Sales of commercial vehicles are set to pick up in the second half (H2) of fiscal 2008 as the economy continues to expand and freight rates steady, say several analysts.
Commercial vehicle sales in the country have seen their growth decline to 3.48% in the first four months of this financial year compared with a 33% growth in the previous fiscal as transporters avoided or deferred purchases due to higher interest rates.
Analysts expect a rebound to occur in the second half as the economy grows at its fastest pace in many years. "Commercial vehicles have a high correlation with the index of industrial production (IIP)," according to a recent report from Macquarie Bank. "We believe the strong growth will continue going forward."
Despite a recent slowdown—as the central bank tightened the money supply— IIP, which measures industrial output, is growing at 10%-plus rates, the highest in several years.
Truckers have also loaded up on vehicles after an apex court order banning overloading of trucks that led to transporters adding capacity to their fleets, says another recent report from Credit Suisse. "We believe that truck volumes will remain subdued, but will pick up some time during H2 as the one-time overloading impact gets negated," says a Merrill Lynch report.
In November 2006, the Supreme Court had banned overloading in trucks beyond permissible limits. This prompted a demand surge for cargo carrying vehicles as transporters bought larger vehicles.
While interest rates have been responsible for partially slowing down the growth, analysts feel that with weaker overall demand, the central bank is likely to keep its key interest rate unchanged until the end of the financial year on 31 March 2008.
"We believe that interest rates have peaked," said S. Ramnath, vice-president at SSKI Securities. "With freight rates remaining stable and economic activity continuing to remain quite buoyant, we are quite optimistic about recovery in truck sales from H2."
The Transport Corporation of India Ltd's freight index, which is an index of weighted average lorry freight rates across various routes, rose to 166.7 for the week ended July 28 compared with 161 a year ago. The index has stabilized around the 166 mark since mid-June.