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Maruti Suzuki sales fall 22% in May as India car demand weakens more

Tata Motors, Mahindra also witness slowing demand

Falling sales at Maruti reflect a broader slowdown in India's automobile industry.   © Reuters

MUMBAI (NewsRise) -- Passenger vehicles sales in India continued to decline in May with the nation's top car maker Maruti Suzuki India posting a 22% slump, stirring fears that the demand slowdown may prolong through the year.

The Suzuki Motor unit's total sales including exports fell to 134,641 vehicles last month, compared with 172,512 units a year earlier, the company said in a statement on Saturday. Domestic sales of Maruti's cars, minivans, and sport-utility vehicles dropped 25% to 123,250 units. Export fell 2.4% to 9,089 units.

Falling sales at Maruti reflect a broader slowdown in India's automobile industry, which expanded at the slowest pace in five years in the last fiscal year ended March 31 amid a credit crunch that squeezed consumer spending. Sales of cars, SUVs, and vans barely grew 2.7% to 3.38 million units in the year.

India's main automobile trade body, the Society of Indian Automobile Manufacturers, forecast sales of passenger vehicles to grow 3% to 5% in the current year. Maruti has forecast production and sales to grow between 4% and 8% during the year. Last year, it had predicted a 10% sales growth, but barely managed to grow 6.1%.

Passenger vehicle sales in India have been tottering since July, as fuel prices rose and farm incomes dropped. Asia's third-largest economy, meanwhile, expanded at the slowest pace in more than four years in January-March at 5.8%.

Most industry observers, including Maruti Chairman R.C. Bhargava, are predicting the demand to recover in the second half of this fiscal year as the dust from India's general elections settles down. The optimism is also driven by hopes that India's Monetary Policy Committee would further pare interest rates to stimulate the sagging economy.

However, some investors are starting to get wary.

"The monsoon forecasts indicate a subnormal monsoon. The economy is also not doing very well, along with soaring unemployment," said Varun Khandelwal, a director at Bullero Capital. "These things don't bode very well for consumption."

According to private weather forecaster Skymet, India's monsoon rains, the mainstay of the farm-dependent economy, will deliver less rains than average this year. State-run India Meteorological Department has predicted average rainfall over the season.

Investors are now looking forward to a fresh impetus in public spending after the new government under Prime Minister Narendra Modi presents the full budget for this fiscal year in July.

"But it will take some time for the impact of new policies in the federal budget to be felt on the ground. A recovery in demand is unlikely this calendar year," Khandelwal said.

Meanwhile, SUV and tractor maker Mahindra & Mahindra reported a 3% decline in total May sales to 45,421 units. The company witnessed a 1% fall in sales of passenger vehicles.

"While consumer sentiment and demand continued to be subdued during the pre-election phase, our focus has been on correcting the channel inventory," Rajan Wadhera, president of the automotive business at M&M, said in a statement.

Tata Motors, India's largest automaker by revenue, posted a 26% drop in commercial and passenger vehicles sales in May. Domestic sales of Tata's passenger vehicles saw a 38% slump.

Shares of Maruti gained 2.9% in Mumbai trading on Monday, while that of Mahindra closed 1.2% higher. Tata Motors shares rose 1.2%, while the benchmark S&P BSE Sensex gained 1.4%.

--Dhanya Ann Thoppil

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