Auto Sector moves up after RBI abolishes Temporary CRR

Auto sector was seen rising as the RBI has abolished the temporary CRR (Cash Reserve Ratio). This has led to cut in interest rates by the banks. The country’s largest lender, SBI, said that while there’s a case for a rate cut, it shall review the rates on the first of next month. There is large liquidity, and transmission of rates depends majorly on liquidity. And as long as there is liquidity in the system, the probability of rates coming down is obvious. SBI’s lending rates are the lowest in the industry, at 8.90 per cent for a year. Canara Bank has taken the lead in reducing lending rates, even though the RBI decided not to lower policy rates on Wednesday. The bank has cut its 1-year MCLR – marginal cost of fund based lending rate by 15 bps to to 9.15 from 9.30. Now banks can easily lend funds and people have got a good opportunity to buy cars.

RBI had announced an incremental CRR – cash reserve ratio of 100 per cent of the increase in NDTL – net demand and time liabilities of scheduled banks between 16th September, 2016 and 11th November, 2016 effective the fortnight beginning 26th November, 2016. It was intended to absorb a part of the huge increase in liquidity in the system following the withdrawal of the legal tender status of Rs 500 and Rs 1,000 denomination bank notes. Also, the incremental CRR was purely a temporary measure and that it would be reviewed on 9th December, 2016 or even earlier.

Another reason for the auto sector to rise is on anticipation. November sales were down. Demonetization had a negative impact on the auto sales analysts suggested. However, the auto stocks have begun to gain pace due to correction in the market and analysts anticipate good auto sales in the next month. In fact, the country’s largest car maker Maruti seems to have bucked the trend and posted a 12.2 per cent increase in sales for the month of November. According to the company, its sales during November stood at 135,550 units from 120,824 units sold in the like period of last year.

Also, Tata Motors domestic passenger vehicles sales grew by 22 per cent to 12,736 units from 10,470 units sold during November, 2015. The company said in a statement that the passenger car sales continued its growth momentum because of strong demand for the Tata Tiago. Analysts said that they were seeing a sales pickup already happening and they believe that demonitisation was a very good move for the country in the long term.