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Business

India car sales gather steam as cash crunch eases

Maruti Suzuki, Tata both log 20%-plus jumps for January

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  © Reuters

MUMBAI (NewsRise) - Car sales in India picked up pace in January, as a cash crunch that had dented consumer appetite began to ease, spurring demand for new models from Maruti Suzuki India and Tata Motors.

According to data from industry group Society of Indian Automobile Manufacturers, or SIAM, sales of passenger vehicles, including cars, sport-utility vehicles and vans, last month rose more than 14% to 265,320 units from a year earlier.

Deliveries of utility vehicles grew more than 24% to 62,264 units. However, sales of two-wheelers continued to decline with a 7.4% fall to 1.26 million, the data showed.

Demand for automobiles is recovering from a slowdown in the last two months after New Delhi abruptly pulled back high-denomination notes that accounted for 86% of the currency in circulation in a bid to crack down on corruption.

The demonetization in November resulted in a cash crunch, keeping customers away from high-value purchases. As a result, Car sales edged higher just 1.82% in December to 173,606 units from a year earlier, according to Siam data last month.

Maruti Suzuki, the nation's largest car maker, earlier this month reported a 26% jump in January sales to 133,768 units amid a surge in demand for mid-sized and compact cars. The company last month launched a mini cross-over called Ignis. Tata Motors, the owner of Jaguar Land Rover, also saw a 21% jump in January sales, riding on the strong demand for hatchback Tiago.

However, Mahindra & Mahindra, India's largest SUV-maker, reported a 9% decline in January passenger vehicle sales.

"Passenger vehicles have shown better recovery, aided by heavy discounting of 2016 models by the auto makers," Cholamandalam Securities said in a report on Tuesday. The brokerage expects sales to pick up gradually for the rest of the year as the availability of cash improves and interest rates ease. Most of the car purchases in the country are financed through bank loans.

The note ban had jeopardized the automobile industry's recovery from a slowdown over the last two years when rural demand plunged in the wake of two consecutive years of drought. The onset of a robust monsoon last year, and a government move to increase salaries and pensions of millions of current and former employees were set to bolster sales this fiscal year.

Sales of motorcycles fell 6.1% in January, while that of scooters plunged nearly 15%, the SIAM data showed. Hero MotoCorp., India's largest two-wheeler maker, Wednesday reported a 2.6% drop in third-quarter profit, weighed by 13% drop in sales volumes. The profit, however, exceeded expectations, aided by tighter cost controls and benign raw material prices.

Shares of Maruti Suzuki lost 0.49%, while that of Mahindra & Mahindra gained 0.57% in Mumbai trading. Hero MotoCorp closed 1.3% higher. The benchmark S&P BSE Sensex rose 0.14%.

-- Dhanya Ann Thoppil

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