Auto Stocks Outlook: Down next week; value buying to limit fall

[B. Karthick]

Auto Stocks Outlook: Down next week; value buying to limit fall
Saturday, Aug 23

A weak outlook for vehicle sales until the end of the financial
year to March amid higher fuel prices and soaring inflation will keep
most investors away from automobile shares in the coming week.
However, some value buying, as many shares are near oversold
zones, and short covering, ahead of August futures and options series
expiry Thursday, is likely to limit downside.
Also, inflation to the week ended Aug 9, detailed late Thursday,
rose to 12.63% from 12.44% the previous week but was below the 13%
level feared by many market watchers.
Following this, benchmark share indices ended 1% up Friday amid
speculation the inflation curve may moderate its ascent and stabilise
here, and even begin to move downward soon.
Hero Honda Motors that has been gradually gaining over past few
weeks is likely to face resistance at 850 rupees.
The motorcycle maker's senior vice-president marketing and sales,
Anil Dua, said Tuesday the company is on track to launch 11 motorcycle
models in the next 13 months over various segments, including 125 cc
premium.
Dua added the two-wheeler industry was unlikely to witness a
double-digit growth this financial year as potential customers are
deferring purchases in view of the high interest rates.
Maruti Suzuki shares may see some downside, as valuations are
higher than peers.
India's largest passenger carmaker has deferred its export target
of
200,000 units a year to 2010-11, a year later than earlier forecast.
The
company exported 53,000 units in 2007-08.
Shares of Mahindra & Mahindra that bought China's third-largest
tractor maker, may begin to recover.
The stock has resistance at 575 rupees and then at 590 rupees. It
has been trying to move upwards for the past seven to eight weeks.
Acquisition of Jiangsu Yueda Yancheng is seen as a strategic move
aimed at capturing the export market and we feel the company needs to
align its business plan taking into account recent foray into two-
wheelers.
Mahindra & Mahindra has bought assets of Pune-based Kinetic Motor
Co.
Tata Motors shares are close to an oversold zone and may stabilise
with resistance next week at 455 rupees and then at 454 rupees.
The stock has not been performing much. But the change in the
company's finance plan for JLR deal has provided support, and the
stock could rise from here.
Tata Motors said Wednesday it has altered its funding plan for
acquisition of Jaguar and Land Rover in view of "current market
conditions". It will now partly fund the buy via divestment of
investments and a reduced rights issue.
The company had earlier planned to raise 72 bln rupees via three
simultaneous rights issues, mainly to repay the bridge loan taken to
fund the $2.3 bln acquisition of Jaguar and Land Rover businesses of
Ford Motor Co.
The altered funding will reduce the equity dilution of the company
35%, compared with 45% earlier.

Following are this week's prices, in rupees, of key automobile
shares compared with previous week on National Stock Exchange:

Aug 22 Aug 14 Change (%)

Ashok Leyland 31.35 32.90 -4.71
Bajaj Auto 531.85 565.85 -6.01
Hero Honda Motors 801.10 784.20 2.16
Mahindra & Mahindra 549.05 585.40 -6.21
Maruti Suzuki India 631.50 650.50 -2.92
Tata Motors 427.35 432.00 -1.08

BSE Auto Index 3839.52 3,933.05 -2.38
Nifty 4327.45 4,430.70 -2.33
Sensex 14401.49 14,724.18 -2.19.

B.Karthick
Research Analyst.