The pre-budget consensus was for a 2% hike in excise duty in the auto sector. Investors were relieved that didn’t happen.
Meanwhile, the thrust on rural infrastructure, and linking of wages under the Mahatma Gandhi National Rural Employment Guarantee Scheme to the Consumer Price Index could keep demand for automobiles buoyant.
Also See | Auto Sector (PDF)
The budget also proposed a battery of incentives for green vehicles. But these vehicles constitute a negligible segment of the domestic auto industry. Shares of Mahindra and Mahindra Ltd, which has acquired an electric car maker, gained 3.19%. The company also benefited from the status quo of 22% excise on sport utility vehicles, where it has more than half the market share. Besides, the budget’s rural focus should help its tractor portfolio.
Still, the auto sector has several challenges before it. The high base effect could moderate growth rates. Profitability could shrink because of rising input prices. And any increase in interest rates could crimp demand because most cars and trucks are financed.
Graphic by Sandeep Bhatnagar/Mint