Shares of car and utility vehicle manufacturers edged up on Wednesday, following expectations of a reduction in excise duty in the forthcoming Union Budget.

Utility vehicles major Mahindra & Mahindra was up by 2.8% to Rs 103.90 on the BSE. 170,000 shares changed hands on the counter by the first half of the session. Passenger car and utility vehicles maker Telco was up by 0.7% to Rs 162.30. However, the volumes on the Telco counter were modest - at 100,000 shares. Car maker Hindustan Motor was up by 3.2% at Rs 9.45.

The Telco scrip, after staging a recovery from its early August 2002 low, is on a roller coaster ride since the last few weeks. Similar is the case of M&M, after staging a rally from late October 2002 low.

The current firmness in the shares of car and utility vehicle makers is due to expectations that the excise duty may be cut in the Union Budget for 2003-04 by about 5% to 27%, from 32%. Foreign brokerage HSBC expects excise duty to brought down to as much as 24%. "Alternatively, the government may lower excise duty on small cars (less than 1000cc)," it says in a report on Budget expectations. The reduction in excise duty on cars will benefit Maruti Udyog, M&M and Telco, the report added.

"A cut in excise duty on cars and utility vehicles would spur volume growth in the sector," said an auto analyst with a local brokerage.

Excise duty on these vehicles has seen a progressive increase from 10 -15% in 1996-97 to 32% (16% CENVAT + 16% SED) at present.

For the first ten months (April 2002 to January 2003) of the current fiscal, the passenger vehicle segment of the Indian automobile sector has registered a 6% growth in domestic sales to 5,68,363 units - buoyed by good growth in the passenger car segment and to some extent in the utility vehicles segment.

While the passenger car segment has registered 9% growth in sales to 4,36,475 units, utility vehicle sales have gone up by 6% to 89,555 units. Multi-purpose vehicles segment, however, skidded by 15% to 42,333 units during the period under review.

Exports of passenger vehicles during April 2002 to January 2003 rose by 37% at 57,189 units, mainly driven by the exports of passenger cars, which registered a 44% growth in sales to 55,945 units. During this period, passenger vehicles production increased by 8% to 5,75,521 units.