Auto stocks edge higher as RBI keeps policy rates unchanged

Seven auto stocks rose by 0.29% to 11.46% at 13:19 IST on BSE in volatile trade after the Reserve Bank of India kept key rates unchanged in its third bi-monthly monetary policy review today, 5 August 2014

Interest rate sensitive auto stocks rose in volatile trade. TVS Motor Company (up 2.32%), Eicher Motors (up 0.44%), Ashok Leyland (up 0.29%), Tata Motors (up 0.67%), Force Motors (up 11.46%), Mahindra & Mahindra (up 2.09%) edged higher. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

Maruti Suzuki India was unchanged at Rs 2649.20.

Hero MotoCorp shed 1.29% ahead of its Q1 results today, 5 August 2014.

Bajaj Auto gained 2.1%. A foreign brokerage reportedly upgraded the stock to "overweight" from "equalweight". It said all the bad news appears to be priced in the stock and demand for two-wheelers in India will accelerate to 12 and 12.3% for FY 2015 and FY 2016 as macro factors improve along with new launches.

The BSE Auto index was up 1.03% at 15,719.05 and was the top gainer among the sectoral indices on BSE. It outperformed the Sensex, which was down 0.3% at 25,645.34.

The BSE Auto index had underperformed the market over the past one month till 4 August 2014, falling 3.34% compared with 0.92% fall in the Sensex. The index, however, outperformed the market in past one quarter, surging 16.95% as against Sensex's 14.82% rise.

The Reserve Bank of India (RBI) in its third bi-monthly monetary policy review today, 5 August 2014, kept policy repo rate under the liquidity adjustment facility (LAF) unchanged at 8%. It also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL) and reduced the statutory liquidity ratio (SLR) of scheduled commercial banks by 50 basis points from 22.5% to 22% of their NDTL with effect from the fortnight beginning 9 August 2014. The RBI also cut the ceiling on debt that must be held-to-maturity (HTM) by half a percentage point to 24%.

Since the second bi-monthly monetary policy statement of June 2014, global economic activity has been picking up at a modest space from a sharp slowdown in Q1. Investor risk appetite has buoyed financial markets, partly drawing strength from assurances of continuing monetary policy support in industrial countries, RBI said.

In the second bi-monthly policy review on 3 June 2014, the RBI had kept its policy rate unchanged and lowered the SLR requirement of banks to 22.5% from 23% earlier.

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