Auto Stocks Outlook: Dn next wk on fears of hike in interest rates

[K.Karthik Raja]

Auto Stocks Outlook: Dn next wk on fears of hike in interest rates
Friday, Mar 28

Frontline automobile shares are seen down next week on fears
of a further hike in interest rates.
The Reserve Bank of India may hike interest rates to check
rising inflation.
Inflation rate for the week to Mar 15 rose to a 59-week high of
6.68% from 5.92% a week ago.
The headline inflation rate has been steadily moving up from a
five-year low of 3.07% in October because of high commodity prices.
There are concerns in money markets over possibility of monetary
steps to check rising inflation
The automobile sector, one of the most interest-rate sensitive
sectors, is already reeling because of high lending rates.
The inflation rate has come out of the blue just when the interest
rate
scenario had started looking better. After touching a near five-year
high last year, lending rates were largely expected to soften.
Banks had raised their overall lending rates by up to 400 bps in
over a year to May 2007 following the hike in their cash reserve ratio
requirements.
In India, almost 70% of passenger cars, 80% of motorcycles and
more than 90% of commercial vehicles are purchased on credit.
Investors are also concerned about the high commodity prices
hitting the profit margin of automobile companies. Prices of steel--
the main raw material used in automobiles--have been on the uptrend.
Prices of benchmark hot-rolled steel coils have risen almost 20%
year-on-year to over 35,000 rupees per 1 tn in the current month.
Maruti Suzuki, India's largest car company, has said high metal
prices are hitting its margins.
Prices of steel, aluminium and copper are all ruling at higher
points
than the comfort levels.
Hyundai Motors (India) Managing Director H. S. Lheem said though
the company was absorbing the hike in input costs, it would eventually
impact the pricing of their cars.
Tata Motors, even after purchase of the two British marquee
brands--Jaguar and Land Rover--is expected to remain in the negative
zone.

The stock's performance in the near term may be muted until
clarity on the recent deal emerges. The Pune-based company announced
the purchase of two brands from Ford Motor Co in an all-cash deal
worth $2.3 bln. Additional debt could strain the balance sheet of the
company.
Tata Motors has obtained 15-month bridge finance of $3.0 bln to
fund the transaction. It will utilise equity instrument, long-term
loans, and may sell some stake in group companies to replace the short-
term loan.
.
Following are this week's prices, in rupees, of key automobile
shares
compared with previous week on National Stock Exchange:
.
Mar 28 Mar 19 Change(%)
.
Ashok Leyland 34.50 32.20 7.14
Hero Honda 700.30 650.35 7.68
Mahindra & Mahindra 692.50 661.20 4.73
Maruti Suzuki 837.80 822.45 1.86
Tata Motors 646.05 650.65 (-) 0.70
.
BSE Auto Index 4580.07 4398.25 4.13
Nifty 4942.00 4573.95 8.04
Sensex 16371.29 14994.83 9.17
.
K.Karthik Raja