Two-wheeler stocks rally on FM comment

August 27, 2020 2:40 AM

Shares of Hero Motocorp, which has a strong presence in rural India, hit a 52-week high, gaining 6.4% to close at Rs 3,160.45 a share.

“Prices of two-wheelers could reduce by Rs 8,000 to Rs 10,000 if the GST rate is lowered to 18%,” Bajaj said.“Prices of two-wheelers could reduce by Rs 8,000 to Rs 10,000 if the GST rate is lowered to 18%,” Bajaj said.

By Urvashi Valecha

Two-wheeler stocks were on fire on Wednesday, rallying anywhere between 1.4% and 6.4%, after finance minister Nirmala Sitharaman’s observation the GST rate of 28% on two-wheelers merited a relook. Lowering the GST to 18% could lower prices of two-wheelers by Rs 8,000-10,000, making them more affordable.

Rajiv Bajaj, MD, Bajaj Auto, in conversation with CNBC TV18, said, the market has seen a lot of pain due to the high GST rate. “Prices of two-wheelers could reduce by Rs 8,000 to Rs 10,000 if the GST rate is lowered to 18%,” Bajaj said.

Shares of Hero Motocorp, which has a strong presence in rural India, hit a 52-week high, gaining 6.4% to close at Rs 3,160.45 a share. The company has gained market share in Q1FY21 and a cut in the GST levy could further boost sales.

Sudarshan Venu, Joint MD, TVS Motors, told CNBC TV18, he appreciated the FM’s clarification that two-wheelers are essential for personal mobility and not a luxury good. Venu observed a cut in the GST would be useful to customers, particularly those in rural areas. “A lower GST will help the entire auto supply chain from suppliers to dealers,” he said. Vinod Dasari, CEO, Royal Enfield, a subsidiary of Eicher Motors told the TV channel lower GST rates and the move towards personal mobility should lead to higher demand.

Aditya Makharia, who tracks automobiles at HDFC Securities, said, the change in the excise duty implemented in 2008 had resulted in an improvement in sales of two wheeler vehicles. “It is a step in the right direction,” Makharia said.

UR Bhat, director, Dalton Capital Advisors, observed that to an extent, demand for two wheelers is price elastic and a ten percentage point reduction could make a meaningful difference to individual buyers. “Customers who were likely to buy after six months or one year might see this is as an opportunity to buy earlier. With the expected revival in demand once the lockdown is completely lifted and the potential demand buoyancy, because of a possible GST reduction, there could be a slight increase in allocation to this sector by institutional investors,” Bhat said.

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