Auto stks dip on profit booking as govt proposes green tax for old vehicles

Shares of automobile companies, including tyres and auto ancillaries companies, were trading weak on Wednesday as investors booked profit after the government proposed the introduction of ‘green tax' on transport vehicles (buses, taxis, trucks) older than eight years in the range of 10-25 per cent of the applicable road tax.

The Union Minister for Road Transport and Highways Nitin Gadkari, on Monday, said his department has approved a proposal to levy ‘green tax’ on old vehicles polluting the environment. The proposal will go to the states for consultation before it is formally notified, according to a Business Standard report. READ MORE

At 09:45 am; Nifty Auto index was down 1 per cent, as compared to 0.72 per cent decline in the Nifty50 index. The auto index slipped 2 per cent in intra-day trade today.

Ashok Leyland, Bharat Forge and Tata Motors from the auto index were down in the range of 3 per cent to 4 per cent. Eicher Motors, Motherson Sumi Systems, Balkrishna Industries, MRF, Hero MotoCorp and Amara Raja Batteries slipped between 1 per cent and 2 per cent on the National Stock Exchange (NSE).

According to Motilal Oswal Securities, the green tax would raise the cost of doing business for small fleet operators operating over eight-year old commercial vehicles (CVs). However, the cost rise wouldn’t be material enough to force them to move to younger vehicles. While the green tax may not spur demand for new vehicles on its own, it can supplement the expected scrappage scheme by deterring purchase of older vehicles and incentivizing scrapping of old vehicles. The expected scrappage policy, along with the green tax, can be effective in spurring demand for new vehicles, the brokerage firm said in sector update.