Surge in CV sales one of the leading indicators of revival in Indian economy
There were early signs that a rally was coming in domestic stocks. We were either too blinded by pessimism to notice them, or we simply saw but ignored them.
One of leading indicators of revival in the domestic economy has been the surge in the sale of commercial vehicles. CV sales have surged by a massive 14 per cent during the quarter ending March 31, 2016 from a 9 per cent year-on-year decline recorded in June quarter.
CV sales have been rising over the past three quarters, signalling that the engines of growth have been fast at work in some parts of the economy despite an agrarian crisis that has squeezed India’s rural belt.
Official data released earlier this week showed India’s GDP growth accelerated to 7.9 per cent in March quarter from 7.2 per cent in the December quarter.
Economy watchers consider commercial vehicle sales volume as a leading indicator of the economy. CVs are used for the movement of goods and labour within and outside the country and a heavy volume in CVs is a good indicator of a bustling economy.
“Right now, the automotive demand in particular is not for entertainment, this is not discretionary stuff. When there is actual demand, then only you can put up new capacities. So, a 20-40 per cent growth in truck demand, and the large sizes of the new trucks being sold clearly tell me that something is happening in some parts of the economy, if not all over,” said Raamdeo Agrawal, Joint MD, MOFSL.
“There is a lot of confidence now that the CV sales cycle is going to come back, as interest rates have fallen by almost 150 basis points (bps) over the past 12-15 months,” said P Phani Sekhar, Fund Manager – PMS, Karvy Stock Broking.
The government’s push towards road projects is one of the major factors that have changed the game in the commercial vehicles segment. New roads open up new markets for goods and services, which require transport.
“The substitution away from rail freight to road has been not just for price and cost efficiency reasons, but also for convenience. Rail freight is being outgunned mercilessly by road transport,” said Saurabh Mukherjea, CEO, Institutional Equities, Ambit Capital.