Banks, auto could be affected by inflation, rate pressures

Pharma stocks: Defensive bets

The pharmaceutical companies will be a defensive option in a volatile market. The shares of frontline drug companies are close to their 200-day moving averages and therefore look weak, according to a technical analyst at a domestic brokerage. The broad market is seen up next week, but pharma shares are likely to be less favoured compared to the other sectors, dealers said.

Auto: Headed down

The shares of automobile companies are likely to continue their southward movement next week as the industry is reeling under the impact of high inflation, rising fuel prices and interest rates. The headline inflation scaled a new 13-year-high at 11.63 per cent for the week ended June 21 from 11.42 per cent in the previous week. The interest rates on automobile loans have risen by almost 300 basis points to 15-16 per cent for four-wheelers and 12-13 per cent for two-wheelers in the current calendar year. The two-wheeler sector is especially suffering, as banks are not willing to lend fearing delinquency.

The automobile sector is also suffering because of soaring raw material prices. Although automobile makers have passed some of the impact to the customers, they still are being forced to absorb a major portion due to diminishing sales.

Steel prices have hardened almost 21 in the current calendar year during 2008, while aluminium has risen by 16 in the current calendar year. Rubber and plastic prices have also gone up substantially by 17 in the current calendar year and 24 in the current calendar year respectively.