Recovery Underway: Auto Sales For January Show That The Worst May Be Over 

It is now more than likely that the negative impact of demonetisation will be limited to the third quarter (October-December 2016) and the fourth (January-March 2017).

A critical bellwether industry – automobiles – seems to have shrugged off bad days in January 2017, with most car manufacturers, and some two-wheeler makers, reporting either a revival or demand, or flat sales. Of the 13 car and bike makers to report sales data so far, eight are in positive territory, with Maruti Suzuki reporting a sharp 26 per cent hike in sales compared to January 2016. Hyundai, Tata, Ford, Nissan and Toyota have all reported double-digit sales growth, with only Mahindra and Honda reporting minus nine per cent each.

But a turnaround is visible – albeit in a limited way – even in the more cash-sensitive two-wheelers sector. In December, two-wheeler sales were down 18 per cent for the industry as a whole, but in January, Honda Motorcycle has reported positive growth of 3 per cent, while TVS Motor had flat sales. Only Bajaj Auto (-16 per cent) and Hero Motocorp (-13 per cent), the top two domestic majors, appear to be still suffering the after-effects of DeMo. But Eicher Motors, which makes the Royal Enfield bike, reported a 23 per cent growth in sales in January, after a rollicking 42 per cent in December.

In commercial vehicles, while Tata Motors reported a 7 per cent drop, Ashok Leyland grew 7 per cent in January. In December 2016, when the cash crisis peaked, Tata Motors reported 2 per cent growth and Ashok Leyland a drop of 12 per cent.

So, clearly, even this segment is putting the worst behind, despite some month-on-month blips. You would not be buying trucks if you don’t see demand for cargo movement in the near future.

The following tentative conclusions can thus be drawn.

#1: The after-effects of DeMo will be limited to this financial year.

#2: The demand scenario is beginning to stabilise, though this is not something one can say about all products, but automobiles are an early signal.

#3: The budget, which focuses a lot on rural spending, including higher allocations to MNREGA, will prop up demand at the bottom end of the market for most consumer durables and non-durables, including lower-priced two-wheelers.

We are headed for a revival from the DeMo setback by the first quarter of 2017-18.