Motilal Oswal Forecasts Modest Growth for February Passenger Vehicle Sales Despite Market Headwinds

According to a recent sector update by Motilal Oswal Financial Services, passenger vehicle (PV) dispatches in February 2025 are expected to grow approximately 2.5% year-over-year, despite retail sales likely posting a low single-digit decline compared to the same period last year.

The brokerage firm's latest report, published on February 27, highlights that PV retail sales are projected to decline 2-3% year-over-year this month, reflecting continued weakness in urban markets while rural regions show signs of increasing footfalls.

"Retails are expected to decline 2-3% YoY this month. Footfalls continue to rise in rural regions, while urban demand remains stagnant," notes the report authored by analysts Aniket Mhatre and Amber Shukla. The report points to particularly challenging conditions in the entry-level segment, where tighter and more selective financing practices have dampened demand, with "no signs of green shoots in this segment yet."

Despite this retail weakness, Motilal Oswal predicts varied performance among major manufacturers in terms of wholesale dispatches. Maruti Suzuki India Limited (MSIL) is expected to show 2% growth year-over-year, while Mahindra & Mahindra (M&M) is projected to post a stronger 12% increase. However, Tata Motors is forecast to see a 7% decline in its PV volumes, and Hyundai's numbers are expected to remain flat compared to February 2024.

A particularly interesting trend highlighted in the report is the continued strength of CNG models, especially for Maruti Suzuki. "Our interactions with MSIL dealers suggest that CNG models continue to see steady demand, further reinforced by the strong response to the new Dzire.

Brezza CNG has also picked up in many markets as per dealers," the analysts note. The report also mentions that despite current demand challenges, most PV manufacturers have implemented price increases of approximately 1% in January-February 2025. At the same time, while discounts remain elevated, they have moderated from December 2024 levels.

Inventory levels across dealerships have increased compared to January but remain at a comfortable 4-5 weeks, according to the brokerage. Looking ahead, the Society of Indian Automobile Manufacturers (SIAM) has projected a subdued outlook for the PV segment in FY26, with domestic volume growth estimated between just 1-4%, primarily driven by utility vehicles.

Despite the current market challenges, Motilal Oswal maintains MSIL as its top pick among auto OEMs, citing expected benefits from upcoming new launches that should "help improve the mix and drive healthy earnings growth." The analysts note that dealers are anticipating a potential demand recovery in March, which typically sees higher sales due to year-end purchases.

Meanwhile, India's passenger vehicle (PV) market is facing a significant slowdown in 2025, with both wholesale dispatches and retail sales figures indicating a sharp decline in demand. 

Several interconnected factors are contributing to the downturn. The overall economic slowdown, marked by reduced consumer spending and investment, is a primary driver. High interest rates on auto loans have made vehicle purchases less affordable for many potential buyers. Repeated fuel price hikes have also added to the running costs of vehicles, impacting consumer sentiment, especially in the more price-sensitive segments.

Furthermore, some analysts suggest that the rapid growth in previous years may have led to a degree of market saturation, particularly in the compact SUV segment, which had been a major growth engine. Increased insurance costs are also affecting customer sentiment.

Automakers are responding to the challenging environment with a variety of measures, including offering discounts and promotions, slowing the pace of the launch of newer vehicles, and exploring cost-cutting initiatives. However, the effectiveness of these measures remains limited in the face of broader economic headwinds.

The outlook for the remainder of 2025 remains uncertain. While some industry veterans are hopeful for a gradual recovery in the latter half of the year, driven by potential festive season demand and possible government interventions, a significant turnaround appears unlikely in the short term. 

The PV market's performance will be closely tied to the overall trajectory of the Indian economy and the government's policy responses to address the current slowdown.