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Are SIPs ‘really’ responsible for lack of luxury car sales?


In a recent interview to The Times of India, Santosh Iyer, who will take over as the CEO and MD of Mercedes-Benz India in January, said that customers are postponing buying luxury cars because they want to continue investing through systematic investment plans (SIPs). SIPs are a regular way of investing in mutual funds (MFs), particularly equity MFs.

The point that Iyer is making is that people are choosing to continue to invest into MFs through SIPs rather than buy expensive cars. Iyer said: “They (SIPs) are our competitors.”

Iyer’s logic possibly stems from the fact that the popularity of SIPs has grown in leaps and bounds. In October, a total of 13,041 crore was invested in MFs through the SIP route. The inflows in April 2016 had stood at 3,122 crore and have constantly grown since then. The number of outstanding SIP accounts as of October stood at 59.3 million, up from 52.7 million at the end of March. So, are people investing through SIPs and in the process not buying expensive cars?

Let’s start with the sales of passenger cars. Within passenger cars, let’s first look at mini and compact cars (3,201mm to 4,000mm). These are the cars that most first time buyers tend to buy.

Data from the Centre for Monitoring Indian Economy (CMIE) suggests that their sales from April to October had stood at 952,298 units. In comparison, the sales during April to October 2018, before the economic slowdown hit the Indian economy and the covid pandemic broke out, had stood at 1.24 million units. It needs to be pointed out here that the CMIE data for April to October this year does not include sales of Tata Motors. The data from 2018 did. Even if we add Tata Motors sales data for 2022, the sales in 2018 would be significantly higher than sales in 2022. Further, the sales of these cars are around 30% higher than in 2021.

Now let’s look at executive cars (4,501mm to 4,700mm). These cars are much more expensive than the entry level cars. Their sales stood at 14,684 units for the period April to October. This is much more than the total sales during the same period over the last four years. The sales of premium cars (4,701 mm to 5,000mm) during April to October stood at 1,556 units, much more than the sales during April to October 2018 or the same period in any of the years since then.

Now let’s take a look at multi-utility vehicles, which tend to be much more expensive than entry level cars. Their overall sales during April to October stood at 1.12 million units, having more than doubled from 2018 and close to 47% higher than 2021. In fact, there is a huge waiting period for many of these vehicles.

Further, multi utility vehicles priced greater than 30 lakh saw sales of 23,001 units this financial year, which is more than 10 times the sales during April to October 2018.

What does all this tell us? It tells us that the demand for expensive cars has gone up big time this year. This is the K-shaped recovery that economists keep talking about, where the rich have become richer and have expressed their richness by buying more expensive cars. Clearly, allocating money towards SIPs is not holding them back.

The same may not be true for people looking at buying entry level cars. As mentioned earlier, the sales of mini and compact cars, which are entry-level cars, during this financial year has been significantly lower than in the same period in 2018, though better than the sales in the same period in 2021.

It’s well known that the average SIP size of some of the biggest MF distributors in India is in the range of 2,000-3,000. Hence, for people looking to buy an entry level car and having SIPs of around 10,000-15,000 per month, it might really be a choice between buying a car or stopping the SIP. Actually, this might be also true for those looking to buy a new two-wheeler and having SIPs in the range of 2,000-3,000. Two-wheeler sales from April to October have been at 9.81 million units, lower than the same period in 2018 and 2019.

To conclude, SIPs are clearly not the opportunity cost when it comes to buying expensive cars. But they may be an opportunity cost for those looking to buy an entry level car or another two-wheeler for that matter.

Vivek Kaul is an economic commentator and writer.

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