Auto Stocks Slide on India-E.U FTA Duty Cut Fears

Shares of Tata Motors, Mahindra & Mahindra, and Maruti Suzuki India tumbled by nearly 5% on Tuesday as concerns over a potential free trade agreement between India and the European Union increased competition for investors. Mahindra & Mahindra suffered the most, losing 5% and trading at ₹3,366.50; Maruti Suzuki lost almost 3%, and Tata Motors saw a 2% decline.'

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The expected deal will cause gradual tariff reductions on E.U import duties for automobiles from a current range of 66 to 110% down to 10% over a five-year period. It will establish different quotas for electric vehicles and internal combustion engines, as well as heavy commercial vehicles.

Tariff Reductions Spark Concerns

The proposed tariff reductions are creating concern across all manufacturers in the E.U regarding products related to automotive and technology. In addition, because E.U manufacturers are classified as luxury/high-end automotive manufacturers, they will have a negotiated timeframe to receive certain duties eliminated sooner than mass manufacturers. Therefore, while mass manufacturers will continue to have some protection from imports for a longer period of time, luxury/high-end manufacturers will begin seeing tariff reductions sooner.

E.U luxury manufacturers such as Volkswagen AG, Mercedes-Benz and BMW will be in a position to offer lower prices due to their access to the E.U auto market through a negotiated trading partner agreement with the E.U. This should create more choices for customers, as well as more competition for local dealerships and service networks.

Technical Weakness Confirms Downtrend

The Auto Index is experiencing a significant pullback in gaining momentum and is likely to be echoed by other sectors. All major equity indexes are falling below their weekly swing lows across all time frames.

Tata Motors is in alignment with a clean downward-trending environment, as evidenced by the deteriorating price structure.