INDIA REPORT
The upcoming festive season presents a promising outlook for India’s automobile sector, with expectations of significant growth, particularly in the two-wheeler (2W) segment. A projected increase of over 15% in the sector reflects heightened consumer interest, fueled largely by a recovering rural economy.
Rural areas, which contribute more than half of two-wheeler demand, are showing early signs of post-COVID recovery. The rise in customer inquiries, especially for mass-market brands like TVS Motors, Hero MotoCorp, and Bajaj Auto, suggests a favorable trend for the festive season.
The launch of new two-wheeler models, such as the TVS Jupiter and Hero Xtreme 125R, is likely to further drive sales. However, premium motorcycle manufacturers like Eicher Motors, producing Royal Enfield, may not experience the same robust demand due to a different target demographic, where rural recovery has less impact.
Passenger vehicles (PVs) are also expected to benefit, though to a lesser extent compared to two-wheelers. Rural demand constitutes over 35% of the PV market, with utility vehicles (UVs) showing stronger growth potential than hatchbacks. This favors manufacturers like Mahindra & Mahindra and Tata Motors, whose new models like the Mahindra Thar Roxx and Tata Currv are expected to capture consumer interest. In contrast, traditional hatchback leader Maruti Suzuki may see lower growth as the market leans toward UVs.
In anticipation of this demand surge, dealers have increased inventories, holding stocks for 1.5 to 2.5 months, signaling optimism about festive sales. This stocking strategy indicates confidence in both manufacturers and retailers about rural and urban consumer buying patterns during the festive season.
However, the commercial vehicle (CV) market is projected to grow at a modest pace, driven by replacement demand rather than new demand, especially in the medium and heavy commercial vehicle (MHCV) segment. The forecast for the tractor segment, another indicator of rural economic health, shows stable growth in the high single digits from FY24 to FY26, with long-term positive prospects tied to agricultural recovery.
In a broader sense, while the festive season is expected to bring immediate boosts to the two-wheeler and passenger vehicle markets, the long-term growth trajectory for the sector remains cautiously optimistic. Two-wheelers and tractors are expected to maintain solid growth through FY24-26, benefiting from rural recovery, while passenger and commercial vehicles may grow at a slower rate.
Source: Economic Times Read Article
PSR Analysis. While the projected growth offers an optimistic outlook, several uncertainties persist. The rural recovery is still fragile and not fully confirmed, relying heavily on favorable monsoons and agricultural outcomes, which are unpredictable.
The overconfidence shown in the increased inventory levels could backfire if the anticipated demand does not materialize fully, leading to surplus stock and potentially heavier discounting, hurting profit margins. Moreover, the uneven recovery across segments, with two-wheelers and utility vehicles seeing more demand than hatchbacks or premium bikes, highlights the need for manufacturers to strategically diversify their offerings. PSR
Aditya Kondejkar is Research Analyst – South Asia Operations for Power Systems Research
