Mahindra & Mahindra lost ground in a subdued market on Wednesday, even as the company is expected to post strong Feb 2003 vehicle sales figures.

The scrip of the utility vehicles and tractor major was down by 2.7% at Rs 105.25 on the BSE in afternoon trades, trading at the day's low. Volumes on the counter were modest, with 90,000 shares changing hands.

The scrip, after rallying till the Union Budget for 2003-04 due to expectations of a cut in excise duty, has come off from the higher levels in the last three sessions. From a recent high of Rs 110.35 on 28 February 2003, it has shed 4.6% to the current Rs 105.25. The stock has turned volatile since the last few weeks, after rallying from a late- October 2002 low of Rs 79.70.

The fall on the counter is due to broad-based weakness in the market. The BSE Sensex has lost 60 points in the last two sessions on US-Iraq war fears and concerns over whether foreign institutional investors will continue to invest in India through the participatory note route. The concerns regarding FII inflows have stemmed after the Securities & Exchange Board of India, in its discussion paper on a code of conduct for FIIs, mentioned that FIIs should not deal with any derivatives instruments issued outside India wherein the underlying security is Indian, either directly or indirectly. According to market men, this typically happens when FIIs invest in the Indian market through the participatory note. However, they feel that it will be very difficult for Sebi to crack down on trading by FIIs through the participatory note route.

The fall on the M&M counter comes despite expectations of strong vehicles sales figures for February 2003 from the company. Also, the Budget has proved to be favourable for M&M, with a cut in excise duty on utility vehicles.M&M's stable includes utility vehicles including Scorpio, three-wheelers and light commercial vehicles. However, the tractor segment is expected to continue with its poor performance.

The cut in excise duty on utility vehicles has come as major boost for M&M, which is a dominant players in the segment, according to analysts. The excise duty on UVs has been cut by substantial 8% from 32% to 24%. M&M is reported to have reduced Scorpio prices by Rs 30,000 following the excise cut. It is expected to announce price cuts on other models like Bolero etc.

Analysts said the excise duty cut will boost the margins of car and UV makers as they may not pass the entire benifit to consumers through a reduction in the prices of vehicles. They said the price cuts may boost the sales volumes of UVs in March 2003. Moreover, the excise duty cut will also provide more leeway for companies to provide attractive schemes to buyers.

The real impact of the price cuts will be felt only in Q1 (April-July 2003). This is because the month of March is always a peak period for car and utility vehicle sales. Buyers usually reserve purchases for the last month of the fiscal year so as to get depreciation benefits.

Analysts said the Budget sops may also serve in restricting further rise in steel prices, making material costs cheaper for the auto sector. In the last few months, domestic steel prices have surged sharply due to a hike in international prices. The Budget has proposed a cut in peak customs duty from 35% to 25%.

BSE code: 500520