Auto Stocks Outlook: Weak in line with broad market

[K.Karthik Raja]

Auto Stocks Outlook: Weak in line with broad market

NEW DELHI - Automobile shares next week are seen tracking the
broad market that is expected to continue its bearish trend.
Bombay Stock Exchange's 30-share sensitive index continued its
losing streak for the third day in a row and lost 62 points Friday
after the latest headline inflation data topped 4% for the first time
in 24 weeks.
The inflation rate, based on the Wholesale Price Index, rose to
4.11% in the week to Jan 26 from 3.93% a week ago.
Sensex closed at 17464.89 against 17526.93 Thursday.
Automobile stocks would be in the red in line with the market as
sentiments are negative on the sector.
Hopes of a revival in sales during Jan-Mar were quashed when the
Reserve Bank of India refused to lower its key lending rates in line
with the U.S. Fed.
Automobile counters would continue to witness heavy profit selling
during the week. Analysts had expected the Reserve Bank of India to
lower lending rates in its quarterly review of the monetary policy,
thereby leading to lower interest rates on automobile loans.
Automobile shares are considered on be one of the most sensitive
to
interest rate movements.
Automobile loan rates are hovering at an almost five-year high,
forcing customers to delay purchase plans.
Fewer trucks, passenger vehicles (cars and utility vehicles), and
two-wheelers were sold in the three months ended December, and sales
fell 1.8% in that period, as high interest rates forced customers to
defer purchases.
Almost 85% of India's passenger vehicles and 60% of two-wheelers
are financed by banks or other financiers.
"Equated monthly instalments for a two-wheeler loan has gone up by
almost 2,000 rupees, which is why motorcycles have been the worst
hit," said Dilip Chenoy, director general, Society of Indian
Automobile Manufacturers.
Automobile sales fell 4.8% to 8.1 mln units in the 10 months of
the
2008-09 (Apr-Mar).
According to automobile research, prevailing high rates and lack
of
finance in the market--that has slowed down two-wheeler sales since
last year--has started impacting the passenger car segment too.
Domestic passenger car sales grew 9% to 113,899 units in January
as against 104,501 units in the same month last year.
Investors have hoping the finance minister will give some
respite to the sector in his budget for 2008-09 (Apr-Mar). If not
reducing excise duty, he should at least do something to bring down
the lending rates.
Finance Minister P. Chidambaram is due to present his union budget
on Feb 29.

This week's prices, in rupees, of key automobile shares compared
with previous week on National Stock Exchange:
.
Feb 8 Feb 1 Change (%)
.
Ashok Leyland 36.45 34.85 4.59
Bajaj Auto 2,217.00 2,449.35 (-) 9.48
Hero Honda 707.15 728.35 (-) 2.91
Mahindra & Mahindra 646.00 671.00 (-) 3.72
Maruti Suzuki 805.75 905.75 (-)11.04
Tata Motors 710.95 753.50 (-) 5.64
.
BSE Auto Index 4,741.49 5,003.61 (-) 5.23
Nifty 5,120.35 5,317.25 (-) 3.70
Sensex 17,464.89 18,242.58 (-) 4.26. End