By Ruma Dubey
When the mood is good, even things which are looking bad, tend to either look good or get’s completely ignored. And when the moods are bad, well, nothing good gets even registered. Depending on the level of pessimism, even good gets construed as bad. Such is the state of mind!
In that trend, wonder whether the exuberance on Dalal Street has rubbed off on the auto sector or the bounce back in the auto sector is reflecting on the bourses? Egg before chicken or chicken before egg… that’s how it is.
Trucks are truly the mirror of the economy. When demand booms, goods are needed which means supply and that in turn means, trucks are needed to fulfill the demand and supply. For demand to pick up, people should first have the right sentiments and then the money in the pocket. Sometimes, money is there buts moods are wary and there is also a situation where, moods are upbeat but pockets are not so full or empty. And demand for maximum trucks comes from rural India, where goods/ farm produce is transported across the country. For India Inc and for trucks, demand currently seems to be upbeat and this is not just looking at the December sales number but the trend has been so for the past three months.
Tata Motors posted great sales figures for December. Its commercial vehicle (CV) sales which comprises of Medium (M), Heavy (H), Light (L) CVs and buses showed a robust 62% (YoY) growth at 40,447 units. M&HCV trucks segment continues its growth trend with robust sales at 15,828 units, higher by 83%; I&LCV truck segment at 5,103 units grew by 78% and pickup segment sales was at 4,529 units, growth of 43%.
Ashok Leyland too did extremely well. It recorded a 79% (YoY) growth in total sales where M&HCV reported a whopping 82% jump while LCVs registered a 69% growth.
Mahindra & Mahindra (M&M) too posted an impressive sales tally for December – its M&HCV sales jumped by a huge 151% to 1193 units and it has stated in the Press Release, “We are particularly buoyed by our ongoing strong performance in the M&HCV segment which indicates a vibrancy in the economy."
Many have said that these massive YoY jump-up which we are seeing in the December sales is thanks mainly to the lower base effect. Last December was the first month after demonetization was announced on 8th Nov thus Dec’17 saw very low sales, making the sales in this Dec look extraordinary.
Yes, that is a major reason but not the only reason. December is seasonally a very weak month for auto sales as people do not want a vehicle which has a 2017 registration when a month later it could have a 2018 one. Yet, this time around, this seasonal factor was not in play at all.
What also worked in the favor of the CV sector were the new rules kicking off from 1st Jan. It is now mandated that starting 1st Jan 2018, trucks need to have AC or ventilation systems/air blowers in the cabins. Thus to clear off the inventory ahead of the rollout of the new trucks, trucks were sold at very steep discounts of 12-15%. This is one of the big reasons for this surge in demand.
There is also a very close relation between growth in railway freight traffic and sale of M&HCVs. Past three months or so, there has been a sustained improvement in freight traffic and this was driven mainly by uptick in coal, cement and food grain transport. And looking at the road ahead, the trend in CV sales is expected to continue.
The first shoots of sustainable growth are always seen in the automobile sector. It is said that automobiles, especially commercial vehicles (CVs) are the wheels of an economy – the moment they pick up speed, it’s an indication that the economy is on the way to recovery. Is that what we are seeing?