Forex

It could be the first sign of slowdown in the economy. Car sales fell 1.7% in July, first time in more than two-and-a-half years, with consumers deferring purchase plans due to rising interest rates and inflation. The immediate outlook appears jittery, if analysts are to be believed.

According to Siam, car sales in the domestic market stood at 87,724 units in July against 89,250 units in the same month last year. While Tata Motors, Honda, Ford and Mahindra-Renault saw numbers shrinking, Maruti and Hyundai reported muted growth, revealing the negative sentiments.

"We might see a few more months of weakness, though the long-term fundamentals remain strong," said Sachin Mathur, head of Crisil Research. Mathur said while new models and a shift to cash purchases insulated car sales last fiscal, the negative effect of high interest rates and inflation is becoming evident now and consumers are postponing purchases.

"We expect the car industry to witness single-digit growth this fiscal." Car sales last fell in November 2005. Sales in the four months of this fiscal (April-July 2008) have risen by 9%, led by discounts and double-digit growth in April and May, which is losing steam now.

Analysts said most of the companies managing sales with heavy discounts. "However, sweetening this further might not be possible as rising raw material costs are shaving off profit margins and do not give companies enough room," an analyst with a brokerage firm said.

However, led by Hero Honda, bike sales in July grew 22% at 4.57 lakh units against 3.75 lakh units in July 2007. While Bajaj Auto and TVS had modest gains.