Despite announcements in the budget to aid rural development, two-wheeler stocks like Bajaj Auto and Hero MotoCorp ended in the red.
29 Feb 2016 | 3109 Views | By Shourya Harwani
In what was a volatile session for the stock markets today, the news of additional tax levies on the passenger vehicle industry in the Budget FY2017 did not bode well for automotive companies and most auto stocks ended the day in the red.
In his Budget proposals, finance minister Arun Jaitley announced that the government would levy an additional 1% infrastructure cess on sub-four metre petrol, CNG and LPG- powered vehicles with engine capacity of up to 1200cc. Sub-four metre diesel engine vehicles with engine capacity of up to 1500cc would attract a cess of 2.5%. Meanwhile, luxury cars and diesel SUVs would be the most affected with a cess of 4%.
The Budget clearly does not spell good news for passenger car and utility vehicle manufacturers which have been posting decent growth in the ongoing fiscal year. With the new taxes, which come into effect from April 1, 2016, virtually all passenger vehicles will turn more expensive.
As a result, Maruti Suzuki, which is the country’s largest carmaker, witnessed a sell-off today with the stock ending nearly 5% down on the National Stock Exchange.
Tata Motors also closed 0.6% down, but the large infrastructure related announcements provided some respite and hopes that the CV industry could benefit in the long run. The government said that it has set aside a total corpus of Rs 97,000 crore for roads and highways in the financial year 2016-17.
On the upside, stocks of commercial vehicle maker Ashok Leyland ended up 2.1%, while that of Mahindra & Mahindra ended flat. Ashok Leyland benefitted from the proposed increase in infrastructure spends, and emphasis on accelerating rural growth helped M&M stocks recover.
Despite announcements in the Budget to drive rural development, two-wheeler stocks like Bajaj Auto and Hero MotoCorp ended in the red. Bajaj Auto stocks fell 1.6%, while Hero MotoCorp shares ended 2.5% down. On the other hand, shares of TVS Motor Co ended up 1.4%, on the hopes of a pickup in the commuter motorcycle segment.
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