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Maruti Suzuki, Hero MotoCorp shares slump after tax proposals in India budget

Plans for higher taxes on auto parts, fuel hurt industry outlook

  © Reuters

MUMBAI (NewsRise) -- Shares of Maruti Suzuki India and Hero MotoCorp hit multi-year lows on Monday after the government proposed to raise duties on auto parts and slapped additional taxes on fuel, posing new challenges to the sector already gripped by a slowdown.

Maruti's shares plunged as much as 6% to touch 5,985.55 rupees, the lowest in more than two years. Hero MotoCorp, India's biggest two-wheeler maker, hit a near four-year low with a 6.1% slump. Mahindra and Mahindra and Tata Motors, too, fell 1.1% and 3.4% respectively, while the benchmark S&P BSE Sensex lost 2%.

The government plans to increase customs duties on automobiles and parts such as locks and catalytic converters, Finance Minister Nirmala Sitharaman said in her maiden budget speech on Friday. The government also proposes to increase certain taxes on petrol and diesel, she said.

"The auto industry is currently going through a very difficult time and the industry was expecting some form of a stimulus package in the budget," Rajan Wadhera, president of the Society of Indian Automobile Manufacturers, or SIAM, said in a statement. "It is disappointing that the finance minister has not recognized the distress in the auto sector and not come out with any kind of support or stimulus."

The government's proposed measures could further aggravate the slowdown in the industry, he said.

India's automobile industry has been facing a downtrend over the past one year as lack of credit and rural distress weakened consumer spending in Asia's third-largest economy. The industry's sales volumes expanded at the slowest pace in five years in the fiscal year ended March 31.

Analysts have already warned that the current slowdown, if it continues into the second half of this year, could probably be the longest period of weaker sales the Indian automobile industry has witnessed in almost two decades.

Maruti, the nation's biggest carmaker, has forecast production and sales to grow between 4% and 8% during this year. Last year, it had predicted a 10% sales growth, but barely managed to expand at 6.1%. On Friday, the company said it has cut passenger vehicle production by more than 16% in June, marking its fifth straight monthly reduction in output.

The hike in fuel tax will immediately make ownership of two- and four-wheelers more expensive, Sanctum Investment said in a note on Monday. "The expectations of a boost to consumer spending have not materialized, with the government preferring to focus on infrastructure investments, and this is likely to delay consumer spending recovery."

Prior to the federal budget, SIAM had requested the government to lower Goods and Services Tax on car purchases to 18% from the current 28% to stimulate demand. Finance Minister Sitharaman said the government has asked the GST Council to cut the GST rate on electric vehicles to 5% from 12% and offered tax incentives for buyers of EVs and customs duty cut on its manufacturing components.

Shares of many of the two-wheeler makers such as Hero MotoCorp and smaller rival TVS Motors have been languishing over the past few weeks after policymakers last month recommended that only electric models of scooters and motorcycles with engine capacity of less than 150 cc must be sold from 2025.

--Dhanya Ann Thoppil

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