MUMBAI 27/NOV/2014: The automobile sector, which has reeling under pressure due to slowdown in sales and higher interest rates, is likely to see some pick-up as the ownership costs of vehicle has come down recently. The sector got a huge breather after finance ministry sources told ET Now that tax breaks could be extended further. The excise duty concessions, granted by UPA government in February, were extended till December 31, 2014. As the deadline ends next month, the government is likely to extend it till next budget. The continuation of tax breaks brings down the cost of vehicles. Add to this, the reduction in petrol prices also lowers the running cost of cars and motorcycles. These factors, in addition to rate cut by the RBI early next year, can lead to pick-up in sales, say analysts.
\"Car ownership costs in India have started to decline in FY15 after rising for 4 consecutive years. Monthly ownership costs are down 3 per cent, YoY in FY15 led by declining fuel prices and the cut in excise duty on autos,\" said CLSA report. Historically, a decline in car ownership costs has always resulted in a spike in car industry growth. However, as the magnitude of cost decline is less this time in comparison to historical years. \"Any cut in auto finance rates or a further decline in fuel prices will drive ownership costs even lower. This, together with faster income growth as economy recovers, should drive faster PV industry growth in FY16,\" CLSA report added.
According to the brokerage, Maruti and M&M will be key beneficiaries of this. The automobile manufacturers have been facing a touch time for the past couple of years. The duty cut announced in February has resulted 3-4 per cent pick-up in sales. \"Even in the festive season, the demand did not really move up as expected. Unless you see a bump-up in demand, I do not think the auto stocks will really perform. If you look at the last eight-nine months most of the auto stocks have performed and seem fully priced,\" said Market Expert, Ambareesh Baliga to ET Now.