Why auto stocks are up on NGT order

Parvatha Vardhini C BL Research Bureau | Updated on January 17, 2018

The National Green Tribunal’s (NGT) direction to the RTOs to de-register diesel vehicles that are over 10 years old in Delhi is in one way a welcome move for vehicle manufacturers.

De-registration of older vehicles would mean that these vehicle owners will now look to buy new vehicles thus triggering more demand for new cars.

Reports available publicly suggest that Delhi and NCR account for 6-8 per cent of diesel cars and commercial vehicles demand in the country.

At a time when vehicle sales are already looking up due to reducing interest costs, good monsoon and expected benefits of seventh pay commission dole outs, this is an added positive for auto makers.

This could perhaps be the reason the stocks of listed auto makers such as Tata Motors, Ashok Leyland, Maruti Suzuki and Mahindra and Mahindra have made gains of upto 2 per cent in trading today, in an otherwise flat market.

Bitter pill

But at the same time, this move may become a bitter pill for diesel car and utility vehicle manufactures. There is already an existing ban on the sale of diesel vehicles over 2,000 cc in Delhi and NCR by the NGT, citing the higher levels of pollution these vehicles cause.

With a second curb coming in, customers may begin to think twice before opting for diesel vehicles. Diesel cars have slowly been losing their attraction in the last 2-3 years after linking diesel prices to market rates as well.

These factors, along with higher prices of diesel vehicles over their petrol versions could impact the demand for diesel cars and utility vehicle manufacturers.

Instead of being taken by surprise by sudden and arbitrary rulings affected certain categories of vehicles or certain cities alone, it will help both manufacturers and customers if the government implements a scrappage incentive scheme. A discussion paper in this regard was already released in May 2016.

Published on July 18, 2016

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