Have you heard about ‘Indicator Species’? An indicator species is an organism whose presence reflects a specific environmental condition. Like for eg. the abundance of tigers usually means that the quality of the forests, rivers and the overall environment is improving.
Similarly, Automobiles are the ‘Indicator Species’ of the Economy. The auto sales of the past few years reveal a beautiful story of the state of the Indian Economy.
A Story through Charts
The Overall Economy is growing faster than the Auto Industry
We are not buying as many new cars as we had envisaged about a decade back. But still, we have a lot of cars on the road! Did you know: We bought 39 Lakh new cars in FY23 and over 3 Crore new cars in the last 10 Years !
Used Cars Sales are booming
It may come as a surprise but interestingly, the Indian Used Car market is booming, and it has become bigger than the new car market. Are Indians looking at Value for Money or are just cautious about spending, the jury is out on that. The only flipside of Used cars is that they don’t contribute to the GDP (since GDP only considers new production)
The below chart explains how many Used Cars are available as a ratio of New Cars
Cars and aspirations – both are becoming bigger
Most of the new cars purchased these days are Multi Utility Vehicles. This is not surprising since nowadays every new car I see on the road is a Big one! One of the ways the car industry has combatted lower than expected volumes is by selling more premium cars – sleeker, bigger and more powerful machines with amazing features. We are slowly moving up the Standard of Living curve (despite the roads & traffic situation not suggesting that )!
A big section is struggling – Weak 2-Wheeler Sales
While there is a small pocket that is doing exceptionally well, the entry level vehicles and 2-wheeler sales don’t paint a very encouraging picture. The wealth of the rural class and the lower middle class has taken a hit in the last few years and Covid might have worsened it.
So what do these charts indicate about the Economy?
- We are becoming more aspirational. We don’t want to settle for anything ordinary.
- Cars have become the preferred mode of transport. It’s no longer a status symbol, rather it’s a hygiene factor for a family to own a car – just like having a TV in the house.
- Entry level vehicles are struggling – smaller cars and bikes aren’t doing as well. The story about the rich becoming richer and poor becoming poorer has some merit.
How does it impact your investing strategy?
Take part in the Indian Aspirational Story. Maruti Suzuki has struggled in the past few years because it concentrated on entry level vehicles and the premium segment was captured by the likes of Hyundai, Kia, Tata and Mahindra. Maruti has realized its mistake and now is trying to regain its lead by launching more MUVs.
The trend that I see is increasing discretionary consumption and premiumization of products. Whoever can afford (on their own or by taking loans) will consume. Your portfolio should be tilted towards capitalizing on this trend of consumption. The story has just begun!
I hope you enjoyed reading this. Feel free to share your thoughts, and until next time,
Happy Investing,
Vijay
