Auto Stocks Drive In Full Speed As GST Tax Cuts Spur Demand Hopes

Shares of automobile companies roared higher on 4 September, with leading names such as Mahindra & Mahindra, Eicher Motors and TVS Motor scaling record peaks. The surge came as the auto sector basked in the afterglow of sweeping tax cuts announced by the GST Council across most vehicle categories.

In an effort to stimulate demand, the Council has approved a sharp rationalisation of GST rates across automobile segments. Rates for electric vehicles remain unchanged at 5%, but significant cuts have been introduced elsewhere. Assuming full pass-through, the on-road price reduction for two-wheelers (below 350cc), three-wheelers, commercial vehicles and tractors is expected to fall within the mid-to-high single-digit range. In the passenger vehicle segment, the reduction may vary between the low and high single digits, depending on the model. Moreover, the abolition of the Compensation Cess has made several categories of vehicles more affordable.

Global brokerage CLSA highlighted that the combined GST and cess burden has declined across all automobile categories, creating a broad-based benefit for industry players. It further noted that the rate cuts are set to boost demand and turn sentiment decisively positive for the auto industry.

“Lower prices are likely to spark a demand recovery across segments, with the strongest impact expected in the mass-market categories. Auto component manufacturers with greater domestic exposure stand to benefit from stronger OEM demand, while export-dependent players may see limited upside,” said Arun Agarwal, VP of Fundamental Research at Kotak Securities.

Within passenger vehicles, Maruti Suzuki is expected to be the biggest beneficiary, followed by Hyundai Motor India and Mahindra & Mahindra. Tata Motors may see relatively modest gains, given that Jaguar Land Rover and Tata Technologies account for 41% of its overall valuation. Among two-wheeler makers, Hero MotoCorp, Bajaj Auto and TVS Motor are seen benefiting equally, while Eicher Motors-owned Royal Enfield should also enjoy gains, with roughly 91% of its FY25 volumes deriving from motorcycles under 350cc.

Mahindra & Mahindra is particularly well placed, as around 60% of its volumes, including commercial vehicles, fall into the reduced 18% slab. Similarly, nearly 89% of Eicher Motors’ domestic portfolio will now attract a lower rate, boosting investor sentiment for both companies. Unsurprisingly, M&M led sectoral gains with a near 6% rise, while Eicher Motors climbed 4%. Other auto stocks, Bajaj Auto, Hero MotoCorp, Tata Motors and TVS Motor were up 1-2%.

Anish Shah, CEO and MD of the Mahindra Group, told CNBC-TV18 that the GST cuts could help drive M&M’s India growth to 8%. Reflecting the broad-based enthusiasm, auto stocks across the board celebrated the announcement, propelling the Nifty Auto index more than 2% higher.