Reference Auto

During the last day of the previous week (Friday), the BSE Sensex had slid 108 points owing to selling pressure in sectors like auto, metal and banking along with fears of a rate hike by the Reserve Bank of India (RBI).

The fears have indeed turned out to be true with the country’s apex bank’s  short-term lending to banks (repo) and borrowing from banks (reverse repo) rates being hiked by 25 basis points each to 7.50 per cent and 6.50 per cent during its policy review on June 16.

The RBI move does not augur well for home as well as car buyers as it will lead to cost of loans going up. With the gloom setting in, the markets could remain weak for about a month.

So, the consumer will shy away from borrowing, and as a result, demand for homes and cars will slide. For instance, car sales growth could shrink from a whopping 32 per cent last year to almost a single-digit figure.

With the petrol price being deregulated (where companies can fix rates instead of the Central government), prices are almost skyrocketing.

There is gloom all over with inflation also spiralling to 9.06 per cent and could touch the double digit-mark next month itself.

Moreover, prices of commodities will go up and have a domino effect on all items we buy from the market.

Also, factory output or Index for Industrial Production (IIP) dropped to 6.3% in April from 13.1% in the same month last year. This could take a toll on the overall growth story.

Meanwhile, last Friday, the 30-share Sensex shed 107.94 points, or 0.59 per cent to end the week at 18,268.54 compared to the last weekly close.

The 50-scrip S&P CNX Nifty index of the NSE also fell 30.95 points or 0.56 per cent to trickle below the 5,500-mark at 5,485.80.

However, the BSE Small-Cap index saw a rise of 49.77 points (0.60 per cent) to 8,288.46 and the BSE Mid-Cap index rose a tad 2.14 points or 0.03 per cent to end at 6,898.28.

Stocks in global markets tanked after US Federal Reserve chairman Ben Bernanke said US economic recovery was turning out to be “uneven and frustratingly slow.”

The domestic political scenario was also a cause of worry amid reports that the DMK, a key UPA ally in Delhi, may opt to withdraw ministers from the Cabinet.

The stir at Maruti’s Manesar plant hit auto stocks. Hero Honda tanked 7.25 per cent to Rs 1,723.95 on fears that the agitation could spread to the entire Manesar-Gurgaon belt. But shares of Maruti Suzuki shed only 0.31 per cent to Rs 1,229.75.

So, with gloom everywhere, the stock markets could be in the red during the coming weeks. If the fall is below 17,000 points, it could be a good buying opportunity and investors would be wise to pick up some blue chip stocks or five-star mutual funds (as rated by Value Research) and hold on to them at least for the medium term (around five years).

It could almost double your money. But over the next couple of months, stock market activity is likely to remain subdued.