India records highest car sales in May

New Delhi: Car sales in India posted their best May ever, rising by almost a third from a year ago, an industry body said on Wednesday, as rising incomes and a rapidly expanding economy offset the impact of price increases.

Demand is likely to remain strong in the near-term on a robust economic outlook and the easy availability of finance. The expected normal monsoon rains could give further fillip to sales in one of the world's fastest growing markets, analysts said.

"Consumer confidence level is high in the market and that should help the demand in the near term," said Vijay Chugh, an automobile sector analyst with Ambit Capital. "From rural demand perspective, monsoon will be a factor."

The four-month annual monsoon rains, which is vital for farm output and rural incomes, and impacts demand for goods ranging from cars to televisions, hit the country's southern coast last week as scheduled.

Asia's third-largest economy could maintain growth of 8.5 per cent in 2010/11 despite the euro zone problems, provided there is a normal summer monsoon, Finance Minister Pranab Mukherjee said on Tuesday.

Rising costs of raw materials such as pig iron and steel, growing competition from foreign automakers and prospects of a rise in interest rates are concerns for firms such as Maruti Suzuki and Tata Motors in India.

"We expect some speed breakers, in the form of foreign competition and spurt in raw material prices," said brokerage Parag Parikh Financial Advisory Services.

"But overall, the long-term demand for the industry remains positively intact."

China and India have been bright spots for global automakers as they recover from a sharp industry downturn. Vehicle sales in India are expected to reach a new high for the second year in 2010/11 though the market is much smaller than China's.

China's passenger car sales rose at their slowest pace this year in May, setting the stage for more moderate growth in 2010.

Strong consumer sentiment

Local Indian firms sold 148,481 cars in the month, compared with 113,810 units a year ago, data from the Society of Indian Automobile Manufacturers (SIAM) showed. It was the highest sales in May ever, the industry body said.

Sales of trucks and buses, a barometer of economic activity, rose 58 per cent to 48,580 units in May, SIAM said.

The industry group said that strong consumer sentiment in a growing economy helped growth, but a possible rise in interest rate could have an adverse impact on sales in the months ahead.

"Interest rates continue to remain stable. Availability of finance is absolutely not an issue," said Director General of SIAM Vishnu Mathur. "Because of inflation if steps are taken to control money supply, that will have an impact."

By 0830 GMT, shares in Maruti, 54.2 per cent owned by Japan's Suzuki Motor Corp, were up 0.6 per cent and Tata Motors were down 0.9 per cent, while the main Mumbai market was up 0.2 per cent.

Maruti, India's leading car maker, last week said May sales rose 28 per cent to a record 102,175 units.