Auto stocks were the worst performers in trade on Wednesday amid concerns of excise duty hike on diesel vehicles and large cars in the Budget announcement due on Thursday.
Shares in Tata Motors fell 2.35 per cent, while utility vehicles maker M&M traded 1.1 per cent lower as of 10.25 a.m. Maruti Suzuki, India's biggest car maker, declined 1 per cent.
The BSE Auto index was the worst hit, falling over 1 per cent, as compared to a 0.16 per cent gain in the broader Sensex.
There are concerns that Budget may impose additional duty on diesel cars and utility vehicles, analysts said. India's auto industry is battling a slowdown and there might be a big impact on volumes if these measures are announced.
Volumes in cars and Medium and Heavy Commercial Vehicles (MHCVs) have seen big declines while volumes in 2-wheelers have grown at low single digits.
"We believe that Union Budget for 2013-14 may not have any major incentive for the auto industry despite the decline in volumes over the last few months. We note that domestic industry volumes across most major segments have been quite weak, particularly over the last 3 months," Nomura said in a report.
However, Nomura added that a levy of special excise duty on diesel vehicles may not be announced given that there are plans to increase diesel prices themselves.
The brokerage expects incentive for electric cars in the Budget, which will benefit M&M.
Two-wheeler makers such as Hero MotoCorp also traded lower though analysts said a hike in income-tax slabs will benefit two-wheeler manufacturers.