Auto stocks rally on hopes of GST rate cut, scrappage policy; Tata Motors zooms 10%

Auto stocks rally on hopes of GST rate cut, scrappage policy; Tata Motors zooms 10%

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The Indian auto industry has been going through a slump, its worst in many years. Vehicle sales are down and inventories are bloated, forcing a cut in production, putting thousands of jobs on the line.

However, hopes of GST rate cut, especially after Finance Minister Nirmala Sitharaman hinted at more steps to help the auto companies, has provided some support, helping the auto index close 3.6 percent higher on September 11.

The finance ministry is considering suggestions from automobile and auto component manufacturers, said Sitharaman. “We are working on a few things. Let’s see what comes out. We are conscious that we need to respond.”

The stocks which reacted the most included Tata Motors and Tata Motors DVR which spiked over 10 percent each followed by Eicher Motors (up 5 percent), and Motherson Sumi Systems, that added 4 percent. The other gainers included Maruti Suzuki, Bajaj Auto, Hero MotoCorp and Mahindra & Mahindra.

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“I am positive on some auto stocks with a six-to-twelve month view because these are brands which are going through a one-year cyclical slowdown after being the biggest wealth creators for eight-ten years,” said Sanjiv Bhasin, EVP-Markets & Corporate Affairs at IIFL.

“In the case of auto companies, both structural, as well as cyclical issues, have conversed to trigger a slowdown. However, it is most unlikely that the auto sales will fall more in the near future,” said G Chokkalingam, Founder of Equinomics Research & Advisory.

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