Auto stocks trade higher after government cuts excise duty on fuel



Auto stocks traded higher on Monday after the government cut excise duty on fuel and imposed export duty on steel inputs.

Maruti Suzuki India rose 4 percent, Mahindra & Mahindra 3 percent, Ashok Leyland 5 percent, Hero MotoCorp 2.2 percent, TVS Motor Co 1.7 percent, Tata Motors Ltd 1.5 percent, and Bajaj Auto gained 1 percent. The BSE Auto Index rose 2.2 percent.

On May 21, the government announced a slew of fiscal measures to assuage price concerns. Steps include tax cuts of Rs 8 and Rs 6 per litre on gasoline and diesel, a Rs 200 subsidy on cooking gas for poor households, and reduction of import duty on raw materials and intermediaries of plastics, iron and steel.

The fuel price hike has been one of the major factors impairing demand, particularly in the two-wheeler segment.  Analysts say the cut in fuel price will provide some relief to customers. Petrol and diesel prices have increased 21 percent and 15 percent in the last one year, and 58 percent each in the last two years.

“This reduction in prices would particularly benefit the two-wheeler segment where customers have been impacted adversely by persistent inflation in the total cost of ownership over the last three years. Further, this reduction would benefit the CV segment as fleet operators’ profitability had come under pressure in recently led by 9 percent increase in diesel prices since the beginning of April 2022,” Motilal Oswal Research said in a note to investors.

The imposition of export duty on steel and its intermediaries augurs well for the auto sector, analysts said, which has faced unprecedented input cost pressures. The measures should particularly help offset steel price increases, which are expected in the first half of FY23, analysts said.

“We are building in 1-2 percent increase (as a percentage of sales) due to commodity cost inflation in H1 FY23, which may be offset if steel prices actually reduce further. While all the OEMs will benefit in varying proportion, the key beneficiaries of the measures in the auto sector would be HMCL (pure-play domestic two-wheeler OEM with focus on mass segment motorcycles) and AL (pure play on CVs),” the Motilal Oswal report said.

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