Auto Stocks Outlook: Seen down on heavy selling pressure next week

[K.Karthik Raja]

Auto Stocks Outlook: Seen down on heavy selling pressure next week
NEW DELHI - Automobile counters are seen down next week, with an
exception of Bajaj Auto Ltd., as we expect the sector to witness heavy
selling pressure on lack of any growth triggers.
Automobile counters would continue to see heavy selling next week
as investors' sentiment continue to be negative on the sector.
Investors expect Finance Minister P.Chidambaram to announce some
tax benefits for the automobile industry, which is undergoing its
worst slowdown in recent times.
However, we feel the sector is unlikely to get any fiscal relief.
Unlike the two-wheeler segment, there is growth in the four-
wheeler
sector and the moment interest rates soften, demand would explode. So
there is no reason for the finance minister to give sops to the
industry. The automobile industry, especially the two-wheeler segment,
is hoping a cut in excise duty from the current 16% to 8%.
The two-wheeler industry has been undergoing a sustained slowdown
with sales falling 12.4% during Apr-Jan, the first 10 months of
2007-08, mainly on sharp rise in interest rates.
Motorcycle sales are down almost 12% on year during the Apr-Jan
period. There are no signs of revival in the sector as such more and
more investors would look toward decreasing their exposure in the
sector.
Moreover, going forward on 2008, automobile companies would
continue to see tight margins as steel companies raise prices.
We expect steel prices to be firm this year (2008) on high prices
of input like coking coal, iron ore, limestone, ferro alloys.Even high
freight rates would play a major role in raising steel prices.
Even aluminium prices are expected to hit the roof this year due
to lack of supplies from China, Mozambique and South Africa.
Only companies like Mahindra & Mahindra, which have a diverse
portfolio will do well in this era of recession. Apart from
automobile, Mahindra & Mahindra is also into areas like defence,
financial services, retail, real estate, and technology.

WEEK'S PICK

We have tipped Bajaj Auto to be the pick of the week due to the
de-merger date announcement by the company. The shareholders would be
eligible to receive shares of Bajaj Auto (new) and Bajaj Finserv in
the ratio of 1:1.
Bajaj Auto has fixed Mar 25 as record date for de-merger.
On May 17 last year, the board of Bajaj Auto approved a de-merger
scheme, splitting the group into three separate entities with the
creation of two new companies.

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

Feb 22 Feb 15 Change (%)
.
Ashok Leyland 36.05 36.35 (-) 0.83
Bajaj Auto 2,296.20 2,175.20 5.56
Hero Honda 720.60 729.35 (-) 1.20
Mahindra & Mahindra 629.10 621.05 1.30
Maruti Suzuki 766.35 812.45 (-) 5.67
Tata Motors 696.05 751.85 (-) 7.42
.
BSE Auto Index 4,707.66 4,768.59 (-) 1.28
Nifty 5,110.75 5,302.90 (-) 3.62
Sensex 17,349.07 18,115.25 (-) 4.23


K.Karthik Raja
www.kences1.blogspot.com