Although domestic car sales grew 15.4% and two-wheelers by 3.8%, all other segments experienced drop in sales during August. Even car sales growth is attributed to low base effect from last year
Notwithstanding the 15.4% growth in domestic car sales and 3.8% increase in monthly sales for two-wheelers, the auto industry continues to slump. This is because the increase in passenger car sales due to low base effect of last year. However, according to industry experts, the growth seen in August is unlikely to be sustained in September and a recovery in the market is likely to happen only in the next couple of quarters, especially during the festive season.
"In August auto volumes grew 7.5% year-on-year (yoy), the first time in seven months. However, except passenger cars and two-wheelers, all other segments experienced a drop in sales from August 2012. We expect the near-term demand weakness to continue through September, while the festival season is likely to lead only to a month-over-month recovery," said Rohan Kurde, auto analyst at Anand Rathi Financial Services, in a research note.
According to data released by Society of Indian Automobile Manufacturers (SIAM), during August, domestic passenger car sales grew 15.4% to 1.33 lakh units from 1.15 lakh units same month last year. The growth was mainly due to low base effect as a result of the month-long lockout last year at Maruti Suzuki's Manesar plant.
Sugato Sen, deputy director general of SIAM, said, "This (growth) is not a reflection of the market conditions. This is mainly due to Maruti Suzuki India Ltd's numbers compared to last year. The tough market conditions still remain. Interest rates are high, fuel prices continue to be high while sentiments are extremely low".
In August, Maruti Suzuki doubled its domestic car sales at 63,499 units as against 31,653 in the same month last year. The company had declared a month-long lockout at its Manesar plant in August 2012 following a violent labour unrest in which a senior executive was killed.
Hyundai Motor India Ltd registered a marginal increase during the month at 28,281 units as against 28,192 units last year. Tata Motors saw its sales plunge by 50.57% to 8,761 units as against 17,727 units during August last year.
India's largest utility vehicle maker, Mahindra & Mahindra, saw its domestic passenger vehicles sales decline by 25.45% to 18,137 units during the month.
According to SIAM data, during August, motorcycle sales grew 3.82% to 7.95 lakh units from 7.66 lakh units in the same month of previous year.
"The good monsoon has had an impact on rural sales of two-wheelers, especially that of motorcycles. We expect this to continue and the rural demand could also have a slight positive impact on car sales," Sen said.
During August, two-wheeler market leader Hero MotoCorp posted 1.61% increase in its domestic sales at 3.95 lakh units. Bajaj Auto saw its bike sales decline by 22.6% to 1.51 lakh units compared with 1.95 lakh units a year ago period. Honda Motorcycle and Scooter India's (HMSI) motorcycle sales jumped 48.68% to 1.44 lakh units as against 96,876 units in the year ago month.
Raghuram Rajan, the new governor of RBI, believes that the economic mess that the country finds herself in is not structural and can be fixed in incremental steps
While admitting that the Indian economy has serious problems to overcome, Raghuram Rajan, the new governor of Reserve Bank of India (RBI) believes that the very problems that India finds herself in, namely the current account deficit and balance of payment crises are not structural in nature, and can be fixed by incremental reforms.
“For the most part, India’s current growth slowdown and its fiscal and current-account deficits are not structural problems. They can all be fixed by means of modest reforms,” wrote Rajan in Project Syndicate, an economic think-tank. He added, “Indeed, despite its shortcomings, India’s GDP will probably grow by 5%-5.5% this year – not great, but certainly not bad for what is likely to be a low point in economic performance.”
Rajan believes that the key to India’s recovery is to take incremental steps, not necessarily major structural reforms, like clearing projects, fixing subsidies and easing financing flows. “The immediate tasks are more mundane, but they are also more feasible: clearing projects, reducing poorly targeted subsidies, and finding more ways to narrow the current-account deficit and ease its financing. Over the last year, the government has been pursuing this agenda, which is already showing some early results. For example, the external deficit is narrowing sharply on the back of higher exports and lower imports,” writes Rajan in Project Syndicate.
