Indian auto sales hindered by RBI interest rate: ZyFin index

Indian auto sales hindered by RBI interest rate: ZyFin index

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ZyFin index declined in November 2014 by 3.4 points to 21.0 despite an uptick through the current financial year. In the meantime, consumers reveal strong deterioration in borrowing comfort, pointing to an urgent need to go soft in interest rates to boost India’s aggregate demand. The decline comes despite recovery in consumer outlook on employment and inflation.

Indian auto industry
Unlikely Relief From High Borrowing Costs Dents Auto Purchase Sentiment: ZyFin Research

Vehicle Purchase Sentiment Index points to vehicle purchase plans over the next 6 months, and is based on a monthly survey of 3,000 urban consumers in 11 Indian cities (Ahmedabad, Bengaluru, Chennai, Delhi, Guwahati, Hyderabad, Indore, Mangalore, Kolkata, Lucknow and Mumbai). A score above 50 reflects optimism, and below 50 indicates pessimism.

ZyFin Vehicle Purchase Sentiment Index for November 2014 registered a score of 21.0 compared to 24.1 in the previous month. Purchase sentiment for two- and four-wheelers over the next 6 months has declined.

South of India showed improvement in willingness to purchase vehicles over the previous month registered a score of 32.3 over 30.1 in the previous month. Sentiments in North and West were lower having dropped to 15.0 and 25.5, respectively, down from 23.2 and 30.8 in the previous month. East of India score has dropped by 2.2 points to 4.4 in November.

Bengaluru, Indore and Mangalore have the strongest willingness to purchase vehicles. In Bengaluru, vehicle purchase pessimism has lowered based on high expectations of overall economic conditions and and improved comfort on inflation in the next 12 months. Index movement was slight at 42.9 over 42.6 in the previous month with more interest in four-wheelers, than two-wheelers.

In non-metro cities (Indore and Mangalore) outlook on vehicle purchase is more positive than large metros. Indore figures in top 3 cities in overall spending with an index reading of 39.5. In Mangalore, consumers are optimistic following 2 months of pessimism, the index rose to 38.9 over 36.6.

Debopam Chaudhuri, Chief Economist, ZyFin Research says sudden decline to an otherwise healing trend is a concern. While consumers are confident about future state of economic growth, they are putting spending plans on hold based on high borrowing costs. Loan rates need to soften for consumer demand to get back on track.