Rural auto demand set for festive revival

Moderating rural inflation, higher non-agricultural income and an increase in minimum support price for all kharif crops are expected to put more money in the hands of consumers in rural markets, boosting demand and bridging the divergent recovery seen in the country since the easing of Covid, said several senior industry executives.

The country’s largest carmaker, Maruti Suzuki, saw sales of passenger vehicles rise 14% in rural areas last quarter, outpacing an 11% increase in urban centres.

Shashank Srivastava, senior executive officer (marketing and sales), Maruti Suzuki, told ET: “Rural markets are reasonably strong. There was some (rain) deficit early on, but now with the spread of the monsoons, demand should remain healthy going ahead.”

The company is “keenly watching the monsoon spatial pattern this year in light of the El Nino phenomena to see if it would adversely impact agricultural output that is so crucial to good rural sentiment”, he said.

Rural markets account for 43.5% of sales at the manufacturer of the Swift, Belano and Brezza.Hindustan Unilever, the county’s largest consumer goods company, has also indicated an uptick in the rural markets. “Rural market volumes which at one point were declining in double digit has just been positive in this quarter,” said chief financial officer Ritesh Tiwari. While Tiwari cited the base effect as one of the reasons for the pickup, he also stressed on the need to be watchful of the progress of monsoon and emergence of El Nino.Pre-quarterly business updates from other FMCG players including Dabur, Marico and Godrej Consumer Products have also highlighted a sequential improvement in rural demand momentum in the fiscal first quarter, but at a gradual pace.

Two-wheeler makers – from Hero MotoCorp to Bajaj Auto and TVS Motor Co – are witnessing early signs of revival in demand for entry-level motorcycles, largely driven by pent-up demand in rural areas that account for about 55% of two-wheeler sales in the country.

“We saw good momentum this marriage season. With the onset of the monsoons across the country, reservoir levels are also healthy. That, coupled with the recent increase in MSP of all kharif crops and government spends towards rural developmental programmes, should lead to an increase in disposable income among consumers in rural markets,” Hero MotoCorp chief executive Niranjan Gupta said, adding: “The festive period will be better.”

The uptick in rural demand – evident from the increase in two-wheeler sales – is likely to gain strength as the year progresses, experts said.

“Rural demand is showing nascent signs of improvement, supported by a rise in rural wage growth, which has been averaging 6.1% YoY in H2 FY23 (vs 4.8% in H1),” said Gaura Sengupta, India economist at IDFC First Bank.