Why were most of the projects not cleared earlier? The main reason was the conservative mindset adopted by the Indian government amidst a series of scams and corruption charges. They put all the projects on hold. “India’s investigative agencies, judiciary, and press began examining allegations of large-scale corruption. As bureaucratic decision-making became more risk-averse, many large projects ground to a halt,” Rajan explains.
Rajan believes that the Indian public are depressed and are often critical of the government, which have hampered the pace of reforms, though he feels that the government should have acted quicker. Rajan writes: “...while the government certainly should have acted faster and earlier, the public mood is turning to depression amid a cacophony of criticism and self-doubt that has obscured the forward movement.”
Due to paralysis and self-doubt, the current account deficit widened as government shut down mines and banned iron ore exports. Rajan states: “..as large mining projects stalled, India had to resort to higher imports of coal and scrap iron, while its exports of iron ore dwindled. An increase in gold imports placed further pressure on the current-account balance. Newly rich consumers in rural areas increasingly put their savings into gold, a familiar store of value, while wealthy urban consumers, worried about inflation, also turned to buying gold.”
In addition to corruption and decision paralysis by the government, Rajan traced India’s problems to the accommodative monetary policies (i.e. quantitative easing of US) of developed countries which were targeted at avoiding recession in the West. However, according to Rajan, the recession never happened while India continued to have high relative interest rates, which constrained credit to businesses and investment.
Quoting figures to state the case for India, Rajan said that most of the India’s macroeconomic numbers are far better than other emerging markets, and that the situation is not as bad as most people think. He writes, “India’s public finances are stronger than they are in most emerging-market countries, let alone emerging-market countries in crisis. India’s overall public debt/GDP ratio has been on a declining trend, from 73.2% in 2006-07 to 66% in 2012-13 (and the central government’s debt/GDP ratio is only 46%). Moreover, the debt is denominated in rupees and has an average maturity of more than nine years. India’s external debt burden is even more favorable, at only 21.2% of GDP (much of it owed by the private sector), while short-term external debt is only 5.2% of GDP. India’s foreign-exchange reserves stand at $278 billion (about 15% of GDP), enough to finance the entire current-account deficit for several years.”
He concludes with an optimistic tone: “India can do better – much better. The path to a more open, competitive, efficient and humane economy will surely be bumpy in the years to come. But, in the short term, there is much low-hanging fruit to be plucked. Stripping out both the euphoria and the despair from what is said about India – and from what we Indians say about ourselves – will probably bring us closer to the truth.”
While equity mutual fund sales continue to disappoint, redemptions fall to their lowest in 52 months, resulting in a net inflow
For just the third time in the past 12 months, equity mutual fund schemes reported a net inflow of assets. Both equity mutual fund sales and equity mutual fund redemptions have fallen to their lowest since April 2009. In that month, equity funds registered a net ouflow of Rs106 crore with sales of Rs1,994 crore and redemptions which amounted to Rs2,100 crore. In August 2013, sales which have averaged around Rs3,500 crore over the last twelve months fell to Rs2,784 crore and redemptions which averaged Rs5,000 crore declined by more than half to Rs2,326 crore. With the volatile market conditions of the last one month investors must have been confused whether it was a good time to buy or sell.
In the three months from May 2013 to July 2013 these was a decline of 11.70 lakh folios, averaging a reduction of nearly 4 lakh folios a month. In August 2013, in line with the lower redemptions, the number of folios declined by 0.63 lakh to 3.17 crore folios.
Moneylife has been continuously highlighting the decline in number of folios. This along with the continuous outflow of assets is a major concern for the industry.
Investments in equity linked savings schemes (ELSS) showed an improvement with sales in the first five months of the financial year amounting to a total of Rs683 crores compared to Rs662 crore seen in the same period last year. Other equity oriented schemes disappointed with total sales amounting to just Rs14,333 crore in the five month period compared to Rs14,940 crore seen last year.
This is despite the fact that the regulator has taken steps to improve penetration of mutual fund schemes beyond the top 15 cities and has even introduced a direct plan with a lower expense ratio for investors, who wish to skip the distributor and invest directly. While the direct plan is the preferred route for corporates investing in liquid mutual fund schemes, this route has failed to lure investors to put their money in equity schemes.