BSE Auto surges in late trade on excise duty cut extension

BSE Auto saw a sharp upmove on Wednesday in the last few minutes of trade after finance minister Arun Jaitley announced that the government has decided to extend the excise duty cut for the sector till December 2014.

The index rose more than 1% between 3.20 pm and 3.26 pm IST, ending with gains of 0.76%. TVS Motors (2.93%), Hero Motocorp (1.01%), Bajaj Auto (2.63%) and Maruti Suzuki (2.56%) were among the major gainers in the auto space, on a day the benchmark Sensex ended slid 0.22% at 25,313.74 points.

Experts feel the move is positive and would help the sector, which is seeing a weak demand. “The lower excise duty was in force since February. Had the government not extended it, it would have been a big dampener for the industry. Higher excise duty would have led to an increase in prices of cars. The move could help boost demand,” said an analyst with a leading foreign brokerage not wishing to be named.

The BSE Auto has gained 24.48% in the year to date. Market observers believe the recovery in the economy would have a spillover effect on the sector.

“The passenger vehicles (PV) industry is in the midst of one of its worst slowdowns. Never before has the industry witnessed three consecutive years of single-digit growth. As highlighted above, PVs have a high ECS and, hence, any economic recovery will result in this pent-up demand coming to the core. The same is true for CVs (commercial vehicles) as well where volumes have halved in the last two years and any recovery in the economy will result in a recovery of the CV cycle as well," Credit Suisse analysts said in a recent report.

Bombay Stock Exchange - BSE