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Business trends

India passenger vehicle sales decline in November on weak festive demand

Tighter credit for customers also damp sales at Maruti and Mahindra

Vehicle sales have been falling since July with a small breather in October when demand remained unchanged.   © Reuters

MUMBAI (NewsRise) -- Passenger vehicle sales in India fell in November as automakers grappled with weak festival demand and a credit crunch, stoking concerns of a slowdown in the world's fastest-growing automobile market.

Sales of passenger vehicles, including cars, sport-utility vehicles, and vans fell 3.4% year-on-year to 266,000 units last month, according to data from the Society of Indian Automobile Manufacturers, or SIAM.

Automotive demand in the south Asian nation has weakened in line with a slowdown in the overall economy. During July-September, India's gross domestic product grew by 7.1%, slower than a 7.4% increase predicted in a Reuters poll, as farm incomes dropped with declining food prices.

Vehicle sales have been falling since July with a small breather in October when demand remained unchanged. The industry has been hit by the lingering effect of floods in the southern Indian state of Kerala and the high base in the year-earlier period when India rolled out a new nation-wide Goods and Services Tax. The new tax resulted in lower levies on most models, spurring demand.

Further, the economy has been hurt by a credit slowdown in the aftermath of a near meltdown at Infrastructure Leasing and Financial Services, a major non-banking financial company, in October. The turn of events at IL&FS has resulted in more regulatory curbs for the sector, making it difficult for small borrowers to get loans for their vehicle purchases.

"The reasons why we have seen a slight slowdown in November is a comparatively weak sentiment in the market, (with) interest rates and fuel prices going up," Vishnu Mathur, director general of SIAM, told reporters in New Delhi. "On top of that, there has been a tightening in liquidity. In some cases, retail financiers are also impacted."

"The festive season was also not as good as was expected," Mathur said. "The reduction in November sales is largely an inventory correction."

Last week, Maruti Suzuki India, the country's largest carmaker, said passenger vehicle sales fell 0.7% in November. Mahindra & Mahindra, India's second-largest SUV maker, saw sales of SUVs growing just 1%.

While SIAM has been hopeful of a rebound in auto sales on the back of festival demand, November sales raise the risk of the industry missing the growth target for this year, Mathur said. SIAM had previously forecast sales of passenger vehicles to grow 7% to 9% for the fiscal year ending 31 March.

"A sharp rise in finance penetration has played a crucial role in spurring passenger vehicle and two-wheeler growth in India since the fiscal year 2014," Edelweiss Securities said in a report. A stagnant or declining lending trend in a rising cost environment "is a definite threat" to demand and profitability of automakers, the brokerage said.

Sales of SUVs recorded a more than 10% fall to 69,884 units last month. Car sales fell 0.9% to 179,783 units. Automobile sales in India are counted as factory dispatches and not retail sales.

Domestic sales of trucks and buses, considered a barometer of the economy's health, grew 5.7% to 72,812 units in November. Sales of two-wheelers increased 7.2% to about 1.6 million units, the SIAM data showed.

-- Shivangi Acharya and Dhanya Ann Thoppil

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