New Delhi, Aug 21 (IANS): Continued sequential recovery has been seen in the auto sector in July 2021, according to India Ratings and Research (Ind-Ra).

Ind-Ra believes that the 18 per cent sequential and 4 per cent year-on-year (YoY) increase in the domestic auto sales volumes in July 2021 was led by the continued easing of lockdown restrictions.

"Automotive dealerships have reopened in almost all parts of the country and consumer sentiments have improved on a steady decline in daily Covid cases. July 2021 volumes remained below pre-Covid levels (16 per cent below July 2019)," the rating agency said.

According to Ind-Ra, the passenger vehicle (PV) segment continued to benefit from the increasing preference for personal mobility, pent-up demand and new launches, leading to 45 per cent YoY growth in domestic sales volumes.

Besides, the volumes were higher than July 2019, indicating a recovery to pre-Covid levels.

"Domestic PV demand continued its shift towards utility vehicles (UVs) with 74 per cent YoY increase in volumes; the segment accounted for 47 per cent of the domestic PV sales in July 2021.

"The passenger car segment grew 26 per cent YoY in line with the combined YoY growth in compact and mini segments," Ind-Ra said.

The rating agency feels that the change in sales mix has been impacted to an extent by OEMs prioritising production of their UV models amid the global shortage of semiconductor chips.

Additionally, while consumer demand for two-wheelers remained tepid, with a 2 per cent YoY decline, the segment recorded 19 per cent sequential growth and the highest monthly sales YTD FY22, indicating some recovery in consumer sentiments.

"Scooter sales increased by 10 per cent YoY, while motorcycle sales fell by 6 per cent YoY. The recovery in two-wheeler demand has remained sluggish, impacted by the increased cost of ownership amid price hikes by OEMs, coupled with increasing fuel prices," Ind-Ra said.

In addition, the rating agency expects the volume growth to continue in August 2021, driven by improving consumer sentiments and the onset of the festive season.

However, the agency believes that the semiconductor shortage could pose supply-side challenges to OEM production, and thereby also moderate sales growth.