Shares of auto companies today advanced on the bourses after the government announced a four per cent cut in Cenvat to give a fillip to demand in the automobile sector.
Led by Bajaj Auto, which surged as much as 11 per cent, shares of all major vehicle makers rose in the range of 7-10 per cent in the morning trade on the Bombay Stock Exchange.
As an immediate measure to encourage additional spending, the government has announced an across-the-board cut of four per cent in the ad-valorem Cenvat rate, to be effected for the balance part of this fiscal year.
Major auto companies, including market leaders Maruti and Tata Motors, had yesterday announced that they would cut prices of their vehicles to pass on the benefit to the consumers.
Shares of Tata Motors rose 8.75 per cent to a high of Rs 166.50. It was later trading at Rs 160.60, up 4.90 per cent on the BSE.
Car maker Maruti Suzuki surged to a high of Rs 523.40, up 6.75 per cent from its previous close. Also, utility vehicle maker Mahindra & Mahindra was up 8.24 per cent at Rs 273.
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The government announcement comes at a time when vehicle makers were going slow on manufacturing activity due to sagging demands that was partly to be blamed on high bank interest rates.
Already, the Reserve Bank has signalled lower interest rates by cutting two key policy rates by a percentage point last week.
Bajaj Auto gained 11.05 per cent at Rs 349.70, while Hindustan Motors was up 7.34 per cent at Rs 15.64.
Mirroring the surge in the scrips of the sector firms, the BSE auto index surged 5.03 per cent to a high of 2,361.46 points.