Stocks in Focus: Investors will keep a special eye on auto stocks in the trading session of Tuesday, January 27. The reason for this is that there are chances of a trade deal being sealed between India and the European Union. In this, there can be a huge reduction in duty on vehicles coming from Europe. Due to this, there may be movement in the shares of companies like Tata Motors, Mahindra & Mahindra and Maruti Suzuki.
Tariff cuts on European cars
According to a Reuters report on January 25, the Indian government is planning to reduce the import duty on cars imported from the European Union (EU) to 40 percent from the current 110 percent.
Quoting sources, it has been said that this decision could be the biggest step so far towards opening up India’s huge auto market. Experts believe that both sides are moving rapidly towards a Free Trade Agreement (FTA) and it can be announced only on Tuesday.
Luxury European brands benefit
The decision to reduce tariff on European vehicles can change the picture of India’s auto sector. According to experts, this will greatly benefit European luxury brands like Volkswagen, Mercedes-Benz and BMW. Because they will be able to sell their vehicles in India at more competitive prices.
Apart from this, local dealerships and service providers are also expected to get support from this. However, domestic companies may face tough challenges in the luxury segment.
Pressure on which Indian companies will increase?
This change may increase competition for Tata Motors and Mahindra & Mahindra. Especially in the luxury segment. Because cars like Mercedes-Benz, BMW, Audi, Volkswagen will become much cheaper and more competitive in India.
At the same time, Maruti Suzuki and Apollo Tires can avoid major shocks. Because their focus is not on the luxury segment.
Impact on auto and auto ancillary stocks
Experts believe that the reduction in import duty will make the Indian auto market more competitive, giving customers better prices and more options. Also, India will emerge as a strong manufacturing hub, which can increase investment and employment opportunities.
Experts believe that this can have a positive impact on stocks like Bharat Forge. Because they make automotive parts. When European companies’ sales in India increase, they will also increase local assembly/local sourcing.
On which cars will the government reduce taxes first?
According to Reuters, the government led by Prime Minister Narendra Modi has agreed to sharply reduce taxes on some selected cars coming from the 27 member countries of the EU. This reduction will apply to cars whose import price is more than 15,000 euros (about $17,739).
Going forward, there is a plan to reduce the import duty on these cars to 10 percent. This will make it easier for companies like Volkswagen, Mercedes-Benz and BMW to enter and expand in the Indian market.
Impact of low import tax on auto sector
India is the world’s third largest car market in terms of sales, after the US and China. Despite this, the domestic auto sector has remained largely protected so far. Currently, India imposes 70 percent to 110 percent tax on cars imported from abroad.
With the reduction in import duty, foreign auto companies will be able to offer cars at lower prices and understand the market better before starting large-scale manufacturing in India. This will benefit brands like Volkswagen, Renault, Stellantis, Mercedes-Benz and BMW, which are already present in India but were facing problems in expansion due to high tariffs.
Tariff will not be reduced in EV segment for 5 years
According to a Reuters report, no exemption in import duty will be given to battery electric vehicles (EVs) for the first five years. Its aim is to protect the investments made in the EV segment by Indian companies like Mahindra & Mahindra and Tata Motors.
However, after this five-year period, EVs are also expected to benefit from similar duty reductions.
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