Demand for 2-wheelers and tractors shows positive momentum as rural sentiment sees lift, notes Motilal Oswal

The demand for passenger vehicles (PV) and commercial vehicles (CV) has seemingly moderated in October, while the demand for two-wheelers (2Ws) and tractors showed some positive momentum, as highlighted in a recent note by Motilal Oswal.

The report further noted that the two-wheeler sales are likely to have performed better, with growth during the festive season projected at around 4-5% year-on-year.

In the 2W category, Royal Enfield's volumes are anticipated to have risen by 6%, followed by Hero MotoCorp at 5% and TVS' at 1%. Conversely, since Bajaj Auto already has substantial previous stock, its volumes are likely to have declined by 10%.

"PVs may see a fall in the festive season vs. last year. Inventory levels are currently high for both 2Ws and PVs, making Diwali sales a critical period to gauge inventory clearance," it added.

During the month, PV volumes of Mahindra and Mahindra are likely to have inched up by 19%, supported by the success of its launches, namely the eZEO commercial electric four-wheeler and the Thar Roxx.

On the other hand, Tata’s volumes are expected to have declined by 3%, and Maruti Suzuki’s volumes are likely to have dipped by 5%, as noted by Anand Rathi Research's preview note of the automobile sector during October 2024.

The Motilal Oswal report also underlined similar trends, i.e., two-wheeler sales in October 2024 are expected to have grown only slightly, with PV and CV volumes likely to have stayed flattish. However, tractor sales are likely to see some positive action, thanks to the good monsoon and uptick in rural demand.

Recently, Maruti Suzuki also noted a jump in rural demand when it comes to SUVs. Per the automaker, SUVs constitute around 54% of their rural sales mix.

Tractor sales to shine, CV sales to be a pain point

Anand Rathi Research estimates that during the month, tractor volumes for Mahindra and Mahindra are likely to have risen by 5%, while that of its competitor Escorts Kubotas is projected to have inched up by a mere 2%.

According to the preview note for October 2024, retail sales can be expected to jump by around 30% for two-wheelers, 18% for PVs, 3% for tractors, and about 2% for CVs. Both Motilal Oswal and Anand Rathi estimate that the demand for CVs will continue to remain weak for some time to come, with volumes likely to see a 5% YoY decline.

Despite this, experts remain optimistic about the auto sector, largely thanks to some growth seen in rural sentiments, which is expected to keep the overall demand buoyant. However, there are doubts about whether this demand will sustain itself beyond the festive season.

From an investment perspective, Nifty Auto has been having a steady year, with YTD (yield-to-date) of 25.99%. For investors who've entered the sector in the last month, the returns at a negative of 13.39% have been far from promising. Long-term investors, i.e. those with an investment horizon of around 5 years, have witnessed stellar returns from the sector, with yields going as high as 177.61%