NEW DELHI (Reuters) - Indian automakers sold more cars in February than any month before as buyers rushed to showrooms ahead of a budget seen raising the cost of vehicle ownership, in a boost for an industry that was hit by tumbling demand last year.
Car sales rose 13 percent in February, the biggest rise in 10 months and a fourth straight monthly increase, as carmakers head for marginal sales growth in the current fiscal year that ends this month.
Demand for cars in India fell for the first time in three years last July and shrank for four straight months as high interest rates and rising fuel costs deterred buyers, sparking fears of negative growth in the 12 months to March.
"The sentiment has certainly improved. It is certain now that interest rates won't go up, rather they should come down. Liquidity is not a constraint now," Vishnu Mathur, director general of the Society of Indian Automobile Manufacturers (SIAM), told reporters.
"A lot of people wanted to buy their cars before the budget, because they expect prices to go up after the budget," he said.
India unveils its annual budget on Friday, with carmakers anxiously watching for a possible increase in excise duty and a tax on diesel cars or the fuel, which is currently around 50 percent cheaper than petrol due to government subsidies.
Indian automakers sold 211,402 cars in February, according to data released by SIAM on Monday, the biggest ever monthly total. The 13.1 percent increase on the same month last year is the biggest rise since April 2011.
Total sales so far in the fiscal year that ends in March stand at 1.8 million, up 0.3 percent from the same period a year previous.
"The continued recovery is positive, but the crucial thing is to see what happens to sales in the months after the budget, should there be an increase in excise duty or other costs," said Vineet Hetamasaria, auto analyst at PINC Research in Mumbai.
"These numbers should be seen from that perspective."
Rising incomes and a swelling middle class have driven booming car sales growth in India over the past few years. Sales grew 30 percent in the fiscal year ended March 2011, making India the world's second-fastest growing market after China.
Rising fuel prices and 13 interest rate hikes since March 2010 drove up the price of ownership last year, stalling demand. Sales of small cars, which constitute about 70 percent of the local car market, were hit particularly hard.
Sales fell 16 percent in July and slumped 24 percent in October, the biggest fall in more than a decade, forcing SIAM to cut its growth forecast for the current fiscal year three times.
"We are sticking to our car sales growth forecast of zero to 2 percent in the fiscal year 2012," Mathur said on Monday.
The SIAM director-general said last month the industry was heading for its first annual fall in sales for 10 years.
Global carmakers such as Ford Motor Co (F.N), Nissan Motor Co (7201.T) and General Motors Co (GM.N) have invested billions of dollars in India's car industry in recent years, banking on years of soaring growth that far outpaces established markets.
SIAM has forecast car sales to increase by 11 to 13 percent in the fiscal year starting on April 1, if the Reserve Bank of India begins to ease interest rates soon. The central bank's next policy review is on Thursday.
Sales of trucks and buses, a key indicator of India's economic activity, rose 18.7 percent in February from a year previous to 76,891 vehicles, SIAM said.
Motorcycle sales, which have benefited from the slowdown in car sales over the past year, rose 8 percent last month to 838,193 vehicles.
Writing and additional reporting by Henry Foy in MUMBAI; Editing by Harish Nambiar and Sanjeev Miglani