Automobile company’s shares surge after govt cut excise duty on fuel

26 May 2022 CW Team

Shares of automobile manufacturers got a boost after the government slashed excise duty on fuel and imposed an export duty on steel inputs.

Two-wheelers, in particular, are high on investors' radar as they could profit the most from the government actions.

Hero MotoCorp, Ashok Leyland, and Bajaj Auto are the top choices of analysts' after the government's move.

The Bombay stock exchange (BSE) Auto index acquired the most among sectors on Monday, ending up 1.9% at 25,355.47. The Auto index gains were led by Ashok Leyland, Maruti Suzuki India, and Mahindra & Mahindra (M&M) gained about 4% each. Hero MotoCorp and TVS Motor Company grew by 1.5% each. Tata Motors acquired 0.9% and gained 0.9%, and Eicher Motors ended up 1.3%.

Analysts said the levy of export duties on steel inputs and outputs and reduction of customs duty on inputs is a booster for the sector, which has been encountering input price issues.

This is good for auto inventories because they were reeling under high input price pressures. Steel exports from India may become uncompetitive and domestic costs will come down, which is good for the auto industry as they will be able to maintain margins, and they don't require to raise the cost of the vehicles, said Gaurav Dua, senior VP at Sharekhan by BNP Paribas.

Among two-wheelers, Dua is bullish on Bajaj Auto and Mahindra & Mahindra among four-wheelers.

Petrol and diesel costs have increased 21% and 15%, respectively, in the last year and about 58% each in the last two years. The two-wheeler space has been most impacted by inflation due to the elevation in the total price of ownership over the last three years.

While all the original equipment manufacturers will benefit in uneven proportion, the key beneficiaries of the above steps in the auto sector would be Hero MotoCorp and Ashok Leyland, said Motilal Oswal.

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