Maruti Suzuki India Ltd, the country's top carmaker, raised prices of all its models on Tuesday, sending its shares up as much as 11 percent as investors rallied behind the company after months of falling sales appeared to have levelled in December.
Maruti, which lost $500 million in production due to labour strikes that shut down its factories for weeks last summer, has been hit the hardest by a car sales slowdown in Asia's third-largest economy caused by high interest rates and rising fuel costs.
Sales of small cars, Maruti's key product, have stalled as the increased cost of credit and ownership deter potential buyers. Maruti's sales fell 53 percent in October as production returned to full strength, but slid only 7 percent last month.
There's a sense that the retreating inflation means we can expect a rate cut soon, said Vineet Hetamasaria, auto analyst at PINC Research in Mumbai. With the optimism around, Maruti is definitely looking more positive than negative to the market.
Maruti, 54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), raised prices of all its vehicles by 0.3-3.4 percent due to adverse foreign exchange movements and a rise in commodity prices, a company source told Reuters on Tuesday.
Domestic rivals of such as Mahindra & Mahindra (MAHM.NS) and South Korea's Hyundai Motor Corp (005380.KS) have already raised prices citing rising input costs.
Indian carmakers will see only marginal sales growth at best in the fiscal year that ends in March, the industry body said last week, adding that a cut in interest rates could spur a rebound next year.
Maruti's shares were up 10.1 percent at 1110.00 rupees at 1530 (1000 GMT), in a Mumbai market up 1.6 percent.
Shares in domestic rival Tata Motors (TAMO.NS) were up 1.4 percent, while Mahindra & Mahindra shares were up 2.3 percent.