Auto stocks under pressure again

Wed, 24 Feb 01:30 pm

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Indian markets continued to remain volatile over the past two hours. The markets turned positive and then slipped back into negative territory on profit booking. Stocks from the oil and gas, IT and FMCG spaces are trading in the green while those from other sectors are seeing some pressure. Companies in the consumer durable space are witnessing the most selling pressure. The Railway budget was announced today. Titagarh Wagons and Texmaco which are the biggest suppliers of wagons to the railways are trading in the red with a loss of 5.7% and 4.8% respectively. Container Corporation meanwhile is trading higher by 0.6%.

The BSE-Sensex and NSE-Nifty indices are trading flat currently. The BSE-Midcap Index is trading lower by 40 points, while the BSE-Smallcap index is trading lower by 50 points below yesterday's closing. The rupee is trading at 46.27 to the US dollar.

Down by about 1%, the BSE-Auto Index is currently amongst the top losers amongst the sectoral indices. Tata Motors, M&M, Ashok Leyland and Hero Honda are currently the worst hit as they are down by about 2% to 3%. Pressure on this lot is likely on fears of a possible hike in excise duty in the forthcoming Union Budget. A leading business daily has reported that an excise duty hike of about 2% on automobiles is expected. This would result in higher price for new vehicles. In addition to this, investors also seem to be concerned about the future performance of the auto manufacturers, which have performed tremendously well over the last year. With companies announcing price hikes coupled with the expectations of interest rates and higher raw material prices, the general consensus is that auto manufacturers may not see a similar kind of volume growth that they have been witnessing in the recent past. It may be noted that the BSE-Auto Index is lower by about 11% from its yearly high, which was touched in early January this year.

Retail stocks are currently trading weak led by Shopper's Stop, Kouton Retail and Pantaloon. A leading business daily has reported that retail major Pantaloon is planning to take over the consumer durables and home furnishing & furniture business from its subsidiary Home Solutions Retail (India) Limited. Pantaloon holds about 67% stake in the company. In addition, the company is also looking at acquiring the sports retail business of Winner Sports Limited, its wholly-owned subsidiary. It is reported that Pantaloon will issue about 6 m shares (of Rs 2 each) for the around 10 m shares in the unit (excluding those owned by it). In addition, the company will also allot about 6.4 m preference shares of Rs 100 each to the unit's shareholders that could be converted into equity within 12 months from the date of allotment. While further details have not been provided by the company, this move may be a part of its restructuring exercise to segregate value and lifestyle retail business.