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 carmaker Maruti Suzuki
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.

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Article Written by
Salman Hashmi