By Pritish Raj
Though automobile firms welcomed the government's move to cut the corporate tax, they were non-committal whether the development would make them cut prices of their products.
RC Bhargava, chairman, Maruti Suzuki India, said companies will now have more bandwidth to reduce prices and give more value to the customers.
"Substantial reduction in tax payment will lead to increase in internal resources of the companies which can be used to propel demand by reducing prices, expand production or improve technology. Ultimately the demand revival has to be done also by the companies and now it is their prerogative to use the extra money in a wise manner," Bhargava told FE.
Hyundai Motor India managing director & CEO, SS Kim said the announcement will revive the economy and provide impetus to the corporates. "This will have a positive impact on not just auto industry but on the entire economy," Kim said.
Rajan Wadhera, president, Society of Indian Automobile Manufacturers (Siam) said the reduction of corporate tax will support investment and FDI in the auto sector.
"These set of fiscal measures are expected to uplift market sentiments and improve demand for automobiles," Wadhera said.
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Companies including Maruti Suzuki, Mahindra & Mahindra and Hero MotoCorp, which pay corporate tax ranging between 28% to 38%, will now have to pay less and will therefore will be left with more money for investment purposes. Their profitability will also improve.
Following the announcement on Friday, the Nifty Auto index rose 10%. Analysts said the measures will boost sentiment.
Prayesh Jain, lead analyst, institutional equities, Yes Securities, said these measures will increase the room for additional discount offerings by auto companies. "Current discounts are already at an all-time high which can possibly drive volumes in the ensuing festive season," Jain said.