Auto shares spurt on good monsoon forecast

Seven auto shares rose by 1.93% to 7.85% at 15:15 IST on BSE after India's weather department predicted good monsoon this year.

Tata Motors (up 3.59%) and Eicher Motors (up 1.93%), edged higher. Escorts (down 0.56%) and Ashok Leyland (down 0.94%), edged lower.

Two-wheeler maker stocks edged higher. Bajaj Auto (up 4.98%), Hero MotoCorp (up 3%) and TVS Motor Company (up 2.65%), edged higher. A good monsoon could boost farm incomes in rural India, which in turn could boost sales of two-wheeler makers in rural India.

Tractor maker Mahindra & Mahindra (M&M) surged 7.82% to Rs 1,337.80. A good monsoon could boost farm incomes in rural India, which in turn could boost tractor sales in rural India.

Maruti Suzuki India extended gains registered during the previous trading session as the Japanese yen weakened against the dollar. The stock was currently up 4.07% to Rs 3,722.30. The Maruti stock had tumbled recently after the yen strengthened against the dollar. A strong yen adversely impacts Maruti's operating profit margin.

The S&P BSE Auto index was up 3.66% at 18,759.97. It outperformed the S&P BSE Sensex, which was up 1.99% at 25,647.21.

The S&P BSE Auto index had outperformed the market over the past one month till 12 April 2016, rising 4.98% compared with 1.73% rise in the Sensex. The index had also outperformed the market in past one quarter, rising 4.47% as against Sensex's 1.88% rise.

The India Meteorological Department (IMD) in its release of the long range forecast for the 2016 southwest monsoon season rainfall yesterday, 12 April 2016, said that the monsoon seasonal rainfall during the forthcoming monsoon is likely to be 106% of the Long Period Average (LPA) with a model error of 5%. The LPA of the seasonal rainfall over the country as a whole for the period 1951-2000 is 89 cm.

Auto shares also edged higher on hopes that the Reserve Bank of India (RBI) could ease interest rates further after latest data showed that consumer price inflation eased to a six-month low in March. Lower interest rates may help revive demand for automobiles. Purchases of automobiles are largely driven by finance.

The latest data showed that inflation based on consumer price index (CPI) dipped to six-month low of 4.83% in March 2016, with the index easing for second straight month.

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