On Episode 920 of The Core Report, financial journalist Govindraj Ethiraj talks to C S Vigneshwar, President at the Federation of Automobile Dealers Associations (FADA).

SHOW NOTES

(00:00) Stories of the Day

(00:50) All Eyes On Q1 Results To Provide The Next Booster Shot To The Markets

(03:50) The Statistical Argument For India’s Market Recovery Versus Other Emerging Markets, Starting With How Beaten Down They Are

(06:08) India’s Auto Sales Clock Record June Month Even As Dealerships Tackle Blended Fuel Controversy

(19:35) Etihad And Saudia Airlines Are Vying For New Boeing And Airbus Aircraft Slots Whose Purchases Air India May Postpone

SUBSCRIBE to How India's Economy Works with Puja Mehra

—

NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regarding any feedback, you can drop us a message on feedback@thecore.in.

Good morning, it's Tuesday, the 7th of July and this is Govindraj Ethiraj broadcasting and streaming weekdays from Mumbai, India's financial capital.

Our top stories and themes…

All eyes on Q1 results to provide the next booster shot to the markets.

India's auto sales clock record June month even as dealerships tackle blended fuel controversy.

The statistical argument for India's market recovery versus other emerging markets starting of course with how beaten down they are.

And Etihad and Saudi Airlines are vying for new Boeing and Airbus aircraft slots whose purchases Air India may postpone.

Markets, Oil, Q1 and Recovery

Foreign portfolio investors have begun buying again in small numbers for sure. The question of course is whether we are seeing a much-anticipated secular buying trend or a flash in the pan.

We don't know of course for sure at this point but bonds and fixed income instruments have seen considerable activity. Global funds have bought index eligible bonds in every trading session over the past month and the 21 session buying streak is the longest in at least two years, surpassing the 15-day run in early 2025 according to Bloomberg data. Elsewhere, a positive sounding note from brokerage Morgan Stanley said the coming quarterly earnings season should therefore offer useful signals and they expected an upside surprise given strong high frequency indicators.

Investors may also watch the monsoon though they do not share that worry according to the Morgan Stanley analyst. I don't know if they are but if they are sitting in Mumbai right now and looking out of the window, all monsoon worries would have faded by now though of course we will have to wait as we always do for the data. More broadly, the Morgan Stanley belief which mirrors many other analysts is that the next leg of the market rally will be driven by how the April to June or the first quarter corporate earnings season and the monsoons play out.

As a strategy, Morgan Stanley favours domestic cyclicals over defensives and external facing sectors. Their overweight sectors include financials, consumer discretionary and industrials and are underweight on energy materials, utilities and healthcare according to a business standard report of that report. IT services could prove to be the dark horse as the world turns to these firms to build artificial intelligence applications and solutions, Morgan Stanley said and this is a sentiment which is being reflected elsewhere too with a higher degree of anticipation or anticipatory bullishness for the IT stocks or conversely the conclusion that they've been beaten down so far that the only way is up.

Reflecting all of this, potentially the markets held their gains on Monday having risen about 2.4% each in four sessions now and closing at a 10-week high. HCFC Bank stocks rose on a strong quarterly business update and lifted the market according to Reuters which added that it rose close to 3% after reporting a 15% increase in gross advances during the June quarter. Axis Bank also gained slightly after its business update over the reflecting a roughly 19% growth in gross advances.

The Sensex was up 521 points to 78,285 and the Nifty 50 was up 159 points to 24,430. The broader markets were up too. The Nifty mid-cap and small cap were up 0.45 and 0.75% each.

Oil prices on Monday were down after the Organisation of Petroleum Exporting Countries Plus or OPEC Plus agreed to further increase output targets from August while exports from and through the state of Hormuz are recovering potentially adding to global supplies. Reuters reported adding that Brent crude futures were down to about $71.71 on Monday morning which is still higher than what it was on Friday but below $72 per barrel is where it is. So what could a turnaround in the equity markets that we hinted at look like? Well the good news is that the distance that has been covered in the opposite direction of course is substantial.

A note from Motilal Oswal points out that India's cumulative outperformance compared to the MSCI Emerging Market Index stood at 10% that's plus 10% between June 2021 and September 2024 which is really the last big peak. That figure has swung to an underperformance of minus 40% between the September 2024 peak and June 2026 that's last month according to a business standard report which summed it up. On the other hand India's valuation premium over emerging markets has compressed to a historic low of 18% in June 2026 significantly below its long-term average of 73% and the calendar year 22 peak of 147%.

