Auto shares in demand

Auto shares rallied after Finance Minister slashed effective corporate tax to 25.17% inclusive of all cess and surcharges for domestic companies.

The Nifty Auto index was up 7.92% at 16,779.73. It outperformed the Sensex, which was up 4.97% at 37,887.73.

Ashok Leyland (up 13.20%), Eicher Motors (up 12.84%), TVS Motor Company (up 10.78%), Maruti Suzuki India (up 9.79%), Escorts (up 7.79%), Hero Motocorp (up 6.86%), Tata Motors (up 6.80%), Bajaj Auto (up 5.95%) and Mahindra & Mahindra (up 5.68%) surged.

In a press conference held in Goa today, the Finance Minister Nirmala Sitharaman announced slashing of corporate tax rate for domestic companies and new domestic manufacturing companies. The FM added that the ordinance for cutting tax rate has been passed.

The FM said that the new corporate tax rate will be 22% without exemptions. The effective corporate tax rate after surcharge will stand at 25.17%. To further attract investment in manufacturing, local companies incorporated after October 2019 will pay tax at 15%, the FM added.

Investors are keenly awaiting outcome of the 37th meeting of the Goods and Services Tax (GST) Council, which is scheduled to take place later today in Goa.

The automobile sector, which is worst hit by the ongoing slowdown due to a slew of factors, is eagerly awaiting a GST cut on automobiles from existing 28%.

Auto sales in India have been spiraling down since the last 10 months and it is perhaps the worst downturn the industry has witnessed in almost two decades, where each and every segment in the auto industry is seeing a slump.

The consolidated priority top line of automobile companies slipped 7% in the first quarter (Q1) ended June 2019 of the fiscal year ending March 2020 (FY 2020) over a year ago while the aggregate bottom line fell 57%.

Poor availability and higher cost of finance due to liquidity problems at NBFCs, an overall slowdown in economic activity, rural stress, a spate of regulatory changes and increase in regulatory costs have all added to the woes of automakers.

To stimulate demand for auto industry, the finance minister announced additional 15% depreciation on vehicles acquired from now till March 2020, taking the total depreciation to 30%. The proposed hike in registration charges has also been postponed till June 2020. The Union government will also consider a scrappage policy, something which the automobile industry has been advocating, to get unfit vehicles off the roads and, thus, increase the demand for new vehicles. But the government wants to put scrapping infrastructure policy first to put the policy in place. However, there was no mention of GST cut for automobiles, something the industry has been lobbying desperately for quite some time now.

Auto sales across segments were substantially down in July 2019 and are expected to be down even in August 2019. The situation will eventually improve when there's more clarity about government policies and easing of credit situation.

Powered by Capital Market - Live News