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M&M leads decline in auto stocks as India-EU FTA cuts import duty on cars
The India-EU FTA includes a clause reduce import duty on cars to 10% from 110%, in what the market sees as a setback to Mahindra to Tata Motors PV.
Auto stocks drifted lower on Tuesday, with Mahindra & Mahindra and Hyundai falling over 4 per cent, amid worries about increasing competitive pressure after India and the European Union announced the conclusion of negotiations for the free trade agreement under which import of luxury cars from the EU will become less expensive.
Shares of Mahindra & Mahindra tanked 4.19 per cent and Hyundai Motor India tumbled 4.02 per cent on the BSE.
The stock of Maruti lost 1.48 per cent, Tata Motors Passenger Vehicles declined 1.22 per cent, MRF (1.20 per cent), Hero MotoCorp (0.24 per cent) and Ashok Leyland (0.05 per cent).
The BSE auto index dropped 0.97 per cent to 58,980.72.
In the equity market, the 30-share BSE Sensex climbed 319.78 points, or 0.39 per cent, to settle at 81,857.48. The 50-share NSE Nifty surged 126.75 points, or 0.51 per cent, to end at 25,175.40.
"Auto and beverage stocks declined amid worries about increasing competitive pressure," Vinod Nair, Head of Research, Geojit Investments Ltd, said.
India and the European Union on Tuesday announced the conclusion of negotiations for the free trade agreement, described as the "mother of all deals", under which 93 per cent of Indian shipments will enjoy duty-free access to the 27-nation bloc, while import of luxury cars and wines from the EU will become less expensive.
Premium luxury European cars, such as BMW, Mercedes, Lamborghini, Porsche, and Audi, are set to become cheaper in the Indian market once the bilateral free trade agreement comes into force, as India will offer quota-based import duty concessions under the pact, an official said.
The EU will eliminate duty in a phased manner for Indian automobiles, whereas India will reduce the levies to 10 per cent for specified numbers.
As per the agreement, India and the EU have negotiated on a "quota"-based duty concessions, the commerce ministry official said, adding that the EU has a "very" aggressive demand for this sector.
"The EU has got a very well laid-out auto industry, one of the most advanced auto industries, and their cars are one of the best, and it is a reality," the official said.
"Taking note of sensitivity on both sides, we have agreed to a quota-based ecosystem, wherein we are trying to take care of each other's sensitivities," the official added.
Explaining further, the official said India's auto sector is largely dominated by small cars (retail price ₹10 lakh- ₹25 lakh) and the EU's interest in that area is "not great".
"So, that has been taken cognisance of, and we have decided that cars that are likely to sell below ₹25 lakh in this country, the EU will not be exporting those cars to India.
"They may manufacture it here, but they will not be exporting those cars," the official said.
For India, it is the most important market (cars below ₹25 lakh). The Indian industry is very strong there, and this is a very fast-growing market in the country, the official added.
Vehicles below ₹25 lakh include petrol, diesel, and hybrid models. Above ₹25 lakh, India's market is limited, but its interest is high as they are good manufacturers in this segment.
"Having taken care of that, we have given them quota-based market access. The market has been segmented into three parts beyond that. And the quota will increase in a phased manner," the official said.
