Shares of auto companies reacted mixed to the news that Supreme Court has ordered a temporary ban on the sale of large diesel cars in New Delhi. Stock of Mahindra & Mahindra lost 5 per cent, while that of Tata Motors and Ashok Leyland witnessed a mild rebound after recent losses.
The SC order bans the registration of sport-utility vehicles and other diesel cars with an engine capacity of 2,000 cc or more in Delhi and the surrounding region until March 31.
Mahindra & Mahindra's Bolero, Scorpio, Xylo and XUV500 are powered by diesel engines of more than two litres. Broking firm Angel Broking believes the automaker will be the worst-hit among all.
"We believe the news is likely to have negative impact on M&M as about 95% of its passenger vehicle portfolio is above the 2,000 cc range," said the brokerage.
Shares of M&M ended 5.44 per cent lower after dipping 6.07 per cent intraday to Rs 1,210.80.
The news will not impact Tata Motors' earnings as these are driven largely by JLR which is a global player. Shares of Tata Motors ended flat after rising 1.47 per cent intraday.
Maruti Suzuki will also be not impacted as it hardly has any product above the 2,000 cc segment. The stock finished flat in today's trade.
Angel Broking believes auto industry will have a dialogue with the government to reach a permanent solution on the issue.
"We think the auto industry is likely to have negotiations/dialogue with the Government and provide a permanent solution which could be banning of the older vehicles (which have more population and are relatively more polluting) or further improving the emission for new vehicles which could then possibly result into the ban not extending beyond March 31, 2016," said the brokerage.
The SC order came in as a measure to reduce the pollution levels in the capital city after the apex court suggested that Delhi has become a 'Gas Chamber'. This is the second blow to automakers as Delhi government recently announced odd and even numbered cars will be allowed to ply on alternate days from January 1, 2016.
Meanwhile, Transport Minister Nitin Gadkari said India will soon allow automakers to make vehicles running entirely on ethanol.
Ethanol is a cleaner option as far as emissions are concerned compared with petrol.