Auto stocks gain as RBI cuts key interest rates

Shares of nine automobile companies rose by 0.29% to 1.99% at 9:45 IST on BSE after the central bank in a surprise move cut interest rates today, 15 January 2015.

Mahindra & Mahindra (up 1.99%), Hero MotoCorp (up 1.34%), Escorts (up 1.29%), Tata Motors (up 1.22%), Ashok Leyland (up 1.10%), Eicher Motors (up 0.80%), Maruti Suzuki India (up 0.72%), Bajaj Auto (up 0.40%) and TVS Motor Company (up 0.29%), edged higher.

The S&P BSE Auto index was up 1.10% at 19,113.34. It underperformed the Sensex, which was up 1.66% at 27,801.01.

The Reserve Bank of India cut interest rates before trading hours today, 15 January 2015, by 25 basis points in a surprise inter-meeting cut, yielding to growing signs of slowing inflation and a flagging recovery.

RBI reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8% to 7.75% with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 6.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 8.75% with immediate effect. It kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL).

Auto shares are sensitive to interest rate cuts as purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

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