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MOTORINDIA
l
June 2012
103
Reduction in repo rate may
lower cost of auto loans
Interest rate sensitive banking,
auto and realty stocks cheered the
RBI’s move and surged when a
‘more than expected’ 0.50 per cent
cut in repo rate was announced on
April 17, a move which is likely to
lower the cost of home, auto and
corporate loans.
“The RBI’s move to cut the repo
rate by 50 bps comes as a welcome
surprise. The overall headroom for
interest rates to come down is likely
to be a moderate 75-100 bps over
the course of the year, which itself
is a major positive for the overall
corporate earnings growth outlook,
especially for rate sensitives such
as banks and infrastructure, Mr. Di-
nesh Thakkar, CMD, Angel Brok-
ing, said.
From the auto space, Apollo Tyres
soared 5.54 per cent, Hero Moto-
Corp went up by 2.71 per cent, Bajaj
Auto gained 1.32 per cent and Tata
Motors was up 0.35 per cent. Fol-
lowing the surge in these stocks, the
BSE auto index settled 0.80 per cent
higher at 10,371.53.
In its annual monetary policy for
2012-13, RBI cut repo rate, at which
it lends to banks, by 0.50 per cent at
8 per cent to spur economic growth.
The 50 bps reduction in repo rate
is expected to translate into similar
lending rate cuts by banks in the com-
ing months. The reduction in deposit
rates could lag the reduction in lend-
ing rates, which could create some
pressures on the margins of banks in
the next few months, it said.
However, on the back of expected
pick-up in deposit accretion and im-
proving liquidity, the cost of funds
for banks is expected to also head
lower with a slight lag, leading to
an overall stable outlook for FY’13
margins.
Mr. Dipen Shah, Head of Funda-
mental Research, Kotak Securities,
said: “The RBI has cut rates by 50
bps in a surprise move. For the mar-
kets, they now have only the fiscal
action to look forward to. The fu-
ture direction of the market hinges
on how fast the Government is able
to re-start the reforms process. We
believe that the Government will
start taking important decisions on
reforms in due course, which will
provide further impetus to the over-
all economy in the long term. Till
these initiatives are taken, markets
may remain range-bound and may
be dictated more by the quarterly
numbers and global markets.”
The RBI’s decision to cut repo rate
by 50 basis points has been termed
by market analysts as an “unexpect-
ed” positive move, but this could
fuel inflationary pressures further.
Though the core inflation has
witnessed some abatement, further
rise in food prices has the potential
to feed through into core inflation
going ahead. As the upside risk to
the headline inflation looms large,
it leaves little scope for the central
bank to further ease the policy rates
at least in the near term.
Mr. Tarun Kataria, CEO India,
Religare Capital Markets Ltd.,
said: “The RBI announcement was
a pleasant surprise and reflects the
concern about a rapid decelera-
tion in GDP growth. If this can be
supported by fiscal consolidation,
a move to ease infrastructure bot-
tlenecks and other progressive re-
forms, the India growth story can be
revived quickly.”
- PTI Economic Service
vehicle finance