Auto Stocks Outlook: Seen up next wk on value buy, weak oil prices

[B. Karthick]

Auto Stocks Outlook: Seen up next wk on value buy, weak oil prices
Saturday, Aug 9

Easing of crude oil prices and likely value buying would keep
frontline automobile counters in the positive next week.
Since most of the counters (auto) fell during the overall market
decline, their valuations have become quite comfortable now. This
could be a cause for the bounce back in auto shares.
Maruti Suzuki India, the country's largest car maker by volume,
has shed nearly 31% on National Stock Exchange since Jan 1.
Similarly, Tata Motors share has slipped almost 42% during the
same period.
Utility vehicle maker Mahindra & Mahindra, too, has lost almost
34% since Jan 1.
Market has already discounted the expected slowdown in the sector.
The valuations of these stocks look good.
The country's automobile sector, which is an interest sensitive
sector, was badly battered as inflation soared to new highs.
More than 60% of two-wheelers and almost 80% cars in India are
purchased on credit.
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.
For commercial vehicles, the volume of credit purchases is as high
as 95%.
India's headline inflation rose to 12.01% for week ended Jul 26
from 11.98% in the previous week.
This is the first time in 13 years that headline inflation rate
has risen above the 12% mark.
Reserve Bank of India has already raised short-term benchmark rate
by 125 basis points and cash reserve ratio by 150 points since the
beginning of the current financial year to tame inflation.
Some investors would also take into consideration the falling
crude oil prices for buying into automobile stocks.
The Indian basket had touched a three-month low of $115.40 a
barrel Wednesday.
The price of crude oil has fallen more than $30 in the last month,
which is a good sign for the sector.

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

Aug 8 Aug 1 Change
(%)

Ashok Leyland 33.15 28.15 17.76
Bajaj Auto 548.00 517.65 5.86
Hero Honda 821.70 794.95 3.36
Mahindra & Mahindra 575.75 522.85 10.12
Maruti Suzuki 679.15 562.15 20.81
Tata Motors 440.70 395.25 11.50

BSE Auto Index 3970.27 3656.49 8.58
Nifty 4529.50 4413.55 2.63
Sensex 15167.82 14656.69 3.49
End


B.Karthick
Research Analyst.