(Adds context on Maruti’s sales increase, background)
* Mahindra sales drop 21 pct in July, shares fall
* Maruti shares rise as much as 2.5 percent
MUMBAI, Aug 1 (Reuters) - India’s biggest carmaker Maruti Suzuki India Ltd said on Thursday its July vehicle sales rose for the first time this year, but analysts warned the gain was likely to be short-lived as high ownership costs continue to weaken domestic demand.
Maruti’s July sales rose 1 percent from the same month a year ago largely due to the popularity of its entry-level Dzire sedan. Sales last year were also hit by a plant shutdown due to labour unrest.
The gain contrasted with a 21 percent drop in vehicle sales by Mahindra and Mahindra, India’s largest manufacturer of utility vehicles and SUVs, which has been hurt by rising competition and a hike in excise duty.
Mahindra said it would halt production at its plants for up to 6 days in the next few months due to the slowing demand.
Maruti is India’s leader in the small car market and accounts for 40 percent of all passenger vehicles sold in the country. It faces increased competition as global automakers step up launches in a market that has endured falling sales for the eighth-straight month after double-digit growth just two years ago.
Demand for cars, especially diesel-powered vehicles, was hit by a government decision to allow monthly increases in the prices of the fuel.
Maruti, controlled by Suzuki Motor, sold a total of 83,299 vehicles in July, with Dzire sales rising 34 percent to 15,249.
Overall car sales in India are expected to rise 3-5 percent in the financial year that began on April 1, according to a local industry body, compared with double-digit growth just two years ago. (Reporting by Aradhana Aravindan and; Aditi Shah; Editing by Miral Fahmy)