Auto sector, reeling from slowdown in sales amid liquidity crisis, regulatory & policy changes and pollution norms , is staring at more trouble with the government proposing a hike in registration fees on old and new vehicles.
Nifty Auto index fell more than 2.6 percent intraday against around half a percent fall in Nifty50, as Bajaj Auto, TVS Motor Company, Ashok Leyland, Hero MotoCorp, Maruti Suzuki, Tata Motors, Eicher Motors etc corrected 2-6 percent intraday.
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"There's a structural shift away from auto stocks and I don't think pain in auto stocks is going away anytime soon," Samir Arora of Helios Capital, who has shorted a few auto stocks recently, said in an interview to CNBC-TV18.
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In a draft notification on July 24, the Ministry of Road Transport and Highways (MoRTH) proposed to increase vehicle registration fees. The government also plans to change motor vehicle norms to allow scrapping of vehicles older than 15 years to spur adoption of electrical vehicles.
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The main objectives of the policy are to boost sales of electric vehicles and provide an enabling mechanism for the scrapping of vehicles older than 15 years. The government has invited comments and suggestions from stakeholders within 30 days, said Japanese brokerage firm Nomura, which listed out key changes .
They are:
> A significant increase in renewal of registration fees for both old and new vehicles
> An increase in fees for certificates of fitness
> Fitness certificates for vehicles older than 15 years to be conducted every six months
> No registration fee for scrapping an old vehicle and buying a new one in the same category, with the use of a certificate from a certified scrapyard.
If the proposals are accepted, registration fee for a new motorcycle will go up Rs 1,000 from Rs 50 and heavy goods vehicle from Rs 1,500 to Rs 20,000 .
The report also stated that owners of light motor vehicles will pay Rs 10,000 to register their vehicle instead of Rs 1,000 and three-wheelers will attract a charge of Rs 5,000 as against the current Rs 300 fee.
Nomura said two-wheelers would be hit hard due to a higher cost increase for them (around 2.5 percent) followed by cars and MHCVs (around 1 percent).
Global brokerage CLSA said higher registration fee was unlikely to boost auto demand and regulatory costs were adding up for the Indian auto industry.
"We entered 2019 with a cautious view on autos & see few reasons to change it," said the investment firm, which has sell ratings on 70 percent of its auto coverage and recommended underweight stance on entire sector.
Maruti Suzuki, on July 26, reported a 27 percent fall in its June quarter profit, while Tata Motors posted a loss of Rs 3,680 crore in Q1 due to JLR woes.
In a draft notification, the government proposed renewal of fitness certificates for vehicles older than 15 years every six months instead of the current one year timeframe .
"The ministry has issued a draft notification for amendments to the CMVR (Central Motor Vehicles Rules) for providing a boost to the electric vehicles, ensuring divyang friendly features in buses, and providing an enabling mechanism for scrapping of vehicles older than 15 years," MoRTH said in a statement.
Brokerages also raised concerns over scrappage policy proposal.
Nomura said challenges need to be resolved for the scrappage policy to be successful .
"We don't expect any one-time jump in scrappage demand from this policy. Owners of trucks older than 15 years may have already renewed their registration or will do so for Rs 1,500 by the time the policy is implemented to avoid paying Rs 40,000. However, the truck owners whose trucks are coming up for renewal as they cross 15 years of age may decide to scrap them if the policy is made effective. This could improve the scrappage rate going ahead," Nomura said.
Meanwhile, the Goods and Services Tax (GST) Council, in its 36th meeting on July 27, slashed the GST on electric vehicles (EVs) to 5 percent from 12 percent. The council also slashed the tax rate on EV chargers from 18 percent to 5 percent. The new rates will be effective from August 1.
The government has been pushing for EVs. In the first Budget of Modi 2.0, the Finance Minister exempted such vehicles from registration charges while extending several benefits to buyers and tax rebates to manufacturers.
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