The auto story – can it fuel ahead without a break?
TVS motor company came out with stupendous numbers. It even gave bonus shares to its shareholders. When the laggard in an Industry comes up trumps, it sets you wondering if it is close to the peak in demand. Many friends have already started doubting if the auto story is getting too good to last . This is the way the cynical mindset works.
A quick check with HH ( the holy Hero ) motors shows that the company has a waiting period of 30 days for its best selling model. Even I am in a state of disbelief . Somehow, the idea of waiting for a month to get a bike is not gelling with the supply on demand business model operating for other consumer products . The last time we waited to buy bikes was in the eighties and nineties. The millenium changed things to give us everything we wanted in the shortest time.
Which brings us to the question that generated this post.
What caused this trend ?
A surge in overall demand driven by liquidity , rural aspirations , real estate generated cash , NREGA money and easy availability of loans in urban areas have all facilitated the buying binge. But the core factor is the silent rise in Indian per capita income. Let us do a back of the envelope calculation on how a rural wage earner rakes it in .
Daily wages prevalent today are around Rs.200 for a manday. A man’s day ie. The rural woman earns not less than Rs.60 per day ( even the old NREGA benchmark wage adjusted for the usual kickbacks works out to 60 ). The rural family now earns anything between 6000 & 10000 monthly. This is a significant growth over the comparable number five years ago. The wage inflation is not really matched by rising food inflation in rural areas. This is because food supply through PDS , local availability of cheaper produce , self sufficiency of families and traditional frugality in managing food needs have largely insulated rural populace from the food inflation that has gobbled up urban incomes.
The rural family incomes are generating reasonable surplus . This is in sharp contrast to the incomes of urban wage earners who serve us in cities doing chores like driving and domestic work . Food inflation is gobbling incomes of the urban middle class. Disposable income patterns are getting skewed in India like never before. Consumption patterns are showing a related skew.
This has puzzled analysts and investors alike and raised doubts in their minds about the sustainability of the whole boom. I believe that this boom will last awhile. We are not going to stop buying in a hurry. Afterall, we have an aspiring population which is generating rising disposable incomes, a rapidly improving demography of young salaried Indians and a buying process which is not as heavily credit- dependent as the west.
This would essentially mean that the interest rate centric urban economists would end up with egg on their faces . Their prophecy that any rise in interest rates will kill demand may not materialize anytime soon. The buyers are carring the money into the showrooms and taking products home.
It is time the suited booted lot of analysts and Fund managers asked the Salesman in semi-urban and rural showrooms about what is happening on the ground. Blindly shorting the stocks of Hero-Honda will not look as appealing as it does now.
Putting one’s ear on the ground will tell a different story.