Auto stocks skid on green tribunal order

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Mumbai | Updated: December 12, 2015 4:58:00 AM

Shares of Eicher Motors lost 2.9%, while Mahindra & Mahindra (M&M) fell 2.2% dragging the BSE Auto index down 1.7%. In contrast, the Sensex fell 0.8% or 208 points on Friday.

Shares of automobile companies declined as much as 3% on Friday following the National Green Tribunal (NGT) order against new registrations of new diesel vehicles in Delhi.

Diesel-fueled locomotive manufacturers and car makers such as Tata Motors and Ashok Leyland slipped nearly 3% as the green tribunal said in its order that there will be no renewal of registration of diesel vehicles that are more than 10-years-old. It also asked the central and state government to refrain from buying diesel cars for their departments.

Shares of Eicher Motors lost 2.9%, while Mahindra & Mahindra (M&M) fell 2.2% dragging the BSE Auto index down 1.7%. In contrast, the Sensex fell 0.8% or 208 points on Friday.

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The negative impact was also witnessed in shares of automobile component companies. Motherson Sumi Systems (MSS) ended more than 3% down, while Bosch declined 2.1% on Friday.

According to industry data, sale of diesel cars account for 42% of the total passenger cars sales in FY15.

“The near 2% fall in auto stocks after the National Green Tribunal’s directive, added more legs to the fall which has been on since the start of this month. With several crucial economic data lined up for release both in India as well US, markets are obviously on a risk-off mode,” said Anand James, co-head technical research, Geojit BNP Paribas Financial Services.

In a significant interim measure to curb alarming pollution level, the NGT ordered that no new diesel vehicles would be registered in the national capital in the backdrop of rising air pollution and smog levels in the city. The tribunal has also directed the central and state government departments not to purchase any diesel vehicles.

Over the past couple of weeks, Delhi’s air has become extremely toxic with smog shrouding the city’s air throughout the day. Particulate matter levels have also soared to often ten times the prescribed limits. Emissions from vehicles, especially those which run on diesel, have proved to be one of the major contributors to air pollution levels in the city.

While analysts remain cautious of the near-to-medium term, the long-term prospects of the Indian auto industry is positive of the expected rise in automobile sales.

London based investment banking firm, HSBC observed in an investor note that hike in the salaries of central government employees through seventh pay commission will boost auto sales.

“While we expect a recovery in the auto industry to be gradual, sales growth from government employee spending and the likely implementation of GST in the near term should provide downside protection and help support valuations,” said Vivek Gedda, analyst, HSBC.

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