Tuesday 18 February 2014

FM Cuts Exicse Duty on Car, Read in Case you Intend to Buy a Car in the Near Future

The Finance minister in his last Budget for the UPA-II government finally offered some good news for the investors and common-man. Good news in terms for people at least who intend to buy a two-wheeler or car in the near future. And also good news for people who want to benefit by trading in the stock markets by betting on the short-term trading opportunities.

Firstly What the Announcements

The Finance minister was quite liberally by proposing lowering of the excise duty on the bikes (two-wheelers) and four wheelers (cars) across the segments. For the records, P Chidambaram proposed to
- reduce excise duty on small cars from 12 per cent to 8 per cent
- reduce excise duty on medium cars from 24 per cent to 20 per cent
- reduce excise duty for sport utility vehicles (SUVs) from 30 per cent to 24 per cent
- reduce excise duty on two-wheelers to 8 per cent
 
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Impact of the News

Following the announcement of the proposal, as per reports in Indian newspapers select auto companies like Tata Motors and Maruti have shown intent of cutting prices. However, will the bigger question remain, that will the new government continue to support the revised excise duty? Also, will the benefits of lower excise duty be good enough to see a spike in demand.

Meanwhile, from the market perspective auto and auto ancillary stocks rallied smartly in trades yesterday (17 February) and also continue to perform well today. Mahindra & Mahindra which is a major player in the SUV segment, and also has plans of major boost in the two-wheeler segment was arguably the biggest beneficiary. As a result of which, the stock yesterday rallied nearly 3 per cent. Maruti and Hero MotoCorp also ended with smart gains. Among other stocks - Force Motors and Igarshi Motors are some of the stocks which are buzzing with activity in the last two trading sessions.
 
The broader market trend has been negative for auto stocks - with two-wheeler majors Hero MotoCorp and Bajaj Auto - both trading below the key short-term (20-day) and medium-term moving averages. Also, India's largest car-maker Maruti is also trading below the key moving averages. Only Mahindra & Mahindra and Tata Motors are trading above the key moving averages.

Common-man point of view

Truly, if you are planning to buy a car, then this is just the ideal time. Check out for the latest price reduction on your choice of car, you may end up saving 4-6 per cent on the cost price. Also, in case, you can wait, then you can consider waiting till 1 April, when the RBI (Reserve Bank of India) will meet to review the monetary policy. Chances, are pretty high that the RBI may keep rates unchanged following the recent economic data - which saw a drop in monthly CPI inflation. The news of fall in inflation was accompanied by contraction in IIP growth, which again is seen a precursor for the RBI to hold rates. On the contrary, the Central Bank may surprise the street with a rate cut. Hence, in case you plan to take a loan for buying your favourite car, then it is advisable to wait till April to you plan to buy your car. Not only will you enjoy the benefit of lower cost due to cut in excise duty, but may also cherish a positive surprise in lower interest rates in case the RBI bites the bullet and cuts the lending rates. You may end up saving on your EMI.

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