The automobile sector may be in for a good festive season with strong demand particularly in the urban areas, though sales growth may be hit by the ongoing semiconductor shortage.

According to a note from Emkay Global Financial Services (Emkay), which spoke to dealers from segments such as two-wheelers, passenger vehicles (PVs), commercial vehicles (CVs), and tractors, while a good demand is expected in two-wheelers, PVs and CVs, the same trend is not expected with regard to tractors. Here, volumes are expected to decline because of a high base and moderation in consumer sentiments.

The brokerage indicated that the biggest beneficiary might be two-wheelers, which have not been, impacted much by the chip shortage. Its analysts pointed out that there is some supply impact on premium motorcycles, which has severely affected Royal Enfield.

However, dealers expect double-digit growth in urban areas, thanks to the pickup in business activity and the re-opeening of educational institutions.

But on the other hand, demand is expected to be subdued in rural areas as customer sentiments are yet to normalise after the second Covid wave.

In anticipation of a good festive season, dealers have built inventory levels of up to two months. Another positive factor is that financing availability is adequate and financiers are more forthcoming in recent months.

The analysts added that inquiries and bookings are increasing for electric two-wheelers, considering the incentives given by the central and state governments and increasing petrol prices.

“Among OEMs, Honda, Suzuki, Bajaj Auto, and TVS Motors are expected to do better than Hero MotoCorp during the festive period, owing to higher exposure to urban markets. Royal Enfield is expected to be severely hit by semiconductor shortages’’, Emkay said.

PVs, too, are witnessing strong order bookings and according to the note, there is a waiting period of up to six months for models such as Ertiga, XL6, Swift, Dzire, and Brezza. Moreover, dealers are not getting adequate stock to meet the pending order book.

While semiconductor supply issues may hit festive volumes, its analysts, who spoke to dealers of two rival OEMs, said that there could be a flat festive period or a double-digit decline.

However, with petrol and diesel prices remaining firm, demand for CNG vehicles has risen due to lower costs of running. This is also expected to see the share of such vehicles rising in the coming months.

On Thursday, auto industry body SIAM said that passenger vehicle wholesales in the country showed a decline of 41 per cent in September over last year as the manufacturers struggled to produce adequate units because of the semiconductor shortage. Passenger vehicle sales in the month stood at 1,60,070 units as compared with 2,72,027 units in the year-ago period.

“The Indian automobile industry continues to face new challenges. While on one hand, we are seeing a revival in vehicle demand, on the other hand, the shortage of semiconductor chips is causing a major concern for the industry. Many members have curtailed their production plans. Coupled with the festive season demand, this has led to a long waiting time for the customers on popular models of some segments. High raw material prices also continue to be a challenge,’’ Kenichi Ayukawa, President, SIAM said.