NEW DELHI Car sales in India rose 38 percent in July, but face capacity constraints, a possible rise in interest rates and supply bottlenecks as the festive season draws near, when demand for vehicles peak.
A record 158,764 cars were sold last month, data from the Society of Indian Automobile Manufacturers (SIAM) showed on Monday, as customer sentiment remained strong on hopes of strong economic growth and a fall in food prices.
While that kind of growth is likely not sustainable, auto sales are still likely to rise further. SIAM has forecast car sales to grow 12 percent to 13 percent in the year ending March 2011, an estimate analysts see as conservative.
India is one of the fastest growing automobile markets in the world. The country's automobile sector grew 35 percent, on average, in the first four months of the current fiscal year, SIAM data showed.
"The two largest carmakers Maruti(MRTI.BO) and Hyundai(005380.KS) have limited capacities to scale up production and meet the increased demand," said Jatin Chawla, analyst for institutional clients of brokerage India Infoline.
He said Tata Motors'(TAMO.BO) Nano, which started production from its dedicated plant in Gujarat, would be a likely beneficiary of the demand as the plant had the capacity to produce 250,000 cars.
India's festive season starts in early September and peaks in early November after the Hindu festival of lights.
Limited component supplies from vendors are also becoming a stumbling block for automakers such as Mahindra & Mahindra and Maruti, which have had to curtail production in recent months.
India's leading carmaker Maruti has said it would try to advance its capacity expansion plan.
While sales of new entrants such as Ford, Volkswagen and General Motors have been strong, none of them are manufacturing to full capacity and are also struggling with supply problems, Chawla said.
Asia's third-largest economy is expected to grow 8.5 percent this fiscal year.
INTEREST RATES COULD DAMPEN
Though interest rates have remained stable so far, there are concerns they may rise as the central bank tries to curb inflation through an increase in rates.
"Main challenges will be availability of finance and interest rates," said Vishnu Mathur, Director General at India's automobile industry.
"We have not yet seen a major impact on lending rates but banks are cautioning us that it (rise) may happen,' Mathur said, adding that commodity prices also need to be watched.
Sales of trucks and buses, a barometer of economic activity, rose an annual 37 percent to 51,481 units in July, the industry body said.
Maruti Suzuki's sales rose 29 percent in July, while that of Tata Motors' gained 41 percent.
Car sales at the Indian unit of Hyundai rose 24 percent to 28,811 units.
Motorcycle sales in July increased 30 percent to 710,621 units, data showed.
The sector index was up 0.4 percent by 0524 GMT, in line with the main index.
(Editing by Jui Chakravorty and Anshuman Daga)
(For more business news on Reuters India click in.reuters.com)
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