Double trouble for auto investors with rise in input prices

Investors in automobile shares already worried about the impact of demonetisation on demand, have more concerns. The rise in prices of metals, synthetic rubber and plastic is expected to weigh on companies’ margins which could force auto makers to raise prices when demand is showing signs of moderating.

Since November 8 -the day when the government demonetised Rs 500 and Rs 1,000 bank notes -the Nifty Auto index has fallen 10.8 per cent compared to the Nifty which lost 6.5 per cent in the same period. “Metal prices have gained across the board, so margin pressure will be there with a lag,” said Dhananjay Sinha, Head-Institutional Research at Emkay Global. In a recent note, brokerage firm HSBC said hot rolled and cold rolled steel have seen near 10 per cent price hikes in the past few weeks and prices of other metals such as aluminium, copper and lead have also gained.