July 2, 2014

INDIA: Consumers And Companies Buy More As Prime Minister Modi Takes Charge

The Wall Street Journal
written by Santanu Choudhury
Wednesday July 2, 2014

India’s auto industry may at last be starting to come out of a long slump as car sales last month suggest some consumers have become more optimistic as a new government took over in New Delhi.

Some of India’s biggest auto makers recorded their highest growth in months in June, suggesting that some consumers are starting loosen their purse strings again.

“Post general elections, sentiments have improved driving higher inquiries and step-up in conversions, particularly in passenger vehicles and medium and heavy commercial vehicles,” said Jinesh Gandhi and Chirag Jain, analysts at Motilal Oswal Securities.

Auto sales are the latest indicator of growing optimism. India’s stock market has climbed close to 20% this year amid hope that the country’s new Prime Minister Narendra Modi will use his party’s unprecedented majority in Parliament to pass the spending and legislation needed to boost growth.

India’s manufacturing activity improved slightly in June, according to the HSBC HSBA.LN +0.52% India Manufacturing Purchasing Managers’ Index, prepared by Markit.

“The manufacturing sector does not seem to be in a great hurry, unlike the stock market,” HSBC said in a report. “No doubt, stronger business sentiment following a convincing election verdict will trickle down to growth in the future.”

Demand for new cars in the world’s sixth-largest automobile producing market has fallen in the last two years due to weak consumer sentiment and inflation in an economy that’s been growing at its slowest pace in a decade.

A slowing market had forced auto makers as well as parts suppliers to prune their workforce and even shut factories temporarily.

Now a growing number of auto executives and consumers are optimistic that Mr. Modi will follow through on campaign promises and bring back the good times. In one positive move for the auto industry, the new government decided last week to extend tax breaks that had been put on car purchases until the end of December.

Sales at India’s largest auto company, Maruti Suzuki India Ltd. 532500.BY +1.69% jumped 33% from a year earlier in June. That was its largest expansion since last August. Hyundai Motor Co.'s 005380.SE +0.66% India sales rose 9.5% while Honda Motor Co.7267.TO +0.20% sales surged 75%.

Domestic sales at Mahindra & Mahindra Ltd. 500520.BY +1.09%—the largest sports-utility vehicle maker in India—grew only 1% but that was its first bit of growth in more than a year.

Of course, it’s too early to call an end to India’s slowdown, analysts say, as the current government may not be as business friendly and bold as consumers hope, scant monsoon rains could hurt rural demand and trigger inflation and rising oil prices could hurt global growth.

Still, at least some early indicators suggest that the economy is off to a good start with Mr. Modi.

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