Auto Stocks Outlook: Likely to lag next week on interest rate hike

[B. Karthick]

Auto Stocks Outlook: Likely to lag next week on interest rate hike
Saturday, Aug 2

Beaten by Reserve Bank of India's rate hike, front line automobile
shares will remain a laggard in the market next week.
Central bank Tuesday raised banks' repo rate by 50 basis points
and cash reserve ratio by 25 bps to bring down the "intolerable level
of inflation", which has been hovering at a 13-year high.
Reserve Bank of India said high inflation has emerged as the
biggest risk to global outlook and slowing it is highest priority.
Central bank aims to bring down inflation rate to 7% by Mar 2009.
India's headline inflation rose to 11.98% in the week ended Jul 19
from 11.89% a week ago.
Automobile shares that is considered one of the most interest rate
sensitive counters have been worst effected by the hike.
BSE Auto index today closed 1.87% down at 3656.49 points.
Already we are seeing a number of banks hike lending rates. The
worst affected would be the automobile sales.
Housing Development Finance Corp, ICICI Bank, Central Bank of
India, IDBI Bank, IndusInd Bank, Yes Bank, and Bank of Rajasthan have
all announced an increase in interest rates.
ICICI Bank is the country's largest automobile financer.
More than 60% of two-wheelers and almost 80% cars in India are
purchased on credit.
For commercial vehicles, the volume of credit purchases is as high
as 95%.
Rates for automobile loans have gone up almost 300 basis points
during the current calendar year to 15-16% for four-wheelers and
12-13% for two-wheelers, impacting sales.
Investors are also likely to weigh in July sales figures that may
be an indication of likely sales during Jul-Sep.
Maruti Suzuki, the country's largest car maker, posted its slowest
sales growth in four months in July.
Sequentially, almost every automobile maker has reported fall in
sales.
Hero Honda that reported a 40% on year jump in July sales,
registered a 5% fall in sales from June.
Even Maruti Suzuki reported a 4.4% dip in July sales from June.
Bajaj witnessed 1.5% sales fall from June.
Utility vehicle maker Mahindra & Mahindra too reported a 5%
decline in July sales sequentially.
Tata Motors said its July sales fell as much as 14% compared with
June.
Sequential sales fall is an indication that sales will be on the
lower side during the second quarter (Jul-Sep).
Automobile sales are also seen getting hit during Jul-Sep due to
monsoon.

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

Aug 1 Jul 25 Change
(%)
.
Ashok Leyland 28.15 28.75 - 2.09
Bajaj Auto 517.65 509.95 1.51
Hero Honda 794.95 757.15 4.99
Mahindra & Mahindra 522.85 540.50 - 3.27
Maruti Suzuki 562.15 614.40 - 8.50
Tata Motors 395.25 426.30 - 7.28

BSE Auto Index 3656.49 3725.99 - 1.87
Nifty 4413.55 4311.85 2.36
Sensex 14656.69 14274.40 2.68

End

B.Karthick,
Research Analyst.