Auto Stocks Outlook: Down next wk on rising interest rate worries
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N.Sukumar
Jun 21, 2008, 2:46:49 AM6/21/08
to Kences1
NEW DELHI - Shares of automobile companies are seen down next week on
concern over interest rates rising further after inflation touched a
13-year-high today.
High inflation and negative sentiments on the political front weighed
on
the market. We are likely to see more downside hereon.
India's headline inflation rate rose to 11.05% for the week to Jun 7
from 8.75% a week ago, more than double of Reserve Bank of India's
March end projection of 5.5%.
The rise in inflation rate is mainly on account of increase in prices
of
auto and cooking gas fuel.
The government had on Jun 4 increased prices of petrol by 11%, diesel
by 10% and cooking gas by 17% in a bid to reduce the losses of state-
owned oil marketing companies.
High fuel prices, high raw material costs, already high lending rates
and now a sky-high inflation...nothing else could wrong for the
automobile sector.
Finance Minister P. Chidambaram too said the government will take
stronger steps on both demand and monetary sides to curb galloping
prices.
The government and the Reserve Bank of India have already taken a
series of measures, including duty cuts and hike in interest rates.
The central bank raised its benchmark repo rate by 25 basis points to
8.0% earlier this week.It also hiked cash reserve ratio in April by 75
basis points to 8.25% to contain inflationary expectations.
Any hike in banks' CRR would squeeze liquidity in the system, which
would compound the automobile sector's miseries.Companies have been
witnessing dwindling sales in the wake of high loan rates and tight
credit norms.
Auto loan rates have risen to around 15% from 10-11% in 2006.
While car loans are available at anywhere between 14%-15.5%
(privatebanks), two-wheeler loans are hovering around the 13.5% mark.
Auto stocks are interest rate sensitive and the feeling is that there
would be another round of interest rate hike by the RBI.
In India, almost 80% cars and 70% of two-wheelers are purchased on
credit.The cost of owning a vehicle has risen considerably, which has
forced customers to postpone their purchase decisions.
Maruti Suzuki Chief Financial Officer Ajay Seth said another hike in
interest rate is imminent.
There is already a lot of pressure on the automobile industry. It is a
very worrying factor for the industry," Seth said.
Following are this week's prices, in rupees, of key automobile shares
compared with previous week on National Stock Exchange:
Jun 20 Jun 13 Change (%)
Ashok Leyland 32.35 32.25 0.31
Bajaj Auto 512.10 505.90 1.22
Hero Honda 758.30 784.25 - 3.30
Mahindra & Mahindra 574.20 570.25 0.69
Maruti Suzuki 728.35 722.15 0.85
Tata Motors 489.65 516.15 - 5.13
BSE Auto Index 4,042.86 4,129.79 - 2.10
Nifty 4,347.55 4,517.10 - 3.75
Sensex 14,571.29 15,189.62 - 4.07
N.Sukumar
Research Analyst
concern over interest rates rising further after inflation touched a
13-year-high today.
High inflation and negative sentiments on the political front weighed
on
the market. We are likely to see more downside hereon.
India's headline inflation rate rose to 11.05% for the week to Jun 7
from 8.75% a week ago, more than double of Reserve Bank of India's
March end projection of 5.5%.
The rise in inflation rate is mainly on account of increase in prices
of
auto and cooking gas fuel.
The government had on Jun 4 increased prices of petrol by 11%, diesel
by 10% and cooking gas by 17% in a bid to reduce the losses of state-
owned oil marketing companies.
High fuel prices, high raw material costs, already high lending rates
and now a sky-high inflation...nothing else could wrong for the
automobile sector.
Finance Minister P. Chidambaram too said the government will take
stronger steps on both demand and monetary sides to curb galloping
prices.
The government and the Reserve Bank of India have already taken a
series of measures, including duty cuts and hike in interest rates.
The central bank raised its benchmark repo rate by 25 basis points to
8.0% earlier this week.It also hiked cash reserve ratio in April by 75
basis points to 8.25% to contain inflationary expectations.
Any hike in banks' CRR would squeeze liquidity in the system, which
would compound the automobile sector's miseries.Companies have been
witnessing dwindling sales in the wake of high loan rates and tight
credit norms.
Auto loan rates have risen to around 15% from 10-11% in 2006.
While car loans are available at anywhere between 14%-15.5%
(privatebanks), two-wheeler loans are hovering around the 13.5% mark.
Auto stocks are interest rate sensitive and the feeling is that there
would be another round of interest rate hike by the RBI.
In India, almost 80% cars and 70% of two-wheelers are purchased on
credit.The cost of owning a vehicle has risen considerably, which has
forced customers to postpone their purchase decisions.
Maruti Suzuki Chief Financial Officer Ajay Seth said another hike in
interest rate is imminent.
There is already a lot of pressure on the automobile industry. It is a
very worrying factor for the industry," Seth said.
Following are this week's prices, in rupees, of key automobile shares
compared with previous week on National Stock Exchange:
Jun 20 Jun 13 Change (%)
Ashok Leyland 32.35 32.25 0.31
Bajaj Auto 512.10 505.90 1.22
Hero Honda 758.30 784.25 - 3.30
Mahindra & Mahindra 574.20 570.25 0.69
Maruti Suzuki 728.35 722.15 0.85
Tata Motors 489.65 516.15 - 5.13
BSE Auto Index 4,042.86 4,129.79 - 2.10
Nifty 4,347.55 4,517.10 - 3.75
Sensex 14,571.29 15,189.62 - 4.07
N.Sukumar
Research Analyst
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