Budget fuels auto stocks rally

Shares of auto companies zoomed over five per cent today on overall positive Union Budget, which proposed excise cut matching industry expectations.

Shares of Tata Motors surged 7.22 per cent to Rs 717, and Bajaj Auto 6.15 per cent to Rs 1,820 at close on BSE.

The government today increased central excise duty by two per cent to 10 per cent, which analysts said that the car companies would pass on to consumers.

Shares of Maruti gained 5.21 per cent to Rs 1,474 and M&M was up 5.44 per cent to Rs 1,011 on the BSE.

"The 2 per cent increase in excise duty has already been factored in the prices. The auto stocks have been losing for quite sometime now and today's announcement is on expected lines," India Infoline VP Research Amar Ambani said.

While the country's largest car maker, Maruti Suzuki India (MSI), said its car will become costly by two per cent, Hyundai Motor India said it will result in a price rise of Rs 6,500-25,000 on average.

Besides, Ashok Leyland gained 6.62 per cent to Rs 49.90 and Hero Honda was up 5.45 per cent at Rs 1,780 on BSE.

"The burden of excise duty hike will be passed on to consumers and the Finance Minister has left much on the hands of the consumer in the form of direct tax sops to pay for the price hike," Religare Chief Economist Jay Shankar said.

Other major gainers include TVS Motor (6.44 per cent), Escorts (1.69 per cent) and Eicher Motor (3.62 per cent) on the BSE.

Meanwhile, a Hyundai Motor spokesperson today said: "We will be forced to hike our prices by Rs 6,500 to Rs 25,000."

Volvo Auto India also said that the increase in excise duty will result in increase of price of its cars.

At the peak of the slowdown in December 2008, the government announced a 4 per cent across-the-board cut in CENVAT to help reduce prices and spur demand.

Car sales clocked a record high of 1,45,905 units. It was the 10th straight month of growth for the segment.

Industry players have, been demanding that the stimulus package should be continued in the Budget as the industry is not yet out of the woods.