July Auto Sales 2022: Heavy commercial vehicles (MHCV) and passenger vehicles (PV) witnessed a healthy demand trend, while tractors sales saw a slowdown in July, said a Nomura report on Auto sales July 2022 numbers. It was of the view that improvement in chip supplies will help restore supply with strong production. 

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It expects domestic PV wholesales to benefit from improving chip supplies, with July-22 volumes (~353k) being the all-time best.  

"We also expect supply to start normalizing with a ~50k increase in dealer inventory. Given the lean pipeline, we expect strong production to continue through the festive season (Sep-Oct-22). As supplies come through, orderbooks will be tested," said Nomura in its report.  

As per Nomura, inflation and less than expected monsoon in UP, Bihar and West Bengal may act as dampener from production point of view.  

"High inflation across segments remains a concern for mass consumption. Besides, one key risk to watch out for is the progress of monsoons. Until 25 July, the monsoons have been deficient in UP, Bihar and West Bengal. Thus, crop sowing has been affected and could impact rural demand if the monsoons do not pick up," it said.  

For tractors, we have seen signs of a slowdown in July 22 (estimate ~21% y-y fall) and maintain our below-consensus view of a 5% decline in FY23F for the tractor industry 

It also believes discounts, which are at multi-year lows, may rise post festive season. 

In terms of stocks, It prefers OEMS with high growth potential. It maintained a buy call on Mahindra and Mahindra, Tata Motors and Ashok Leyland for Original Equipment Manufacturer segment. "Rising electrification and content per vehicle will be the key value drivers for suppliers in our view. We prefer Sona and Sansera from this space," it added.