Indian monthly car sales touched a record high in January as customers bought vehicles ahead of possible tax hikes in the Feb. 26 federal budget and experts said the momentum would continue until then.
Market watchers expect Finance Minister Pranab Mukherjee to begin reversing cuts in factory gate taxes, which would increase prices of everything from soaps to cars, when he presents the budget for the 2010/11 fiscal year (April-March).
Such expectations would give a more-than-normal lift to February sales, a month when consumer enthusiasm generally wanes in anticipation of tax cuts and lower prices, analysts said.
“It’s a concern,” said Surjit Arora, autos analyst at brokerage Prabhudas Lilladher. “In February, the trend should continue,” he added, as people were advancing their purchases.
In January, firms sold 145,905 cars, the highest-ever monthly figure, the Society of Indian Automobile Manufacturers (SIAM) said. They had sold 110,300 units a year ago.
India, along with the world’s top car market China, is a bright spot for automakers, with SIAM forecasting vehicle sales growth of 12-13 percent for the fiscal year commencing on April 1.
Between April 2009 and January 2010, vehicle sales have expanded 24 percent to nearly 10 million units, on a low base and helped by tax cuts and softening loan rates.
Making India more attractive to automakers is its domestic demand, coming from a large affluent population that is loosening its purse-strings, unlike in mature markets where government incentives have cushioned sales.
Sales in the United States rose an annual 6 percent in January, while Japanese sales were up 37 percent. Chinese sales continued their robust expansion and scrappage incentives gave European markets strong growth.
In 2009, the Indian auto index .BSEAUTO trebled in value, outpacing the Mumbai market’s .BSESN 81 percent rise. So far in 2010, the sector index has declined slightly less than the broader market.
But analysts and industry officials are concerned about rising commodity prices that threaten to shave off profit margins.
Any hike in interest rates could dampen sentiment as auto loans would get pricier, they said.
The Indian central bank is seen raising its key lending rate by April, after it moved to tighten liquidity by increasing banks’ reserve requirements.
“All these factors should start impacting from the first quarter of fiscal 2010/11,” Prabhudas’ Arora said.
Sales of trucks and buses more than doubled to 110,300 units, reflecting bustling economic activity. Motorcycle sales rose 43.7 percent to 650,633 units, SIAM said.