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Bajaj leads fall in automaker stocks on rate increase

Bajaj leads fall in automaker stocks on rate increase
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First Published: Mon, Apr 02 2007. 04 43 PM IST
Updated: Mon, Apr 02 2007. 04 43 PM IST
By Anand Krishnamoorthy, Bloomberg
New Delhi: Bajaj Auto Ltd., the second- biggest motorcycle maker, led declines among two-wheeler stocks in the country on concerns that sales growth will slow after the central bank increased lending rates.
Shares of Pune-based Bajaj Auto fell as much as 7.2 % on the Bombay Stock Exchange today. They traded at Rs2,288.95, down 5.6 %, at 2:09 p.m. in Mumbai. The company also reported a drop in sales for the second straight month in March.
The Reserve Bank of India (RBI) on 30 March increased a key interest rate and raised banks’ reserve requirements to curb inflation in the world’s fastest growing major economy after China. That will slow motorcycle and scooter sales in the world’s second-biggest market for such vehicles, analysts such as Kalpesh Parekh of ASK Raymond James Ltd. said.
“This definitely will have an impact on sentiment,” Parekh, the head of institutional sales in the Mumbai-based brokerage, said in a phone interview today. “It’s after four years that we’re seeing the major two-wheeler companies report a decline in March, which is usually a blockbuster month.”
The Reserve Bank of India unexpectedly increased its overnight lending rate by a quarter percentage point to a 4 1/2 year high of 7.75 %. The Mumbai-based bank also raised banks’ reserve requirements for the third time since December, and said it is shifting policy away from balancing inflation with economic growth to focusing solely on prices.
Automobile Loans
India’s central bank has raised borrowing costs six times in 14 months, forcing ICICI Bank Ltd., the country’s largest automobile loan company, and other banks to increase rates.
Higher rates make it dearer for India’s 350 million middle class people to buy a motorcycle as their main mode of personal transportation. More than half the 7.1 million motorcycles and scooters sold in India annually are bought on auto loans.
“The steep rise in interest rates is slowing growth rates,” Ravi Sud, chief financial officer of New Delhi-based Hero Honda Motors Ltd., India’s biggest motorcycle maker, said in an interview on 30 March.
Hero Honda’s shares declined by 5.3 %, while Chennai, India-based TVS Motor Co., the third-biggest, fell by 3.3 %.
The BSE Auto Index of the Bombay Stock Exchange, comprising 19 shares of automobile companies, fell by 5.6 %, led by Tata Motors Ltd., India’s biggest maker of commercial vehicles. The benchmark Sensitive index fell by 3.9 %.
“Commercial vehicles and cars would be more vulnerable to this continuous rate hike, as people may defer their buying decision,” Parekh of ASK Raymond James said.
Shares of Tata Motors fell as much as 8.2 % earlier today. They changed hands at 671.5 rupees, or 7.7 % lower than their March 30 closing price.
Ashok Leyland Ltd., India’s second-biggest maker of trucks and buses, fell 4.2 % and Maruti Udyog Ltd., the country’s largest carmaker, fell 6.7 %.
More than half the cars and commercial vehicles sold in India are financed from lenders, according to Parekh.
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First Published: Mon, Apr 02 2007. 04 43 PM IST
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