Year: 2008

The Indian government announced the much anticipated iron ore export tax of 15%, putting an end to a long period of uncertainty on this front. This was due for long time to contain inflation. We continue to hold a constructive view on iron ore sector fundamentals, and would view any weakness in stock price on the back of this news or due to weakness in Chinese iron ore spot prices as a buying opportunity.

Sesa Goa was trading down by 2% at Rs 3,660 compared to its cum-bonus high of Rs 4,320 in the first week of May-08.

State Bank of India (SBI) today deferred a decision on raising interest rates and said it will prefer to wait for one to two weeks before taking a call on the issue. SBI Chairman O P Bhatt said in Hyderabad,

We will wait and watch and take a little time. We want to examine whether we can absorb the repo rate hike. I think we can afford to wait for a week or two. We will deliberate, get the data and then we will look at our strategies.

However, Private Sector bank, Yes Bank has announced a 0.5% hike in PLR. It has also raised interest rates on Fixed Deposits.

In a surprise move, the government imposed additional specific duties of Rs15,000 and Rs20,000 on cars/ UVs with engine displacements between 1500-1999 cc, and over 2000cc, respectively. There doesn’t appear to be a significant economic rationale, as the hike will result in additional excise inflows which are 0.5-1% of the overall excise collections.

The overall impact on end prices will be ~2-3% for cars and UVs, but, when juxtaposed against high inflation rates, high commodity prices and persistently high finance rates, could result in demand displacements over the short term.

In short term, Mahindra is the most vulnerable to a sales decline (Scorpio / Bolero are ~30-35% of overall revenues), followed by Maruti (SX4 is ~4% of volumes, but around ~6-8% of revenues) and Tata Motors (Sumo/Safari are ~3% of volumes and ~5% of revenues).