Investing.com | Sep 18, 2019 03:51
Yesterday, Nifty suffered from a sharp fall of 1.7% in yesterday’s trade. I discussed some of the reasons for this decline to a spike in crude oil prices and deteriorating economic situation in China. However, the Nifty Auto index had an even more significant decline yesterday, sharply falling by 3.8% in value.
We all know that the auto sector is in the midst of its worst slump. The sales for the Auto sector continue to decline by more than 30% for the last few months on a year-over-year basis. The auto companies are resorting to production cuts, and many employees have been laid off by them. One of the reasons provided by India’s Finance Minister for the auto slump was millennial using Ola and Uber instead of committing to EMIs towards buying automobiles.
The industry is now hoping for some good news from the GST council in its meeting on September 20th in the form of GST rate cuts on the sale of auto vehicles. However, the markets now believe that the tax rate cuts may be only given temporarily at most because the government’s fiscal condition is already stretched. India’s GST collections have dropped to Rs 98,202 crore in August from over Rs 1.02 lakh crore in July. Further rate cuts will make it difficult for the government to meet its fiscal deficit target of 3.3% for FY 2019-20. There is also a fear among states that auto companies may not pass the full benefit of GST rate cuts to consumers.
The auto stocks also suffered from a sudden spike in crude oil prices of 15% on Monday due to attacks on two Saudi oil facilities. Higher levels of crude oil will impact the petrol and diesel prices in India as well, further increasing the vehicle ownership cost to consumers. In a slow-growth environment, increase in vehicle ownership costs will force consumers further away from buying automobiles.
Stocks of big auto companies such as Tata Motors (NS:TAMO), Maruti Suzuki India Ltd. (NS:MRTI) and Bajaj Auto (NS:BAJA) all suffered from a steep decline of 5.1%, 4.4%, and 3.5% respectively in yesterday’s trade.
Written By: Investing.com
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