Mumbai: The Nifty Auto index continued to trend lower on Wednesday, after being the worst performer among all sectoral indices, falling 3.83%, on Tuesday because of a surge in global crude oil prices.
The drone attack on Saudi Arabia’s oil facilities stoked fears of unprecedented rise in global oil prices, which in turn were seen hurting auto sales already in doldrums.
However, today even as most other sectoral indices opened higher, the Nifty Auto index was down about 1%. This despite the retreat in oil prices, which declined 6% after Saudi Arabia said it will be able to restore supply from its damaged facilities to pre-attack levels by month end.
Clearly, the market is more worried about the government not cutting goods and services tax rates on automobiles rather than the surge in oil prices. According to Mitul Shah, vice-president (research), Reliance Securities Ltd, “the oil shock is a temporary phenomenon. But, the need of the hour is improvement in demand that still looks bleak at this juncture."
The GST Council meet scheduled for 20 September is now in the spotlight, but there might be disappointment in store for the auto industry and investors. According to reports, the Fitment Committee has ruled out a GST rate cut for automobiles and several other industries.
The domestic auto industry is banking heavily on a GST rate cut to ease vehicle prices and in turn boost demand.
Vehicle sales from April to August have clocked a double-digit year-on-year decline across segments. Manufacturers have cut production and there have been layoffs, plant shutdowns, and negative operating leverage. As such, companies reported a sharp margin contraction in Q1FY20, which is unlikely to ease in the coming quarter.
So far, indications are that the festival season is going to be lacklustre. “Auto firms may post slight improvement in sales in the month of September, but Q2FY20 sales too would post a double-digit yoy drop," said Jigar Shah of Maybank Kim Eng Securities India.