Auto Soars As Petrol Slumps
Sagar Lele / 29 Jun 2012
The cut in petrol prices announced by state-run oil marketing companies (OMCs), effective from today, has been the second rate cut this month. This move has brought about some amount of optimism in the minds of consumers after the hard-hitting Rs 7.50 a litre increase on May 24. On June 3, petrol prices saw a reduction of Rs 2 and from today prices would be lower by Rs 2.46 per litre, costing Rs 67.78 in Delhi.
According to media reports, a senior official from one of the OMCs said that they would no longer follow the fortnightly revision of petrol prices and that the prices would be reduced whenever it is deemed sustainable.
India imports most of its crude requirements and prices are dependent on international crude prices and on the rupee-dollar exchange rate. Over the last three months, we have seen drastic changes in both, the Brent crude and the rupee-dollar rates. As of today, Brent crude stands at USD 93.12 and the rupee at 56.28. Though oil prices have been falling, the depreciating rupee hasn’t been able to give enough margins for OMCs to cut petrol prices and maintain sustainability.
3 months, USD/INR against Brent Crude
On the back of the announcement of petrol prices being cut, the auto stocks opened in the green today. Auto makers have been facing a slump in demand over time due to increasing petrol prices and consumer demand has been shifting to diesel cars.
The BSE Auto Index is currently trading more than 2 per cent up while Maruti Suzuki has risen to Rs 1,158.50 from Rs 1,118.5, marking a 3.3 per cent rise. Mahindra & Mahindra has also seen an above 3 per cent return today. On the same lines, Tata Motors too is trading more than 2 per cent above its previous closing at Rs 245.
3 months, BSE Auto Index
Whether this trend of price reduction will continue will depend on international crude prices and on how the rupee performs in the near future. This will also shape the demand of auto makers in the near term. In the second half of this fiscal, automobile demand is expected to pick up with the upcoming festive season and yearly trend. If petrol prices are supportive of this growth, auto firms will rise even more.
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