Bad news just doesn't seem to stop for automobile counters. While on one hand the government decided to cut goods and services tax (GST) on electric vehicles (EVs) from 12 per cent to 5 per cent, and on EV chargers from 18 per cent to 5 per cent over the weekend, there is a proposal to hike registration fee for new vehicles.
As per the notification, buyers will have to shell out Rs 5,000 for registering new diesel and petrol cars, as compared to Rs 600 charged registration fee and renewal charge now. With the new notification, renewal charges will rise to Rs 10,000. Two-wheeler buyers, on the other hand, will have to shell out Rs 1,000 for registering their vehicles (Rs 50 currently) and Rs 2,000 as renewal charges.
Analysts say the decision to slash duty on EVs is a step in the right direction, the proposal to hike registration and renewal charges will hurt the already ailing auto sector. Kapil Singh and Siddhartha Bera of Nomura, for instance, peg the overall cost to buy two-wheelers to rise by 2.5 per cent and around 1 per cent for cars.
"The increase in registration fees for new vehicles will further hurt sales of new vehicles, as their cost will increase. This will delay the recovery of the auto sector further, given that the demand environment is quite weak. OEM margins may also come under pressure, as they may need to give more incentives. The government's intent to favour EVs over internal combustion engine (ICE) vehicles is clear. There may be further actions in the future to support EVs," they wrote in a recent report.
On Monday, the Nifty Auto index was the worst hit at the bourses, sliding nearly 2.5 per cent in intra-day deals. Maruti Suzuki, Bajaj Auto, TVS Motor, Hero MotoCorp, Ashok Leyland, Apollo Tyres, Exide Industries and Bharat Forge were some of the other stocks from the Nifty Auto index that lost 1 per cent to 4.5 per cent in intra-day trade.
"The two-wheeler industry faces a tougher challenge than the passenger vehicle segment as they are not only battling the slowdown, but also have a tough competition from the EV segment. While the EV push is a noble gesture, the timing is not right. The measures will further dent the auto segment. Investors will be better off to stay away from the auto sector for now, especially and the two-wheeler for the next two – three years," says G Chokkalingam, founder and managing director at Equinomics Research.
Thus far in 2019, all auto stocks have underperformed the Nifty50. The Nifty Auto index – a gauge of the performance of leading auto counters at the bourses – has lost around 24 per cent as compared to around 4 per cent rise in the Nifty50. Stocks of two-wheeler manufacturers – Hero MotoCorp and Bajaj Auto – have lost over 21 per cent and 4 per cent during this period.
"We are underweight on the consumption segment, including autos. The best period in the consumption segment is behind us. Even as a share of the GDP (gross domestic product), the golden period for consumption sector is over. The outlook for consumption-related stocks is not looking attractive," said Mahesh Nandurkar, executive director and India Strategist at CLSA.