Auto stocks in demand on rate cut hopes

Eight auto stocks rose by 1% to 2.99% at 12:15 IST on BSE as softening wholesale price inflation raised expectations that the central bank may further cut policy rates to perk up economic growth.

Mahindra & Mahindra (up 2.99%), Tata Motors (up 2.93%), Maruti Suzuki India (up 2.87%), Ashok Leyland (up 2.80%), Bajaj Auto (up 1.93%), Eicher Motors (up 1.40%), TVS Motor Company (up 1.03%) and Hero MotoCorp (up 1%), edged higher.

The S&P BSE Auto index was up 2.20% at 11,448.70. It outperformed the S&P BSE Sensex, which was up 0.52% at 20,391.07.

The S&P BSE Auto index had outperformed the market over the past one month till 17 May 2013, rising 9.94% compared with the Sensex's 8.30% rise. The index had, however, underperformed the market in past one quarter, rising 3.38% as against Sensex's 4.20% rise.

Auto stocks rose as data showing a sharp fall in wholesale price inflation in April 2013 raised hopes that the Reserve Bank of India (RBI) may further cut policy rates to perk up economic growth. Lower interest rates may help revive demand for vehicles. Purchases of automobiles, including that of cars, utility vehicles and commercial vehicles are substantially driven by financing.

The annual rate of inflation, based on monthly wholesale price index (WPI), eased sharply to 4.89% in April 2013, from 5.96% in March 2013, data released by the government on 14 May 2013, showed. Core inflation or non-food manufacturing inflation declined further to 2.74% in April 2013 from 3.41% in March 2013.

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