Moderating Auto Demand Has Helped Boost Inventory, Says Citi's Arvind Sharma

Moderating demand across the automotive sector has resulted in an increase in inventory and price cuts, according to Arvind Sharma, Director of India- Autos & Transportation at Citi India.

"As order backlog subsides, wholesale numbers tend to go down, hence retail dispatches have been better than wholesale, with the intent to correct inventory," he told NDTV Profit. He noted this might happen gradually over the next few months.

The industry is experiencing a slower incline compared to last year, with a projected 3% to 3.5% growth, he said. This slowdown is attributed to the subsiding order backlog and a shift in wholesale numbers.

In the landscape of four-wheelers, Maruti Suzuki India Ltd. emerged top pick for Citi due to its robust performance and anticipated recovery in inventory levels. Meanwhile, Mahindra & Mahindra Ltd.'s SUVs are highlighted with a note of caution. Conversely, tractors remain a positive segment, benefiting from stable demand.

For two-wheelers, Hero MotoCorp Ltd. stands out as a strong performer, despite facing challenges in export fulfillment and intense competition. The sector is experiencing a 7-8% year-on-year growth, with the 125-cc segment gaining traction. There was demand in the premium bike segment, but pricing strategies remained constrained due to significant competition last year.

Looking ahead, the festive season is poised to play a crucial role in sales, particularly for small cars. The last robust festive period for small cars was five years ago, and while it is too early to predict this year's outcome, the shift towards small cars could be significant, said Sharma.

Overall, while the automotive industry faces challenges, strategic stock picks and the upcoming festive season hold the potential to drive growth and shift market dynamics.