Retail sales during the Navratra grew by mid-to-high single digits across regions even as rural sales have remained muted, a brokerage firm said in a report on the automobile sector on Thursday.

The report by Motilal Oswal Financial Services also said that during the last week of October, inquiries and bookings are seeing a slight improvement for passenger vehicle OEMs (original equipment makers) especially for Maruti Suzuki and Tata Motors.

"We observed varied demand trends in October, with two-wheelers and tractors showing positive momentum and passenger and commercial vehicles witnessing moderate demand. A better monsoon is helping drive positive sentiment in rural regions, though the sustainability of this demand remains to be seen," the brokerage firm said.

Overall, two-wheelers performed better, with festive growth expected at 4-5% year-on-year partially constrained by a high base, it said. At the same time, passenger vehicles may see a fall in the festive season compared to the last year, it said, adding that inventory levels are currently high for both two-wheelers and passenger vehicles, making Diwali sales a critical period to gauge inventory clearance.

Tractor volumes are recovering and are expected to perform well in the second half of the current financial year. In commercial vehicles, sentiment improved sequentially, driven by demand in certain industries, though a full recovery remains distant, it stated.

Overall, the brokerage firm said, it expects dispatch growth for two-wheelers and tractors at 12% and 2% respectively while for the three-wheelers at 5%.

However, passenger vehicles are expected to see a flat growth in volumes while commercial vehicles volume may see a 4% year-on-year dip, as per the report.

It noted that the retail sales during the Navratra grew by mid to high-single digits across regions we interacted. Rural sales have remained muted during the Navratra but are expected to improve during Diwali, it said that during the last week of the ongoing month, inquiries and bookings are seeing a slight improvement for PV OEMs, especially for Maruti Suzuki and Tata Motors. According to the brokerage firm, weakness in commercial vehicle demand persisted even during the festival with volumes expected to decline by around 5% year-on-year.

However, the situation still seems better than last month as an improvement in fleet utilization levels in most of the regions was noted during the month, it stated.