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Auto shares turn on gas

March 20, 2003 15:40 IST

Auto shares saw fortunes swell on Thursday as global crude oil prices plunged to 3-month lows in the wake of war breaking out in West Asia.

Top gainers included motorcycles majors Hero Honda (up 4% to Rs 225.65) and Bajaj Auto (up 2.8% to Rs 498). Among other gainers in the auto sector were Telco (up 1.9% to Rs 156), Mahindra & Mahindra (up 2.1% to Rs 105.10), Hindustan Motors (up 1.9% to Rs 8.05) and Ashok Leyland (up 1.1% to Rs 101.30). However, barring Hero Honda, which clocked decent volumes of 205,000 shares, there was relatively thin trading in auto scrips.

A surge in global oil prices over the last few months on the back of escalating tension between the US and Iraq had pressured much of these stocks lower. A rise in oil prices has an indirect impact on automobile sales. Over the last month, the combined market cap of five commercial vehicles makers dropped 6% to Rs 6,423 crore (Rs 64.23 billion) on 19 March 2003. The combined market cap of five scooter makers plunged 7.7% during this period to Rs 5,169 on 19 March 2003. The market cap of four bike and mopeds manufacturers declined slightly to Rs 5,472 crore (Rs 54.72 billion).

In addition, domestic oil companies hiked prices of petrol and diesel by between Rs 1 to Rs 1.50 just a few days ago.

Global oil prices, which have come off sharply from a recent high, fell further on Thursday following the onset of war. Oil futures fell 6% after US and British forces began a bombing campaign in Iraq to overthrow president Saddam Hussein. US crude oil for April delivery dropped $1.55 cents to $28.33 in electronic trading. In the last five days, a massive 21% was eroded from oil prices ahead of the expiry of the deadline for Iraqi president Saddam Hussein to flee Iraq. Though oil prices have come off the highs, with the onset of war, worries persist about the disruption of oil supplies and oil shortages if Iraq embarks on setting oil wells afire.

However, there's general optimism in the commercial vehicles sector, which is already in recovery mode. Sales of commercial vehicles are seen surging on the back of the government's thrust on the infrastructure sector, particularly road and highway projects.

The budget has also proved favourable to the car and utility vehilces segment what with the finance minister Jaswant Singh slashing excise duty by 8% to 24% from 32%. This should directly boost margins of players given that car/UV makers are unlikely to pass on the entire excise cut to consumerrs.

On the other hand, a slowdown is expected in the motorcycle sector in the coming year due to high base effect created over the past few years (that saw stellar growth). A decline in agricultural production in the current year should also contain growth in rural demand.

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