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What falling car sales mean for markets
Every month, auto companies release data on car and two-wheeler sales. Stock market analysts are quick to take note of sharp movements in monthly car sales. Such a trend is a key indicator of the underlying economy and manufacturing activity in the country. It is not just a reflection of the health of auto companies but also gives an indication of the growth outlook for companies that supply spare parts or related technology to auto makers.
Here are pointers that could help you understand how auto sales numbers could be used to assess the outlook of shares of auto companies:
Sales Growth and prospects:The Society of Indian Automobile Manufacturers (SIAM) publishes monthly and annual auto sales data. All car makers are members of this association. They provide monthly sales data to the association. Car sales fell 6.7% for the financial year ended March 2013, according to the latest data. This is the sharpest drop in sales in a single financial year since 2001 when sales fell 7.7%, according to SIAM. The association expects auto sales to grow 3-5% in 2013-14. However, this is entirely dependent on a recovery in the economy.
Auto stocks weak:Over the past one month, shares of auto companies fell sharply. The S&P BSE Auto index shed 9.5% value over the past one month. This is a bigger fall than the 6.5% shed by the BSE indicating underperformance. This means the stock market expects auto companies to report largely weak financial performance. Profits could be low as sales continue to remain sluggish. Overall, car sales fell short of expectations despite the downward revision in projections by the industry body. SIAM initially estimated 10%-12% growth for the last financial year, but was forced to slash their forecast three times in the face of actual sales figures, said a report by Reuters, a newswire.
Why car sales are weak:The slowing economy is discouraging many people from buying cars. A slow economy means a fall in income for many people as people do not see wages go up significantly, or on the other hand, some lose jobs. New vehicle purchase still remains a big buying decision for many Indian families. At a time when inflation is high and salaries stay low, buyers prefer to avoid car purchases. High interest rates also make financing car purchase expensive. High interest rates make financing car purchase expensive. Further, fuel price hike has also negatively impacted car sales.
Outlook: Maruti Suzuki, the largest carmaker in India, will announce their financial results for the quarter ended March 2013 soon. Despite a decline in annual sales, revenues are expected to grow due to a combination of factors. These include higher diesel car sales, an improved product mix and exports of completely knocked down (CKD) version of Ertiga. The CKD version allows companies to import/export a car in a disassembled format. Tata Motors is expected to report losses in its standalone operations due to sharp downfall in sales of passenger cars and commercial vehicles. Jaguar Land Rover (JLR) sales volume during the quarter was strong and that should help Tata Motors to report profits on a consolidated basis during the March 2013 quarter. JLR accounts for ~75% of the total sales of Tata Motors and close to 90% of the profit .
The automobile industry in India produced 1,685,355 four-wheeler vehicles in the financial year ended March 2013, according to SIAM. The industry produced 1,845,868 vehicles in March 2012. Passenger Cars sales declined by 6.69% in 2012-13. The only bright spot in the year was an increase in sale of utility vehicles. These grew by 52.2% in 2012-13.