Auto Stocks Outlook: Seen dn next week on high fuel price worries

[K.Karthik Raja]

Auto Stocks Outlook: Seen dn next week on high fuel price worries

An impending auto fuel price hike along with high inflation will
continue to dampen automobile counters next week.
The Government may hike auto fuel prices by Saturday to bail out
state-
run oil retailing companies which are reeling under mounting losses.
While petrol prices are likely to go up by 3-7 rupees per Ltr,
diesel may
become costlier by 2-3 rupees per Ltr, and that would put more speed
breakers
on the road for auto companies.
Automobile sales are already suffering due to high interest rates.
Any
steep hike in petrol or diesel prices will further hurt sales.
India's crude oil basket Thursday rose $2.11 per barrel to $126.04.
Headline inflation too rose to a 44-month-high of 8.10% in the week
ended
May 17 from 7.82% a week earlier.
India's headline inflation rate has been steadily climbing since
October
on the back of rising commodity prices, especially steel and edible
oils.
The central bank has already raised cash reserve ratio by 75 basis
points to 8.25% to contain inflationary expectations. If fuel prices
go up,
inflation will rise further making it even more difficult to tame
inflation.
Increases in cash reserve ratio of banks have kept investors at bay
so
far due to fears that interest rates for auto loans may be hiked once
banks
start feeling the pinch.
Auto loan rates have risen to around 15% from 10-11% in 2006.While
car
loans are available at anywhere between 14%-15.5% (private banks),
two-
wheeler loans are hovering around the 13.5% mark.
"Nationalised banks offer loans at much lower rates, but then they
have
too stringent norms," an auto expert said.
High growth potential of M&M's subsidiaries is expected to unlock
actual
value of the stock.
Shares of Tata Motors have tumbled after the company Thursday,it
will raise $1.68 billion through new shares to finance its recent
acquisition
of Jaguar and Land Rover brands from Ford Motor Co.

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

May 30 May 23 Change (%)

Ashok Leyland 35.80 37.40 -4.26
Hero Honda 746.15 797.50 -6.43
Mahindra & Mahindra 590.15 652.00 -9.48
Maruti Suzuki 763.05 799.60 -4.57
Tata Motors 575.70 637.55 -9.70

BSE Auto Index 4,355.76 4,619.90 -5.71
Nifty 4,870.10 4,946.55 -1.54
Sensex 16,415.57 16,649.64 -1.40

K.Karthik Raja