GST rate cut hopes drive nearly ₹1 lakh crore rally in Nifty auto stocks

Maruti Suzuki, Hyundai Motor, TVS Motor Company, and other auto stocks saw a massive rally in Monday's session after the government announced plans for sweeping changes to the goods and services tax (GST) regime. Analysts believe the reforms could revive demand in the auto sector, which has remained muted in recent quarters.

Fourteen out of the 15 constituents of the Nifty Auto index closed with sharp gains, led by Maruti Suzuki, which surged 8.8% to ₹14,068 apiece, its biggest intraday jump in the last five years. Other major gainers included Ashok Leyland, TVS Motor Company, Hero MotoCorp, MRF, Mahindra & Mahindra, and Eicher Motors, all rising between 2.6% and 8%.

The rally boosted the combined market capitalization of the 14 auto stocks by nearly ₹1 lakh crore, taking the sector’s total m-cap to ₹22.56 lakh crore.

GST 2.0, set to simplify tax structure and cut rates

In his Independence Day address, Prime Minister Narendra Modi announced significant GST reforms, the most comprehensive since the rollout in 2017, announcing the ushering in of a two-tier GST structure—a reform billed as the “next generation of GST,” expected to take shape by Diwali, as per sources.

The current GST tax structure has four main categories of rates, at 5%, 12%, 18%, and 28%. The proposed changes will see the number of categories reduced to two, with most goods that were taxed at 12% and 28% now taxed at the lower rate of 5% and 18%, respectively.

Even though changes to the GST had been discussed for years, the timing of the announcement in Modi’s Independence Day speech was a surprise to many. The move comes against the backdrop of President Donald Trump’s threat to double tariffs on Indian exports to the US to 50% by August 27 to penalize the country for buying oil from Russia.

Automobiles, currently under the 28% slab, would move to 18% if the proposal is approved, which analysts believe could lead to price cuts and potentially revive sales.

Auto manufacturers have been struggling in recent quarters amid weak urban demand, with many shifting focus to exports to sustain growth. Hero MotoCorp and Bajaj Auto both reported muted sales growth in the June quarter, while Maruti Suzuki and Hyundai Motor also posted flat passenger vehicle sales.

Analysts see potential auto upcycle as lower taxes boost affordability and volumes

If implemented, the GST cut would offer much-needed relief for the Indian automobile sector. “Autos fall under the 28% GST bracket. If autos move to 18% and we see sharp price drops, this could drive the next auto upcycle, similar to 2008,” said Morgan Stanley.

“Currently, GST on passenger vehicles ranges from 29% to 50%, as a cess is imposed on top of GST based on the vehicle’s size and engine capacity. In the new regime, the government may reduce the tax on smaller cars to 18% (from 28%) and move bigger cars to a ‘special rate’ of 40% while scrapping the cess. This could lower prices of smaller cars by around 8% and larger cars by 3–5%,” HSBC noted.

GST reduction would negatively impact government revenues in the near term but drive-up Auto demand and hence job creation in India. PVs generate USD14-15 billion in GST collection, and 2Ws USD 5 billion, said the brokerage.

Domestic brokerage Motilal Oswal added that passenger vehicles and commercial vehicles, currently taxed at 28%, will benefit most from the cut. Maruti Suzuki, Tata Motors, and Ashok Leyland are well positioned to gain from lower effective prices and higher volumes.

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