Now the reason behind highlighting these not so happy numbers in some cases is obviously to demonstrate the possibility of a trend reversal. As the Motilal Oswal note says India's prolonged period of relative underperformance has led to more attractive valuations and positioning any broadening of global market leadership or rotation away from AI-centric trades towards a wider range of sectors and markets could serve as a meaningful tailwind for Indian equities and that of course is the hope as we go further into the week. In the currency markets the rupee fell to a three-week low on Monday as a broadly upbeat dollar hit Asian currencies with maturing contracts in the non-deliverable forwards also adding to the pressure according to Reuters which added that the rupee closed down slightly at Rs.

95.39 per dollar after dipping even further during the day.

Mumbai Monsoon Mayhem

The monsoons are of course here but heavy rainfall continued to disrupt the city of Mumbai and flight operations into and out of the city with several flights diverted. Elsewhere at least six people including five children were killed when a group of buildings collapsed in the eastern suburbs of the city on Sunday.

The latest casualties of heavy rains that have disrupted travel and shut down schools in the city according to Reuters traffic on the Mumbai Pune expressways were disrupted as were the train routes between the two cities which also carry through trains to other destinations beyond Pune all of which thanks to major landslides.

What Are The Current Trends in Auto sales?

India's auto sector continues to run on high gear overall vehicle sales rose almost 22 percent to a record 2.6 million units for the month of June 2026 with passenger vehicle sales rising almost 29 percent year-on-year to about 410,000 units in what the Federation of Automobile Dealers Associations or FADA called a landmark year for Indian auto. At the same time the country's appetite for electric hybrid and compressed natural gas vehicles jumped sharply thanks to the fuel price hikes which came after the war started in West Asia with their share hitting a record share of passenger vehicle sales in June.

Alternative fuel vehicles have now touched 40.35 percent of passenger vehicle retail sales in June that's up from about 38 percent a month earlier. Among passenger vehicles CNG models are 24 percent hybrids 8.3 and electric vehicles 7.8. Tractors recorded their second best June ever according to FADA which says that the fact that records were being set in a seasonally transitional month highlights the structural depth of the economy and purchasing power. Three wheelers also grew sharply at about 16 percent and that was their best June ever though in three wheelers electric vehicle penetration is at almost 64 percent much higher than most other categories.

Overall electric vehicle penetration is about 12.5 percent which is obviously growing. I reached out to C.S. Vigneshwar president of the FADA based out of Coimbatore and I began by asking him what was driving these sales beyond the top line numbers. I also asked him about the E20 blended fuel controversy that's ethanol and petrol and what dealerships across the country were seeing in terms of customer feedback on the likely harm caused by these fuels to their vehicles.

INTERVIEW TRANSCRIPT

C S Vigneshwar: The continued resilience going there has been phenomenal because every time I was on a channel for the monthly press meet and in the last nine months, I've been asked this question, how long is this going to last? And we at FADA, we were quite confident that the fundamentals were strong and the GST two point also absolutely springboarded what is to come into a different level. It's been nine months of breakneck growth.

This will continue because our base itself is small in comparison to what we can be. The economy is doing well. The macroeconomic factors are strong.

So at the end of the day, I think India is set for many, many years of high growth in terms of automobile sector. When you look at it, there's so much to go. Two out of thousand car ownership is nothing compared to Norway, which is beyond 800 per thousand.

So a lot of things are to be done. A lot of things we have to achieve. A lot of more companies are coming in.

So when you look at it, having a 21, 22% growth overall in the industry for the month of June is our best ever June, all our records. The two wheeler, passenger vehicles, commercial vehicles, three wheelers, all of them have gone through record June month. The tractor, again, it's the second highest June.

I think the growth is strong. We're also seeing electric vehicles play a much bigger part in the Indian economy. Two wheelers, first time it has gone into the double digits.

It's about gone past 10%. When you look at the passenger vehicles, the alternative fuels, which has CMG, which has EV, which has hybrids, has gone beyond 40%. This was about 35, 36% last year.

So the growth has been strong. Much more is yet to come. A lot of EVs, CMG and hybrid products are to come from manufacturers.

