Auto stocks gain on report that Cabinet may approve scrappage policy today

Shares of automobiles along with auto ancillaries companies were trading in the green, with the Nifty Auto index climbing nearly 2 per cent, in Wednesday's early morning trade on reports that the Cabinet may consider approving scrappage policy in today's meet.

At 10:21 am, the Nifty Auto index was up 1.8 per cent, as compared to a 0.53 per cent rise in the benchmark Nifty50 index. 

Tata Motors, Mahindra & Mahindra, Bharat Forge and Ashok Leyland from the Nifty Auto index climbed 3 per cent each on the National Stock Exchange (NSE). Maruti Suzuki India, Eicher Motors, Hero MotoCorp, TVS Motor Company and Bajaj Auto were all up in the range of 1-2 per cent each.

SML ISUZU, Munjal Auto Industries, Setco Automotive, Atul Auto, Gabriel India, Force Motors, Rico Auto Industries, Munjal Showa and Jay Bharat Maruti from the non-index stocks, were up more than 3 per cent.

According to a report by CNBC TV18, the Cabinet may approve policy to scarp old vehicles in today's meeting.

Apart from that, "Discounts may be offered on buying new in exchange for old cars. Proposal is to offer road tax discounts on exchange of old for new cars. Registration charge may be removed for exchanged of old to new cars; there may be heavy road tax on cars older than 15 years. Proposal is to charge 25 times original registration charges on old cars. Registration charges for renewal of old commercial vehicles may increase to Rs 40,000 from Rs 1,500," the report said.

Analysts expect volumes across segments to gradually improve on account of better macros, a pick-up in rural demand, lower interest rates and the likely implementation of scrappage policy.

Going forward, CARE Ratings expects demand to pick up in Q3 FY20 on back of festival demand (Navratri, Dussehra and Diwali) and continue in Q4 FY20 with various planned product launches, festival demand and pre-buying of automobiles before the implementation of BS-VI norms on April 1, 2020. Also farm income is expected to be marginally higher and encourage rural spending, it added.

Brokerage firm Emkay Global, in a report dated November 20, retained 'over-weight' stance on the sector, saying "Management commentary was positive (in September quarter), with expectations of better volumes ahead on gradual improvement in macros, improving rural demand, lower interest rates and the likely implementation of scrappage policy, we maintain our over-weight stance on the sector."