Mar 14, 2012

Budget Trade Idea: Long Rate Sensitives Short TATA Motors

Going long banks and short autos might be a very interesting idea in view of the potential policy announcements over the next few days. Here's what may happen over the next few days

  • Thursday - monetary policy announcement will have a symmetric impact on banks and autos
  • Friday - union budget is unlikely to give out sops to either autos or banking. However, there is a strong possibility of a fuel price hike and rationalization of diesel pricing in India.
    • Fuel price hike will not affect auto stocks too much since its will a one off event
    • Diesel price rationalization will kill auto stocks with a tilt towards diesel - i.e. Tata Motors which wholly concentrates on diesel vehicles in both commercial and passenger segments. Other stocks will be hit as well but not to the extent Tata Motors will be. 
  • In case there is diesel price rationalization, Tata Motors can deliver up to 10% underperformance vis-a-vis other rate sensitives
My bet, Long SBIN short TATA Motors

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