Auto shares slide as RBI hikes repo rate

Eight auto shares fell by 0.71% to 4.21% at 11:41 IST on BSE on BSE after the Reserve Bank of India hiked repo rate by 25 basis points to 7.5% at its mid-quarter monetary policy review today, 20 September 2013.

Mahindra & Mahindra (down 2.4%), Maruti Suzuki India (down 4.21%), Tata Motors (down 2.64%), Ashok Leyland (down 2.47%), Escorts (down 0.71%), Bajaj Auto (down 1.98%), TVS Motor Company (down 1.02%) and Hero MotoCorp (down 2.39%) and edged lower.

The BSE Auto index was down 2.31% to 11,119.60. It outperformed the BSE Sensex, which was down 2.53% to 20,125.07.

Auto stocks dropped amid concerns that hardening interest rates could hurt sales. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

The new RBI governor Raghuram Rajan announced hike in repo rate, the key short-term policy rate at which the RBI lends cash to banks, by 25 basis points to 7.5% with immediate effect at its mid-quarter monetary policy review today, 20 September 2013.

The central bank also revised the Marginal Standing Facility, the rate at which banks access funds for emergency needs, by 75 basis points to 9.5% with immediate effect. It also reduced minimum daily maintenance of the cash reserve ratio (CRR) from 99% of the requirement to 95% effective from the fortnight beginning 21 September 2013.

However, the cash reserve ratio, or the portion of deposits banks have to maintain with the central bank, was kept unchanged at 4%.

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