Eicher share prices soared and investors of Eicher Motors were richer by 4,000 crore in Friday's trade after the company reported a series of positives. Is this a turnaround for the auto industry in India and overall the Indian economy?
You could say that Royal Enfield (Bullet motorcycles), Nissan and Renault are beneficiaries of a statistical benevolence. According to the latest figures available for July, compared to the July, 2015, Renault sales galloped ahead by an eye popping 610 per cent. Nissan sales too grew at a heady 126 per cent while Royal Enfield managed a healthy growth of 31 per cent in a brutally competitive two wheeler market. The jaw dropping numbers for Renault are easy to explain: the company sold 1686 cars in July, 2015 while it sold 11,968 cars in the month of July just gone by. The numbers look fantastic. But Renault still remains a minor player as numero uno Maruti Suzuki reported four wheeler sales of 125,777 units this July. Similarly, Royal Enfield sales grew 31 per cent to 52,138 units thus July. But that does pale in comparison to numero uno Hero Motor Corp that reported sales of 532,113 units this July- ten times that of Royal Enfield.
But such statistical playing around also reveals one clear trend: after years of stagnation and even falling sales since 2011-12, the Indian automobile industry is well and truly on a high growth path. This is the 12th consecutive month in which the auto industry has reported increased sales. Auto industry analysts at almost all consulting and research firms are of the opinion that industry sales would register a growth of almost 10 per cent in the financial year 2016-17. There is a strong probability of industry sales crossing the magic mark of 3 million in the current year.
There cannot be better news for an industry that has been battered by a weak economy and depressed consumer sentiments for almost five years. There are reasons for this optimism. For one, the July sales are remarkable because it is almost always a dull month for auto makers. Besides, auto companies are gearing up for bumper sales in the festival season months due in September and October this year. Then again, a good monsoon means rural demand, that had been very badly affected in 2014 and 2015 will once again see a positive turnaround. This will be really good news for two wheeler makers like Hero Motors and for almost all tractor companies. Finally, the Seventh Pay Commission hikes have been delivered to central government employees and will soon have a cascading effect on salaries of PSU and state government employees.
Worldwide, auto industry sales reflect the health of an economy and have a clear correlation with overall growth rates. In India, as elsewhere in the world, auto industry sales plunged in the aftermath of the 2008 Financial Meltdown. But a strong stimulus package in India led to a revival of both GDP growth and auto industry sales. A 10 per cent plus GDP growth rate five years ago was reflected in record auto industry sales that crossed 2.5 million units. Since then, as the economy kept faltering, so did the auto industry. But all signs indicate that economic growth is back on track. GDP growth in the quarter ended March, 2016 was a more than healthy 7.9 per cent, resulting in an annual growth rate of 7.6 per cent for the Indian economy in 2015-16. All forecasts suggest that GDP growth rate could touch 8 per cent in the current year. No wonder auto industry managers are salivating at the prospect of crossing the magic mark of 3 million in the near future !
