New Delhi: Investors on Wednesday dumped auto stocks following reports that the finance ministry is considering a proposal for higher taxes on petrol and diesel cars to push adoption of electric vehicles in India. The Auto Index of the BSE fell to a six-month low to 24,838.52 even as the benchmark Sensex rose 0.07%, or 26.31 points, to 36,265.93.

The proposal is expected to have an adverse impact on car sales, which have just started to recover from the effects of GST rollout last year.

Stocks of most major automobile firms ended in negative territory on Wednesday. The Tata Motors stock was down 2.7%, and Maruti Suzuki and TVS were down 1.4% and 1.19%, respectively. Hero MotoCorp Ltd, Ashok Leyland Ltd and Eicher Motors Ltd also ended the day in the red.

On Wednesday, Mint reported that in an effort to incentivise electric vehicle buyers through cross subsidies, the government is considering a proposal to impose marginally higher tax on cars that run on petrol and diesel. The finance ministry thinks the proposal should be considered to avoid the additional financial burden of incentives in the Faster Adoption and Manufacturing of Electric Vehicles (FAME) scheme.

“If the percentage increases in taxes on petrol and diesel vehicles are marginal then there would not be any adverse impact on sales since demand is strong now," said Subrata Ray, senior group vice president at ICRA Ltd.

Sales of most automobile manufacturers, especially in the commercial vehicle and motorcycle segments, had started to recover in the second half of last fiscal after remaining subdued since November 2016, when demonetisation took place. Most manufacturers have also announced major investments in capacity building anticipating substantial growth till April 2020 when the Bharat Stage VI emission norms will kick in.

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