Govindraj Ethiraj: Right. So are you saying that the CMG plus hybrid plus EV component is what is sending growth numbers higher or driving the big growth?

C S Vigneshwar: That is part of it, but I'm sure diesel and petrol are also playing a part. But think about it. Diesel and petrol 10 years ago used to be a hundred percent and now probably some CMG.

But now this is really going to be flipped in the next few years. The alternative fuel mix is going to go beyond 50% at this rate, well within 2030.

Govindraj Ethiraj: Right. I'll come to two wheelers also, but within four wheelers, what are the big drivers in terms of category of vehicles?

C S Vigneshwar: The hatchback category is continuing to do well. Again, GST reforms help the base level, the entry level cars, the cost came down and it also started doing well. Apart from that, we are also seeing that the SUVs, which is a kind of a trend happening all over the world, continue to do well.

So I think these two would be leading segments in years to come too.

Govindraj Ethiraj: And again, within that, would you say it's new models or lower prices for older models? Any insights there?

C S Vigneshwar: Lower prices for older models always help because that will probably form the meat of the market. On top of it, in case new models come, that also adds to the excitement and to the varieties and options available for the customer. That would really work too.

I mean, both in tandem is causing good growth rates for the Indian automotives. I thought of it.

Govindraj Ethiraj: What about two wheelers? I know it's been steadily growing, but are there any newer trends emerging within that?

C S Vigneshwar: Newer trends, as we mentioned before, the two wheeler EV space is really heating up. It's gone past 10%. Mind you, just the scooters, because when you look at motorbikes, they hardly need these very, very few volumes.

In case the volumes also come from there and scooters, I think it's going to go to much higher levels. And even there, you also had a manufacturer who introduced CNG, but other manufacturers are yet to take note of it or introduce vehicles. But I think there's a great move.

All these different kinds of systems and energy options would really help the market grow.

Govindraj Ethiraj: Right. And there's been a lot of discussion and feedback on E20 fuels. What are you seeing at the dealerships?

I mean, what are the kinds of questions that are coming or queries or clarifications that customers, current and potential are asking?

C S Vigneshwar: I really appreciate this question. And this question also needs to be really clearly spelt out as an answer, because there's a lot of speculation going on there. And rightfully so, before customers are worried regarding what happens to the vehicle which they spent so much money on.

As FADA, we have three sources of tech information, anything regarding technology, especially fuels. It comes from the OEMs, it comes from the government and those come from the oil marketing companies. We are not a testing association, but we don't have anything in technical.

So when we talk to all three of them, and all three of them also have come openly and talked about how E20 fuels are actually okay to be used by the customers. And yes, there is adulterated fuel sometimes available, unclean fuel available sometimes, probably that affects cars. I run a lot of workshops.

I've seen when bad quality fuel gets into the system, it does cause issues, but then we clean out the system and then the cars start functioning again. But when E20 comes, we have been assured by these government and OEMs, these are all specialists who have spent billions on testing. They've assured us on the fuel being good to use by customers.

Yes, there might be a little bit of a drop in efficiency because of the values being different between petrol and ethanol. But apart from that, me also running a workshop, I haven't seen a single vehicle which actually reported an issue because of ethanol blended fuel. So having confidence in our government agencies and the OEMs who made these cars, I think these vehicles should be trusted to run and the word of the OEMs and the government should be taken as when they give it.

Govindraj Ethiraj: Right. You know, but the thing is, you are the interface point. I mean, when a consumer or a vehicle owner has a problem, they only come to dealerships.

So you're saying in the case of Toyota, there doesn't seem to be a problem. I think one is efficiency, which you're clearly saying there is a drop in efficiency and that's fine. Or at least that's, let's say, acknowledged.

If there is any other damage to any engine part or increased wear and tear, would you know about it, particularly for other models?

C S Vigneshwar: Again, I'm trying to drive home the point. We haven't as dealers received vehicles which actually came there because of E20 fuel, as far as I know. And you had a press conference happen a couple of days ago.

You had the head of Maruti, one of the top people from Toyota, one of the top people from Hero. And all these people have actually come out openly and told everyone, for the record, it's a video wherein none of these cars or bikes have been affected. So beyond that, I think speculating on this one until it gets affected or proven otherwise, I don't think it's healthy discussing too much about it because, I mean, we're not going to reach anywhere.

