Auto stocks gain on fuel price cut; Maruti, Ashok Ley, M&M gain up to 5%

Shares of automobiles companies traded higher by up to 5 per cent on the BSE in Monday’s trade after the Union government slashed excise duty on petrol and diesel by Rs 8/litre and Rs 6/litre, respectively. The government also reduced import duty on key raw materials like steel and plastic, whereas, increased export duty on iron ore and other steel intermediates.

At 10:47 am; the S&P BSE Auto index, the top gainer among sectoral indices, was up 2.3 per cent, as compared to 0.52 per cent rise in the S&P BSE Sensex. Among individual stocks, Ashok Leyland and Maruti Suzuki (India) were up 5 per cent and 4 per cent, respectively. Others like Mahindra & Mahindra, TVS Motor and Hero MotoCorp were higher by 3 per cent, whereas, Tata Motors and Eicher Motors were up 2 per cent and 1 per cent, respectively.

That apart, analysts believe that the reduction in fuel prices would benefit the two-wheeler (2W) and commercial vehicles (CV) segment.

"The reduction in fuel prices would particularly benefit the 2W segment where customers have been impacted adversely by persistent inflation in the total cost of ownership over the last three years. Further, this reduction would benefit the CV segment, as fleet operators’ profitability had come under pressure in the recent past led by around 9 per cent increase in diesel prices since the beginning of April 2022," brokerage firm Motilal Oswal Financial Services said.

Moreover, analysts at ICICI Securities are also optimistic of decline in retail fuel prices. They anticipate the auto sector to benefit from both demand as well as cost perspective. "On demand perspective, decline in retail fuel prices will help spur automobile sales especially in the 2-W category wherein demand is more elastic to fuel prices. Decline in fuel prices also helps reduce costs of doing business, especially in terms of lower logistics costs," the brokerage firm said.

Besides that, analysts also believe that the government's export duty hike on steel and plastic bodes well for the auto sector due to elevated commodity inflation. "The measures announced, particularly should help in offsetting steel price increases, which are expected in H1FY23," analysts at Motilal Oswal Financial Services said.

Additionally, analysts at ICICI Securities also believe that the decline in metal prices, especially steel, will help keep raw material costs under check for the sector with beneficiaries being tractor, CV, 4-wheeler, and 2-W space.