Auto companies surge; govt steps likely to benefit Hero, Leyland the most

Shares of automobile manufacturers got a boost after the government cut excise duty on fuel and imposed export duty on steel inputs. Two -wheelers, in particular, are high on investors' radar as they could benefit the most from the government moves. , , are top picks of analysts' after the government's move.

The BSE Auto index gained the most among sectors on Monday, ending up 1.9% at 25,355.47. The Auto index gains were led by Ashok Leyland, and Mahindra & Mahindra which gained about 4% each. Hero MotoCorp and advanced by 1.5% each. gained 0.9% and ended up 1.3%.

Analysts said the levy of export duties on steel inputs and outputs as well as reduction of customs duty on inputs are a booster for the sector which has been facing input cost issues.

"This is good for auto stocks because they were reeling under high input cost pressures. Steel exports from India may become uncompetitive and domestic prices will come down which is good for the auto sector as they will be able to maintain margins, they don't need to increase cost of the vehicles,"said Gaurav Dua, senior VP at Sharekhan by . Dua is bullish on Bajaj Auto among two-wheelers and Mahindra & Mahindra among four-wheelers.

Analysts at Goldman Sachs said over the historical 10-year period, Hero MotoCorp has typically rallied the most in response to excise duty cuts and M&M has rallied the least.

said the fuel price hike has been one of the major factors impairing demand, particularly among two-wheelers.

Petrol and diesel prices have increased 21% and 15%, respectively, in the last one year and around 58% each in the last two years. The two-wheeler space has been most affected by inflation due to the rise in total cost of ownership over the last three years.

"While all the original equipment manufacturers will benefit in varying proportion, the key beneficiaries of the above measures in the auto sector would be Hero MotoCorp and Ashok Leyland," said Motilal Oswal.