Indian auto stocks such as Tata Motors, Mahindra & Mahindra (M&M), Maruti Suzuki will be in focus on Tuesday’s session (January 27) amid expectations of India-EU trade deal.
Auto stocks are likely to be in the spotlight on Tuesday, as reports indicate that India plans to lower tariffs on cars imported from the European Union from 110% to 40%, as per Reuters news report published on Sunday, January 25, citing its sources.
According to experts, this represents the most significant opening of India’s vast market as both sides move towards a possible free trade agreement that could be revealed as early as Tuesday.
“India’s decision to cut import tariffs on EU cars is set to shake up the auto sector. European luxury brands like Volkswagen, Mercedes-Benz, and BMW are likely to benefit, selling cars at more competitive prices.
Local dealerships and service providers will also see a boost. However, domestic players like Tata Motors and Mahindra & Mahindra may face increased competition in the luxury segment,” said Seema Srivastava, Senior Research Analyst at SMC Global Securities.
Further, Prime Minister Narendra Modi’s administration has agreed to swiftly lower the tax on a selected range of cars from the 27-member bloc with an import price exceeding 15,000 euros ($17,739), said Reuters, citing its sources.
As reported by Reuters, this will eventually be reduced to 10%, making it easier for European car manufacturers like Volkswagen, Mercedes-Benz, and BMW to enter the Indian market.
This will eventually be reduced to 10%, making it easier for European car manufacturers like Volkswagen, Mercedes-Benz, and BMW to enter the Indian market, said Reuters in its report.
Considering the scenario, Mohit Gulati, CIO and managing partner of the ITI Growth Opportunities Fund, mentioned that all other listed players (auto stocks) in India will get sentimental negative as this tips the scale in favor of VW, Mercedes, BMW and Audi.
Auto and auto ancillary stocks likely to get impact
According to Seema Srivastava of SMC Global Securities, the move is expected to make the Indian auto market more competitive, benefiting consumers. It also positions India as a competitive manufacturing hub, attracting investments and creating jobs. European luxury EV sales in India are likely to get a boost.
Seema Srivastava indicates that the auto stocks expected to have a positive impact include Volkswagen India, Midas Components, and Bharat Forge. Conversely, there is almost no negative impact anticipated for Maruti Suzuki and Apollo Tyres. However, Tata Motors and Mahindra & Mahindra, particularly in the luxury segment, are likely to be negatively affected.
What does lower import taxes mean to the Indian auto sector?
India ranks as the third largest car market globally in terms of sales, following the United States and China, yet its domestic automobile sector has been highly protected.
Reduced taxes will enable automakers to offer imported vehicles at lower prices and explore the market with a wider range of options before deciding to manufacture more cars locally.
Lower import duties will benefit European car manufacturers like Volkswagen, Renault, and Stellantis, as well as luxury brands such as Mercedes-Benz and BMW, which already produce cars in India but have faced challenges in expanding further largely because of high tariffs.
New Delhi imposes tariffs of 70% and 110% on cars brought in from abroad, said Reuters.
For the initial five years, battery electric vehicles will be exempt from any reductions in import duties to safeguard investments made by local companies such as Mahindra & Mahindra and Tata Motors in this emerging sector. After this five-year period, electric vehicles will be eligible for similar duty reductions, said Reuters citing its sources.
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