Auto Stocks Outlook: To take cues from RBI policy review next wk

[B. Karthick]

Auto Stocks Outlook: To take cues from RBI policy review next wk
Saturday, Jul 26

Shares of automobile companies that have struggled to hit top gear
for much of this financial year, are expected to take cues from the
Reserve Banks of India's monetary policy review next week.
The RBI is set to review the monetary policy Tuesday.
With inflation hovering at 13-year high, there is expectation of
more monetary tightening in the central bank's policy review next
week.
The RBI has already hiked the repo rate twice in June. And as far
as the auto industry is concerned, there may be worse to follow.
We expect the central bank to hike short-term benchmark repo rate
by another 25 basis points to curb inflationary pressures in the
economy.
India's headline inflation rate has been rising sharply since
January mainly due to spurt in prices of petroleum products, edible
oil, iron ore, and steel.
Further hike in repo rate would only be bad news for the
automobile companies as that would mean further rise in lending rates.
Automobile sales are seen getting hit during the Jul-Sep quarter
due to monsoon, inflation and high interest rates.
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.
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%.
Shares of Hero Honda, the country's largest motorcycle maker will
depend on the company's Apr-Jun quarter numbers, which would be
detailed Tuesday.
Hero Honda Motors Ltd is expected to report a 35% rise in its net
profit for the quarter.
Operating margins for Apr-Jun are seen improving, as the company
has cut down on promotional schemes and discounts and has also
shuffled the product mix.

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

Jul 25 Jul 18
Change (%)

Ashok Leyland 28.75 27.75 3.60
Bajaj Auto 509.95 464.10 9.88
Hero Honda 757.15 679.65 11.40
Mahindra & Mahindra 540.50 520.60 3.82
Maruti Suzuki 614.40 619.25 - 0.78
Tata Motors 426.30 421.90 1.04

BSE Auto Index 3725.99 3600.93 3.47
Nifty 4311.85 4092.25 5.37
Sensex 14274.40 13635.40 4.69

B.Karthick,
Research Analyst.