Auto Stocks Outlook: In line with broad market next week

[K.Karthik Raja]

Auto Stocks Outlook: In line with broad market next week
Monday, Apr 14

MUMBAI - Shares of front line automobile companies are seen moving
in
line with the broad market next week, as outlook for sales growth
still
remains bleak for at least the next two quarters.
The ongoing high interest rate regime is likely to continue as the
Reserve Bank of India has been left with no room to soften its stand
after
inflation rate for the week to Mar 29 touched 7.41%, much above the
central
bank's tolerance of up to 5% for the sixth straight week.
Demand revival has not been seen so far, and fourth quarter
numbers were
only slightly better even with the price cuts offered after the
Budget. So
automobile shares are not seeing strong buying at the current levels

Value buying at lower levels and hope of softening in prices of
steel, an
essential raw material, is seen supporting the sector as many shares
are in
the oversold zone at present.
Steel prices shot up 30% in Jan-Mar, putting margins of automakers
under
pressure.
Ashok Leyland is seen moving sideways with very few triggers after
it
surged 10% last week on a 27% on-year growth in sales for March.
The share has strong support at 35 rupees and will see resistance
at
39.50-40.50 rupees.
Hero Honda Motors is seen weak on worries over sales growth, as
reports
said the company is considering cutting down capacities at existing
plants.
Most research have a neutral rating on the share, as the company
is
facing stiff competition and may not be able to avoid dampening of
sales
going forward in line with the rest of the industry.
Two-wheeler sales have fallen marginally in March and 8% in
2007-08
(Apr-Mar) and the scenario is not likely to change soon.
Mahindra & Mahindra looking good with a target price of 740 rupees
citing long-term growth on the back of new launches,growth in tractor
sales, and contribution of subsidiaries.
Tata Motors is seen range-bound as investors are unwilling to take
a call
on the stock until a clearer picture emerges of how the company will
handle
the funding and revival of Jaguar and Land Rover brands after buying
them
from Ford Motor Co.
Credit rating agency Moody's has put company on a watch for
possible
downgrade following the buy.
.
Following are this week's prices, in rupees, of key automobile
shares on
the National Stock Exchange, compared with the previous week:
.
Apr 11 Apr 4 Change (%)
.
Ashok Leyland 37.85 34.45 9.87
Hero Honda Motors 739.45 759.65 (-) 2.66
Mahindra & Mahindra 618.75 605.20 2.23
Maruti Suzuki India 739.15 764.60 (-) 3.33
Tata Motors 622.45 612.70 1.59
.
BSE Auto Index 4,427.06 4,378.54 1.11
Nifty 4,777.80 4,647.00 2.81
Sensex 15,807.64 15,343.12 3.03
End


K.Karthik Raja
Research Dept.