Auto stocks gain on lower fuel prices; Maruti, Ashok Ley, M&M earn up to 5%

Shares of automakers traded up as much as 5% on BSE in Monday’s trading after the Union government cut excise duties on petrol and diesel by Rs 8/ liter and Rs 6/litre, respectively. The government also reduced import duties on key raw materials such as steel and plastics, while it increased export duties on iron ore and other steel intermediates.

At 10:47 a.m.; the S&P BSE Auto index, the best performing sector index, rose 2.3%, compared to 0.52% for the S&P BSE Sensex index. Among individual stocks, Ashok Leyland and Maruti Suzuki (India) rose 5% and 4% respectively. Others like Mahindra & Mahindra, TVS Motor and Hero MotoCorp rose 3%, while Tata Motors and Eicher Motors rose 2% and 1%, respectively.

That aside, analysts believe lower fuel prices would benefit the two-wheeler (2W) and utility vehicle (CV) segment.

“The reduction in fuel prices would particularly benefit the 2W segment where customers have been negatively impacted by persistent TCO inflation over the past three years. In addition, this reduction would benefit the CV segment, as the profitability of Fleet operators had increased under pressure in the recent past, driven by an increase of around 9% in diesel prices since the start of April 2022, brokerage firm Motilal Oswal Financial Services said.

Moreover, ICICI Securities analysts are also optimistic about lower fuel retail prices. They forecast that the automotive sector will benefit from both the demand and the cost outlook. “From a demand perspective, lower retail fuel prices will help boost auto sales, especially in the 2-W category, where demand is more elastic to fuel prices. Fuel prices also help lower operating costs, especially in terms of lower logistics costs,” the brokerage said.

In addition, analysts also believe that the increase in government export duties on steel and plastic bodes well for the automotive sector due to high commodity inflation. “The measures announced should in particular help offset the steel price increases, which are expected in the first half of FY23,” said analysts at Motilal Oswal Financial Services.

Additionally, ICICI Securities analysts also believe that lower metal prices, particularly steel, will help control raw material costs for the sector, with the beneficiaries being tractors, CVs, 4-wheelers and 2-W spaces.

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