and China lockdown will continue to create demand-supply mis-match thus delaying the availability of PVs, FADA said.

This coupled with RBIs out of turn announcement of increasing repo-rate by 45 bps has taken everyone off-guard. The move will curb excess liquidity in the system and will make auto loans expensive.

While PV segment may be able to absorb this shock due to long waiting periods, 2W segment is already reeling due to underperforming rural market, vehicle price hikes and high fuel costs. High interest rates for vehicle loan will be an additional blow for this segment. Certainly, this move will slow the speed of auto retail and dampen the sentiments further.

On the other hand, private consumption is regaining traction backed by a recuperating contact-intensive services and rising discretionary spending. Also, Skymet has come out with its normal monsoon forecast. If the same is evenly distributed, it will have a positive rub-off on rural sentiment as farmers will be able to get better crop realisation thus increasing their disposable income. It will thus benefit Tractor and 2W sales. This along with marriage season in coming days will also see a traction in Auto Retail.

Overall, FADA changes its stance from extremely cautious to cautious in terms of slight recovery in near term.

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