Auto Stocks Outlook: Seen positive next wk on softening inflation

[B. Karthick]

Auto Stocks Outlook: Seen positive next wk on softening inflation
Saturday, Aug 30

Continued buying prompted by softening of inflation is likely to
keep frontline automobile counters in the green next week.
Investors are likely to make purchases at lower levels. However,
much would depend on the overall market sentiment.
India's headline inflation fell to 12.40% for week to Aug 16 from
12.63% in previous week.
This is the first time in 28 weeks that the index had fallen week-
on-week.
Finance Ministry, too, in its statement said there are some early
signs of moderation of inflation.
Rising inflation has led to sharp falls in interest rate-sensitive
stocks such as automobile counters as investors feared tightening of
monetary policy to control inflation.
Reserve Bank of India has already raised short-term benchmark rate
by 125 basis points and cash reserve ratio by 150 points since
beginning of the current financial year (2008-09) to tame inflation.
As an effect, rates for automobile loans have gone up almost 300
basis points during the current calendar year to around 16% for four-
wheelers and 18-19% for two-wheelers, impacting sales.
Automobile counters would also be in demand as input costs have
softened.
Global steel prices have fallen almost $150 per tn on fall in
demand from the Europe and U.S. markets.
Steel is the biggest raw material used in an automobile.
Automobile stocks would also see positive effect of softening in
global crude oil prices.
Indian crude oil basket Thursday rose 22 cents a barrel to
$112.19.
Indian basket has averaged $113.12 per barrel so far this month,
down about 14.6% from July's average of $132.47.
However, weak outlook on the sector continues as sales are seen
impacted on high interest rates.
There may be some value buying as many most automobile shares are
available very cheap.

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

Aug 29 Aug 22 Change (%)

Ashok Leyland 33.55 31.35 7.01
Bajaj Auto 588.20 531.85 10.59
Hero Honda Motors 828.70 801.10 3.44
Mahindra & Mahindra 578.65 549.05 5.39
Maruti Suzuki India 649.60 631.50 2.86
Tata Motors 440.40 427.35 3.05

BSE Auto Index 4001.23 3839.52 4.21
Nifty 4360.00 4327.45 0.75
Sensex 14564.53 14401.49 1.13
End


B.Karthick
Research Analyst.