MUMBAI (NewsRise) -- India's latest measures to boost sagging demand for cars and motorcycles failed to lift investor sentiment, as shares of Maruti Suzuki India and Tata Motors fell despite gains in the broader market.
On Friday, Prime Minister Narendra Modi's government announced a slew of steps that included deferring a proposed increase in vehicle registration fee until June next year and providing additional 15% depreciation on all vehicles acquired till March 2020. It also lifted a ban on buying new vehicles to replace the older ones.
Further, the government proposed to allow vehicles conforming to older emission norms that will be purchased until March to remain operational for the entire period of registration.
But analysts say the measures may not spur demand for automobiles in the near term as the sector reeled under a credit crisis that squeezed financing. India's passenger vehicle market saw the worst quarterly sales contraction in almost two decades in April-June, sparking job losses and factory shutdowns. Industrywide passenger vehicle sales grew at the slowest pace in five years during the last fiscal year.
"The government's measures have not really addressed the industry's problems," said Varun Khandelwal, a director at Bullero Capital. "The main problem is there is no demand. This can be seen from the corporate earnings of the last quarter."
Shares of top automakers such as Maruti Suzuki and Tata Motors fell as much as 2.1% and 3.8%, respectively, in Mumbai trading on Monday. The shares later pared the losses to close down 0.4% and 0.6%, respectively.
Automobile stocks have been under pressure for most parts of the year with the S&P BSE auto index losing more than 24% since January.
The credit crunch also hurt automobile dealers, with several dealerships shutting down and laying off thousands of workers in the past three months. Dealerships, the most vulnerable segment in the automotive value chain, would benefit from the government's latest steps to improve overall liquidity by recapitalizing banks, said ICRA, the Indian unit of Moody's Investors Service.
On Monday, Fitch Ratings warned that the overall domestic auto sales may decline this fiscal year, although volumes may stabilize in the coming quarters due to the government focus on improving liquidity and recent measures to revive demand.
"The improved likelihood of adequate rainfall and recent cut in interest rates should also help demand" in the second half of this year, Fitch said. However, the lower sales volumes will weigh on profitability this year, and could offset the benefits from lower commodity prices, it added.
The government also said on Friday that it is gearing up to roll out a new scrappage policy that may spur customers to buy new vehicles.
A strong scrappage policy that mandates replacement of more than 15-year-old vehicles could boost demand by 5% to 15% on an ongoing basis, assuming 10% to 25% replacement, Jefferies said. "Scrappage policy is the next policy catalyst to watch for."
--Dhanya Ann Thoppil