Auto stocks plunge on Siam’s negative sales growth alarm

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Market has already factored in subdued sales, say analysts

Auto stocks led by Maruti Suzuki and Ashok Leyland fell on Monday after industry body Society of Indian Automobile Manufacturers (Siam) said that its growth forecast of 0-1 per cent for this financial year will not be met due to gloomy macro-economic factors and negative sentiments continue to impact demand.

This may impact India’s ratings as the fourth largest automotive market in the world in volume terms. Siam revised its estimate on the back of January numbers also showing a decline of 12.45 per cent, the third consecutive monthly decline since November last year. Domestic annual car sales are set to be in the negative territory for the first time in a decade.

On Monday shares of Maruti Suzuki India were down by 1.64 per cent from its previous close on Friday to Rs 1,562.20. M&M shares declined marginally to close at Rs 880.40 and Ashok Leyland fell 1.05 per cent to Rs 23.45.

According to its latest data, domestic passenger car sales declined to 1,73,420 units in January compared with 1,98,079 units in the same month of 2012.

Yaresh Kothari, an analyst at Angel Broking said the stocks did not react much as market has already factored in that sales will be subdued. “We don’t expect any dramatic movement in auto stocks in the next two months,” he said.

In January, Siam had lowered car sales growth projection to just 0-1 per cent for this financial year from 1-3 per cent and 9-11 per cent announced in October and July 2012, respectively. In April last year, it had forecast a growth of 10-12 per cent for 2012-13.

Kothari said that the sector is expected to perform well in the long-term with rising number of consumers, easy availability of finance and improved economy.

Manish Vaswani, equity research analyst, at Morning star India said the sector has been impacted due to high interest rates on auto loan, increase in fuel costs and also due to uncertain economic conditions which has lead buyers to defer their plans to purchase vehicles.

Yugesh Israni, general manager Tata Motors said, “Heavy commercial vehicles will not perform well in the near-term while growth for other medium commercial vehicles will be stagnant as people tend to postpone buying decisions.”

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