The Hindu Business Line : Auto and ancillary stocks take a knock

Mumbai, Aug. 24 Despite gaining 2.37 per cent on Friday at 4569.26, the auto index tumbled more than the benchmark Sensex. While the former crashed by 10.8 per cent in a month’s time, the latter was down by 8.67 per cent. The 52-week high and low of the BSE Auto Index are 5881.83 (Feb 9, 2007) and 4435.21 (22 August, 2007). The auto sector has been under a recession for quite sometime now. The sector is now seeing a growth rate of 14-20 per cent compared to the last three years growth of around 20-25 per cent.

Less bank lending

“The volumes in the auto sector have fallen substantially, this is because the demand in this sector has gone down for various reasons but more importantly there has been a general tightening of credit by the banks as they are reluctant to lend,” says an auto analyst.

The lending rates have increased after the recent monetary policy; the cost of procuring a loan has gone up to 20 per cent as compared to the earlier rate of 10-11 per cent, affecting the credit market, according to analysts.

“Auto finance rates have increased, affecting the demand in the auto market and thus weakening the sentiment for the entire in auto sector,” says Ms Vaishali Jajoo, Auto Analyst, Angel Broking.

2-wheeler: Worst hit

Analysts say that while there has been growth led by introducing new products in the passenger car segment this kind of growth has not taken place in the 2-wheeler segment. This is double whammy for the 2-wheeler segment as the banks also consider this segment more risky in terms of giving loans, as non-performing asset levels are high.

The auto stocks that have been affected the most are Tata Motors, Mahindra & Mahindra, which have come down by 12 per cent and 19.65 per cent since a month ago.

Bharat Forge and Amtek Auto, both forging companies, have also come down substantially by 13.16 per cent and 16.37 per cent respectively.

Ancillaries too suffer

“Auto ancillary industry, which derives its demand from the auto sector is bound to get affected by the slowdown in the auto sector and we will see a fall in the stocks too,” added Ms Vaishali Jajoo.

Auto ancillary companies such as Sona Koya Steering, ZF Steering, Ucal Fuel Systems, Autolite and Bosch Chassis have all registered fall in stock prices in the range of 14-18 per cent in a month’s time.

The revival is not due for another one or two quarters according to some analysts unless if the interest rate softens, though there is a little optimism from some quarters as the festive season is round the corner, which might boost up sales.

But not all have pessimistic view. “This is a good time and opportunity for prospective investors who want to take a position in quality stocks,” according to Ms Vaishali Jajoo.