* Sales plunge for Tata Motors and Mahindra & Mahindra
* Consumer demand had been a brightspot for Indian economy
* Analysts say drag on sales could last until March
(Adds Tata Motors sales, detail, background)
By Promit Mukherjee and Sankalp Phartiyal
MUMBAI, Dec 1 Indian auto makers' monthly
domestic sales plunged in November from the previous month as an
intense cash crunch in the country brought a recent recovery in
consumer demand to a screeching halt, especially in rural areas.
In some of the first tangible evidence of the impact on
company results from Prime Minister Narendra Modi's surprise ban
on 500 rupee and 1,000 rupee banknotes, domestic sales at Tata
Motors, India's biggest auto maker by revenue, fell
28.4 percent month on month to 33,274 vehicles.
Mahindra & Mahindra, India's top maker of sport
utility vehicles, had domestic sales of 29,814, down 38.8
percent from October and 24.3 percent year on year.
Other smaller auto makers also reported double-digit
percentage declines from October's sales.
A pick-up in consumer demand for big-ticket items such as
cars had been a bright spot for India's economy, and the profits
of auto makers, helping gross domestic product to an annual
expansion of 7.3 percent between July and September, the fastest
rate for a large economy.
But Modi's surprise ban on Nov. 8 of banknotes that
accounted for 86 percent of currency in circulation has severely
dented consumer confidence.
"While we expected an improved auto industry performance on
the back of the festive season and other positive parameters
such as rural demand and interest rates softening, the sudden
announcement of demonetisation has brought in an immediate
disruption and uncertainty," said Pravin Shah, Mahindra &
Mahindra's president and chief executive (automotive).
Other automakers will report November sales later on
Thursday and in the coming days.
HARD-HIT RURAL AREAS
Analysts say that sales of two-wheelers and tractors in
rural areas will suffer most, given the strong reliance on cash
outside of India's cities. Credit Suisse estimates that about 40
percent of purchases of two-wheelers are financed by cash.
TVS Motor Co reported sales of two-wheelers last
month dropped 27.9 percent from October.
Cars, particularly premium models, are mainly financed in
other ways but sales are still expected to suffer because of
weak consumer sentiment.
In Guwahati, the largest city in India's remote northeast,
showrooms that only a few weeks ago were bustling with customers
looked desolate during a visit this week.
Arindam Das, a marketing executive at a Honda
dealership, said: "We had lots of offers during the Diwali
festival (in October) and business was very good.
"Lots of people were to turn up for bookings in November,
but with the demonetization taking place there is no word
whatsoever from those who made enquiries."
Analysts including domestic brokerage Kotak Institutional
Equities believe that the drag in auto sales could last until
the end of the financial year in March.
"We believe the demand will merely be pushed back to return
sharply in FY 2018 with lower interest rates and improvement in
cash circulation in the economy," Kotak said in a note last
(Additional reporting by Zarir Hussain in GUWAHATI, Jatindra
Dash in BHUBANESWAR and Jose Devasia in KOCHI; Writing by Rafael
Nam; Editing by Muralikumar Anantharaman and David Goodman)