New vehicle sales growth in India slowed in October, mainly due to the fact that consumers brought their purchases forward to earlier months in a bid to avoid a recent tax increase and to take advantage of attractive festive-period sales promotions.
IHS Markit perspective
- Significance: India's passenger vehicle market posted a marginal decline of 0.3% y/y in shipments during October, while deliveries of commercial vehicles jumped 6.4% y/y.
- Implications: The moderation in vehicle shipments in India during October can be attributed to pre-buying in the earlier months to avoid a recent tax increase and to high base effect as sales in October 2016 were boosted by festive demand. The majority of festive demand this year shifted to September.
- Outlook: For the rest of the year, we expect volatility in policies may hinder domestic growth. IHS Markit forecasts a 9.1% y/y expansion in light-vehicle sales in India this year to 3.72 million vehicles.
Automotive shipments remained flat at 349,630 units, up by just 1.0% year on year (y/y), in India during October, according to data released by the Society of Indian Automobile Manufacturers (SIAM). Automakers in India shipped 279,837 passenger vehicles to dealers during the latest month, marginally down 0.3% y/y. The volumes were led by cars, which posted a decrease of 5.3% y/y to 184,666 units, while utility vehicles (UVs) grew by 12.4% y/y to 79,323 units. Van sales also increased, by 5.0% y/y to 15,848 units. In the year to date (YTD), passenger vehicle sales are now up 8.7% y/y to 2.71 million units.
Commercial vehicle (CV) manufacturers registered a 6.4% y/y increase in total sales to 69,793 units. The performance was led by light commercial vehicles (LCVs), which rose 10.1% y/y to 43,635 units. Sales of medium and heavy commercial vehicles (MHCVs) grew marginally by 0.9% y/y to 26,158 units. CV shipments in the YTD are up 5.9% y/y at 638,570 units. SIAM's figures represent automakers' vehicles dispatched to their dealers, rather than retail sales.
Outlook and implications
After witnessing strong growth over the past three months, new vehicle sales growth in India slowed in October. Pre-buying in earlier months to avoid a recent tax increase, especially in the case of large sedans and sports utility vehicles (SUVs), which are the fastest growing segments in India, resulted in relatively soft demand last month. Consumers will take some time before they get used to the new tax rates, which have gone up by 2% to 7%, according to IHS Markit's associate director for automotive sales forecasts, Puneet Gupta. At the same time, there is a fair element of high base effect as sales in October 2016 were boosted by festive demand as well as the lifting of the conditional ban on diesel vehicles in the national capital region (NCR). In contrast, the majority of festive demand this year shifted to September.
In terms of specific brands, Maruti Suzuki continued to lead the market with sales surging 9.3% y/y to 135,128 units in October. India's leading automaker is benefiting from strong demand for its products. Owing to this strong demand, the company has started a second shift at its Gujarat manufacturing plant, which manufactures 10,000 units on a single shift per month. Second-placed Hyundai reported a marginal decline of 0.9% y/y to 49,588 units, while Mahindra & Mahindra (M&M) posted a drop of 5.4% y/y to 23,413 units. Thanks to the strong reception of the recently launched Nexon compact SUV, Tata posted an increase of 3.2% y/y to 18,314 units. Honda posted October shipments of 14,234 units, a decline of 8.6% y/y. Toyota registered a 6.5% y/y growth in monthly sales to 12,403 units. The Japanese automaker continues to witness strong demand for its Innova multipurpose vehicle (MPV) and Fortuner SUV. The newly launched limited editions Etios Cross X-Edition and Fortuner TRD Sportivo have also received good response from customers, according to Toyota. But Renault posted a 25% y/y plunge in October to 9,305 units, reflecting high-base effect.
The growth in the CV space also slowed during October. The CV makers witnessed strong growth in the previous months due to goods and services tax (GST)-led pre-buying, the impact of which is now waning.
The volatility in policies may hinder future domestic growth, according to Gupta. We forecast a 9.1% y/y expansion in light-vehicle sales, including passenger vehicles and LCVs, in India this year to 3.72 million vehicles.
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