Some food for thought
"By that sin fell the angels."
—William Shakespeare (English writer 1564-1616)
Word for the day
Eye-minded (adj)
Disposed to perceive one's environment in visual terms and to
recall sights more vividly than sounds, smells, etc.
First thought this morning
The amount of restraint and compassion shown by all top and
sundry politicians in consoling the Indian cricket team after their loss to New
Zealand in a thrilling encounter is amazing. The tolerance shown by the top leaders
has certainly percolated down to the masses. The usual brickbats, abuses,
criticism and advices are conspicuous by their absence from social media. Few
light hearted memes and jokes apart, tweeples have been mostly tolerate and
forgiving.
I wonder if the top leaders can follow this example of showing
compassion, restraint and understanding promptly in other matters important for
social harmony and peace. A guidance from the top could possibly change the
entire discourse on media and streets. Many incidents riots, arson, mob
lynching and damage to public property could be prevented or at least loss
could be minimized.
Chart of the day
Auto slow down need a deeper analysis
The slowdown in
automobile sales in recent months has been a matter of concern for most market
participants. In the month of June 2019 the sales growth has slowed to the
level not seen since crisis of 2008. The inventories have been piling up (see
here).
This is being
seen as a lead indicator of the wider slowdown in the economy. Many policy
makers, economists, and bankers have also taken note of the poor car sales and
commercial vehicle sales in the country.
I have tried to
read various research reports on auto sector to find what may be plaguing the
sector, and in particular reasons for the "recent" demand slowdown.
Many reports are silent on the reasons while amply highlighting the fact of
slow down. Some reports have attributed the slow down to poor liquidity and
NBFC crisis that has led to lower credit availability. For commercial vehicles
poor growth in overall investment cycle is cited as primary reason. A couple of
reports have cited customer in electric mobility as one of the likely reasons.
Almost all reports see no recovery in the demand cycle in near future
(3-6months).
However, looking
at the historical trend of car sales in India, I intuitively feel that
something is seriously amiss. I feel that there is at least some outside chance
that the market and policy makers might be reading the current episode of
slowdown in car sales all wrong. For example, consider the following
datapoints.
(a) In April 1992 India produced 7277 cars. This
was despite Maruti having introduced the popular people's car Maruti800, way
back in 1983. Car production in India peaked in March 2012 with 292861 units
produced. Since then the car production has remained in 2,00,000 - 2,50,000
units/month range.
Two wheeler sales
in 2012-2019 have grown ~8% annually.
During 2012-2019
the overall manufacturing growth rate has mostly ranged between 0 - 5%; much
below the average GDP growth rate.
(b) Car production in India registered huge
growth during 2001-2012; when production increased from average 50000
units/month to over 200,000 units/month. This was the time when average
domestic gasoline prices more than doubled from 50cents/ltr to $1.2/ltr. Since
2012 the gasoline prices have been easing.
(c) Lending rates have declined structurally in
India since 1992. Since 2012, the rates have sustained at the lowest levels in
history. Despite this car sales have not improved.
(d) Since 2012, the household debt to GDP ratio
has consistently worsened.
(e) Overall credit growth in India has ranged
between 10-16% since 2012, falling sharply post demonetization in end 2016. It
has normalized to 13-15% in past 4 quarters.
However, the
point to note is that the credit to households has not faced any constraint and
has grown consistently since 2014 at least.
(f) Availability of surfaced all weather roads
has improved almost in all states in past one decades. This should ideally lead
to higher demand for personal vehicles.
(g) The pay seventh commission award in 2015
increased the affordability quotient of millions of government, armed forces
and public sector employees. This should also have lead to some additional
demand for personal vehicles.
I feel that more
fundamental research might be needed to analyze the automobile demand trends in
India. Fuel prices, credit rate and availability, scrapping policy, etc. may
not be the only reasons driving the demand.
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