As far as the testing agencies go, which the government tested, which the OEMs tested, they haven't thrown out anything bad using these fuels.

Govindraj Ethiraj: Just to reiterate that point, you're saying that the feedback that you get, including from customers who are bringing their vehicles for servicing, does not suggest any impact of E20 fuel on materially, as in terms of engines and engine parts and so on?

C S Vigneshwar: Not that we know of. We connect services in my own workshop. We haven't come across a single case as yet.

So we have full faith in the OEMs whom we buy these vehicles and sell, and also the government who lays up the rules and regulations. So when they tell us that it's safe to run, I'll take it for granted that they're telling me the right thing. When the OEM and the government says there is 3,000cc of engine inside, I don't pour water inside and find out how many cc of water has actually gone in or petrol has gone in.

I take them for the word and I believe them. I really trust them that they're running such a huge manufacturing base. They cover so many manufacturers as the government too, in terms of making sure they live up to the regulations.

So I trust these bodies and I would urge customers to ride and drive their vehicles confidently.

Govindraj Ethiraj: Got it. So between urban and rural, are you seeing some shifts now with the rural side softening as opposed to urban? You're right.

C S Vigneshwar: This has happened in June, but I really wouldn't read too much into it. That was because of the late monsoon, but the monsoons have finally come. Yes, in patches, but it's finally coming.

We've also seen strong buying from the tractor industry, which is up by about 21% in June year on year. So which means there's confidence in the rural economy that people are investing so that they could first sow and then harvest their crops. So probably this softening can be temporary and it'll come back in the next few months.

Govindraj Ethiraj: All right. Vignesh, thank you so much for joining me as always.

C S Vigneshwar: Thank you, Govind.

—

FADA also says that looking ahead to July 26 more than 50 percent of their dealer network expects growth about 42 percent expects a flat market and only about seven percent are predicting a decline. The expectations rest on the monsoon making up its deficit, Kharif sowing gathering pace and supplies staying normalised following the ceasefire in West Asia and therefore falling crude prices. Meanwhile Kotak institutional equities has said they expect revenues for auto stocks under their coverage to increase 17 percent year-on-year for the first quarter and 21 percent year-on-year excluding Tata Motors thanks to mid to high teens year-on-year volume increase in two wheelers, passenger vehicles, commercial vehicles and tractors and higher average selling price due to price hikes by car manufacturers and a favourable forex or foreign exchange.

But they also expect most car manufacturers to see operating margin pressure with EBITDA margins including Tata Motors to decline by about 160 basis points year-on-year because of commodity headwinds. This of course could be offset according to Kotak institutional equities by operating leverage benefits and a richer product mix thanks to which EBITDA could increase 10 percent on a year-on-year basis in the first quarter. This again excludes Tata Motors.

Why has Air India Reduced Their Aircraft Orders?

Air India is set to pull back some of its Airbus and Boeing aircraft orders following challenges in operations and on the balance sheet, all of which escalated in the last four months after the outbreak of the West Asia War. Air India Group recorded a record loss of more than $2.8 billion for its 25-26 fiscal year according to shareholder Singapore Airlines annual report that was made public two months ago. Air India previously ordered a combined 600 aircraft from Airbus and Boeing in 23 and 24 and then put in orders or rather more orders early this year as part of an aggressive fleet expansion Bloomberg had reported last month adding that the bulk of its deliveries were expected in 27 and 28 that's next year and the year after.

A new Bloomberg report says airlines in the Persian Gulf are now looking to snap up earlier delivery slots for Boeing and Airbus aircraft that may be freed up as Air India discusses potentially deferring some of those orders. The carriers include Abu Dhabi-based Etihad Airways and Saudi Arabia's national airline Saudia who are apparently in talks with the manufacturers to obtain delivery positions as early as 2029 and 30. Etihad is apparently close to securing about half a dozen near-term Boeing 787 Dreamliner slots currently held by Air India according to that Bloomberg report though it did add that the talks between the aircraft manufacturers and airlines are preliminary and nothing has been finalised.

A spokesperson for Air India told Bloomberg that they have not deferred any aircraft orders or delivery slots with Boeing or Airbus and its fleet modernisation programme remains on track. The Bloomberg report also says that with order books for the most popular Airbus and Boeing jets stretching well into the next decade near-term delivery slots have become highly coveted by airlines looking to modernise fleets and expand their route networks.