Online Trading:: Auto earnings preview

Online Trading:: Auto earnings

The automobile sector was expected to be the biggest beneficiary of the Union Budget FY2009. For one, the budget had reduced the excise duty on cars and two wheelers, which was expected to boost demand. Moreover, the changes proposed in the tax exemption slabs, along with the recommendations of the Sixth Pay Commission, were expected to increase the disposable income in the hands of individuals. Unfortunately, the macro environment has changed since the announcement of the budget. For instance, raw material prices have surged and inflation has hit a three-year high at nearly 7%. These factors are expected to act as dampeners for the automobile sector. The liquidity constraint is also expected to continue due to the rising inflation and RBI's response to control it. Profitability of automobile makers is expected to be hurt by the rising raw material cost, lack of traction in volumes and volatility in foreign exchange (forex) rates.