India outdoes most peers in BRIC block in car sales growth

Rohit Joshi and Siddharth Tak / Zee Research Group

During the first half of this calendar, India posted double digit growth in passenger car sales which can be considered as a bright spot amidst the gloomy economic scenario. Zee Research Group (ZRG) analysis reveals that barring Russia, India`s domestic car industry, has grown the maximum in the world ahead of bigger markets like China, Brazil, and Europe.

Amongst the BRIC block (Brazil, Russia, India, and China) member countries, Russia has witnessed the highest growth of 14 percent in passenger car sales, followed by India (9.7 percent), China (7.08 percent).However, Brazil has seen a marginal degrowth of 0.4 percent in the first half of this calendar as against corresponding period last year.

Explaining the rationale behind the growth story of India’s passenger car sales, Sugato Sen, SeniorDirector, SIAM (Society of Indian Automobile Manufacturers),opined, “Penetration levels of vehicles is very low in India when compared to any other country since even Srilanka and Pakistan also have higher vehicle penetration than us. Motorization has just started in India and it is expected that demand will sustain unless something drastic happens in India.”

Sen at SIAM attributed lesser car density as the main reason behind this growth and talking about the car density trend across the globe, he added, “The passenger car density in India is just above 10 per thousand people while it would be around 20 in China. However, in the developed countries it is in the range of 400 -500 per thousand people.”

Another school of thought on India’s buoyant car market came from A K Prabhakar, Senior vice president, equity research, Anand Rathi Financial Services, who asserted, “Around 70 percent of the total population lives in rural areas of India and rural income has grown steadily owing to various schemes initiated by the government. This has improved life style of people living there and they have started to own a car. With women getting higher education, the country’s growing middle class has generated rising levels of disposable income which has helped them to switch over to cars from two wheelers.”

Globally, the best performing nations in terms of GDP (Gross Domestic Product) growth rate in the world today are India and China .Both of them offer potential for long term growth as the population is large. Comparing the passenger car growth of these two nations (India, China),Sen at Siam asserted,“ Ten years back, both India and china were at same levels in terms of vehicles sold.However,today India is selling around 2.5 million cars while China is selling 14 – 16 million cars so China has gone way ahead. Both of these nations now have different bases, therefore, a per cent of growth in China means a lot in terms of numbers.”

However, on the back of Euro crisis, European car sales fell almost 7 percent in the first half of the year as Germany and UK , pulled in a small gains of 0.7 per cent and 2.7 per cent respectively while France, Italy ,Spain,Portugal,Ireland,Greece posted degrowth of 14.4 percent,19.7 per cent, 8.2 percent, 41.9 percent,13.5 percent, 41.3 percent respectively.

Commenting on the drop registered in European car sales,Mahantesh Sabarad, Senior vice president, equity research, Fortune Equity Brokers (India) Limited, said, “Car sales are many times the barometer of the underlying economic activity because they reflect consumer sentiment. As European nations are going through phase of recession and financial turmoil, so their car markets would certainly face the heat. Furthermore, at this moment what is happening in Europe can’t be compared with any other nation.”

Recently, in a mid-year health check of the world economy, the International Monetary Fund (IMF) slightly lowered its outlook for global growth over the next two years. The IMF predicts global growth of just 3.5 percent this year (2012), down 0.1 percent from the April forecast, and 3.9 percent in 2013, 0.2 percent lower.

Europe’s financial crisis and slower expansion in China and India have weakened the world economy.

In India, too, for the current fiscal, SIAM has downgraded its car sales growth to 9 -11 percent as against the previous forecast of 10 -12 percent. Commenting on the outlook, Sabarad of Fortune Equity Brokers, said, “I tend to agree with SIAM’s assessment as economic conditions are becoming difficult day by day. Poor monsoon, dismal GDP growth of 5.3 percent seen in the last quarter, virtually flattish industrial activity, all these factors are pointing towards slowing economy. In such a bleak scenario, finding better car sales is going to be tougher going forward.”

Contrary to this school of thought, Sudip Bandopadhyay, President at Destimoney Securities, talks of a brighter situation, “Although SIAM has downgraded the growth of auto sector for the current fiscal which poses a concern yet India’s consumption (car sales) story would remain robust.”