The Hindu Business Line : Hopes of rate cut drive up auto stocks

Kolkata, Jan. 28 A group of market participants expecting a cut in cash reserve ratio or in repo rate by the Reserve Bank of India tomorrow, picked up interest sensitive sector stocks. BSE Auto Index closed in the green along with the Bankex among 13 sector indices.

Auto stocks were among the perceived beneficiaries of the easier interest regime in the near future. Bajaj Auto, a component of both the Sensex and Nifty albeit with lower weight, was the top gainer among the blue chips and finished up 8.8 per cent. However, the traded quantity did not suggest a strong demand for the two-wheeler counter.

Of the 15 Auto Index stocks, which included tyre, battery and component counters too, six advanced and nine declined.

According to analysts, automobile sector growth partially depends on the interest rate movement. Moreover, a sharp cut in interest rate for automobile loans is ruled out – only a soft bias is expected from the Central banker. Some feel the automobile market may see a shift in dynamics, where demand could rise but margins could be under pressure.

According to Mr Gul Teckchandani, an equity strategist, currently there is no indication of a slowdown in growth for the sector. However, going forward, it needs to be monitored how the economy pans out. “If the economy slows down, it would impact the sector,” he added.

Motilal Oswal, however, in a recent report, maintains a positive view on the sector and expects the robust industry growth to resume after a breather in FY08 for segments such as two-wheelers and medium and heavy commercial vehicles, while passenger vehicles and LCVs are expected to sustain a healthy growth rate.

Angel Broking also sees a positive outlook for the sector on growth in domestic demand.

According to Mr Ajay Jaiswal of Angel, the auto ancillaries stocks may fare better than the vehicle manufacturers.

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