• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books
• Gallery

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

S. Hamsini Amritha

BL Research Bureau Concerns about the poor monsoon impacting sales growth have weighed on automobile stocks in recent weeks, with the BSE Auto Index declining 1 per cent in August.

Prima facie, it may appear that the automobile companies draw heavy support from rural India as companies with a substantial exposure to rural and semi-urban areas performed well last fiscal (2008-09).

But industry players have reasons to believe that concerns about a monsoon impact on sales may be overdone.

“First, dependence on rural economy for India is reduced to 17-18 per cent of GDP. Second, in the last four years, India has had very good monsoons. So the rural wealth is still intact. Moreover, in anticipation of bad monsoons, the Government is pouring in money through NREGA and road infrastructure projects,” says Mr Mayank Pareek, Executive Officer (Marketing and Sales), Maruti Suzuki.

About 13 per cent of the company’s total sales is accounted for by rural India.

Mr P. Balendran, Vice-President (Corporate Affairs), General Motors India, makes the point that car buyers in rural India are not really dependant on agriculture.

“After the onset of recession, the trend in sales has changed. Contribution of sales from the rural areas and small towns has increased substantially. However, the car buyers in the small town areas are not agriculturists. Therefore, if monsoons have an impact on sales, it will be very small,” he says.

Industry players also feel that much has changed between 2002, which was a drought year, and now. Positive developments such as the NREGA (National Rural Employment Guarantee Act) programme, increasing focus on rural infrastructure, more Government funds being deployed in road building projects, and newer satellite cities and townships that have been built in the last few years are likely to counter-balance the possible ill effects of a drought that may hit most parts of India this year.

While the passenger car segment appears to be on a better footing, the outlook for the two-wheeler market (which account for 70 per cent of the total sales), seems to be more uncertain. According to Hero Honda’s spokesperson, a deficit monsoon will be of concern to the two-wheeler industry.

“Several parts of the country continue to receive good rainfall while other regions have not received normal rainfall. For the industry, a significantly-below normal monsoon in large parts of the country might be of concern as the rural economy is still heavily dependent on the monsoon,” said the company’s spokesperson.

“Competitive pricing by all the companies, fuel prices being cheaper than last year and easing of interest rates are the positives for the automobiles industry,” said Mr Dilip Chenoy, Director-General, Society of Indian Automobile Manufacturers.

He added that the overall optimism in the industry could be kept up by advancement in festive demand and the pent-up demand built up in the last few months.

The stability seen in the employment market is another encouraging factor for demand.

According to Mr Chenoy, the real challenge to the industry is to see how demand pans out in October and thereon . The nature of change in inventories will be a crucial factor to watch out for.

More Stories on : Automobiles | Performance | Stocks | Cars | Climate & Weather

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2009, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line