Auto in top gear

Auto stocks outperformed the Bombay Stock Exchange’s Sensex this week on hopes that the government may announce some tax sops to the automobile sector in the interim Budget on Monday.

The BSE Auto Index soared 6.72 per cent compared to the benchmark’s 3.6 per cent rise. The index is the third largest gainer among the sectoral indices after realty (12.55 per cent) and capital goods index (7.88 per cent).

Mahindra & Mahindra topped the gainer’s list with a 17 per cent increase as the company’s board approved the proposal to divide the defence systems division into separate companies. Punjab Tractors also gained 15 per cent on a two-fold increase in volumes after it received nod from its shareholders for amalgamation with M&M.

Other gainers included Maruti Suzuki, VST Tillers Tractors and Hero Honda Motors, which rose in the range of 6-9 per cent on expected tax sops in the interim Budget.

Car market leader Maruti Suzuki recorded its highest ever domestic and total sales in January 2009. The stock gained by 8.7 per cent last week from Rs 579.35 on February 6, 2009, to close at a four-month high of Rs 629.75 on Friday.

The firm sold 71,779 vehicles last month, up 5.4 per cent over the corresponding month last financial year. The previous highest total sales were registered in March, 2007 (71,772 units). According to research firm Motilal Oswal, total aggregate volumes of the auto sector has declined by 8.4 per cent in January 2009, while domestic volumes dipped by 10 per cent. However, exports grew 10 per cent, primarily driven by the 20 per cent growth in two-wheeler exports.

The auto sector had reported a 12 per cent drop in aggregate volume in December 2008, according to Society of Indian Automobile Manufacturers (SIAM). The industry is also expecting another stimulus package, along with rate cuts amidst falling inflation. Market analysts are hoping that there might be some tax sops in the interim Budget along with sector-specific package.