A strong, but uneven, pickup that the automotive market has been witnessing since the second wave of the pandemic could turn into a sharp V-shaped recovery as soon as in 60 days, according to top automotive financiers.
HDFC Bank, India’s largest private lender to the automotive sector, expects festive buying to drive much of the recovery, provided there is no third wave of the pandemic. Mahindra & Mahindra Financial Services Ltd, a top financier in rural markets, concurs with the view. While demand is strong, a shortage of components, especially semiconductors, could pose a risk to the upbeat view as automakers are forced to limit production.
India’s passenger vehicle market has witnessed strong double-digit growth in recent months despite production issues, while two-wheeler sales have been witnessing month-on-month growth for four consecutive months now after remaining in the red for a long. In the commercial vehicle market, replacement purchases have kicked in, indicating improvement in economic activities. Three-wheeler sales too have increased in August, as commuters and shoppers returned amid easing worries over the pandemic.
Arvind Kapil, the country head of retail assets at HDFC Bank, said a K-shaped recovery was quite evident with higher growth rates in the passenger vehicle market in metro cities and other urban markets compared with the pre-Covid period. “We do believe that this recovery will be reflected in the semi-urban and rural markets as well, and we should see robust demand in the next 60-90 days,” said Kapil.
After the second wave of Covid-19, the bank witnessed strong demand for loans above ₹1 lakh in the auto financing segment, which was validated with robust demand for four-wheelers. According to people in the know, HDFC Bank is targeting more than 15-20% growth in auto loan disbursals in fiscal 2022. Its auto loan book (car plus two-wheelers) is likely to reach ₹1.15 lakh crore to ₹1.25 lakh crore for the first time this fiscal year, accounting for at least a quarter of the retail asset portfolio that is expected to cross ₹4 lakh crore.
July-August disbursals of retail loans have surpassed the pre-Covid highs at the bank, Kapil said but did not provide specific details.
‘Strong Buoyancy Visible’
Meanwhile, with most of the high-frequency indicators reaching the pre-Covid level, the consumer propensity to spend is increasing, suggest data from the Reserve Bank of India.
Personal loans account for nearly 26% of the total gross credit of the country. Within personal loans, vehicle loans grew 7% from a year earlier to Rs 2.66 lakh crore in July 2021, according to RBI data. It is the second largest in the segment after housing loans.
At Mahindra & Mahindra Financial Services Ltd, loan disbursals rose more than 50% in July and August, albeit on a low base. The company expects its disbursals to be closer to pre-Covid levels — financing around 70,000 units a month — compared with 35,000 units a month in the April-June quarter. Loan collection efficiency has also improved, from 67% in May to almost 97% in August, indicating a turnaround in the economy.
Managing director Ramesh Iyer said after any disruption, be it Covid-led or monsoon-related, usually, there is a strong buoyancy. Mahindra Finance is witnessing something similar at present.
“While the second wave was deep and wide, people had to come back with activities. Hence the recovery has been much sharper, and it is expected to sustain,” he said. “Volumes are picking up, the growth rates are going to be substantially high. Things are appearing to normalize during the current quarter, and we expect strong buoyancy and the numbers moving to pre-Covid numbers.”