BENGALURU (Reuters) - India's top three carmakers by sales, on Thursday, reported a drop in car sales to domestic dealers in July as pent-up demand from last year began to taper off.

Hyundai Motor India's sales to dealers dropped 3.3% in July, the first decline in the fiscal year that started in April. Tata Motors' sales slid by 6%, dropping for the second consecutive month.

Market leader Maruti Suzuki's sales fell an even steeper 9.6%, notching the first drop since December 2023.

The three companies accounted for roughly two-thirds of retail car sales in June, with Maruti holding a 40% market share, per industry data.

Analysts expect retail sales -- dealers' sales to customers -- to slow down this fiscal year after years of strong growth as urban customers upgraded to newer and bigger vehicles such as sports utility vehicles (SUVs).

"For about two years, the industry has grown substantially. One year of consolidation is expected, so this year would be flattish," said Amit Hiranandani, automobile sector lead analyst at brokerage SMIFS.

"Hardly any growth can be expected in the passenger vehicle industry this year."

However, analysts still expect SUV sales to fare better than small cars as they cater to a more affluent demographic.

Mahindra & Mahindra, whose car portfolio is almost entirely made up of SUVs, said sales to dealers grew 15% in July, faring better than Hyundai and Tata but still recording its slowest growth this financial year.

On the other hand, Maruti's forte is entry-level cars, which often tend to be small cars. They remain too expensive for first-time buyers, who comprise a large demographic for the segment.

In fact, while retail sales of SUVs jumped 18% from April to June, overall car sales rose 3%. Retail sales for July have yet to be released.

Hiranandani estimates retail sales fell 6% last month.

(Reporting by Varun Hebbalalu and Nandan Mandayam in Bengaluru; Editing by Savio D'Souza and Janane Venkatraman)