Nifty Auto Index rises 4% on GST cut expectations — Hero MotoCorp, Maruti, Ashok Leyland lead gainers

Stock Market Today: The Nifty Auto Index gained more than 4% in the morning trade on Monday, August 18, amid expectations of cuts in the Goods and Services tax (GST). 

According to a Reuters report, the government has proposed lowering the GST on small cars to 18% from the current 28% as part of sweeping consumption tax cuts, powering the rally in auto stocks. Maruti, Hero Moto and Ashok Leyland emerged as top gainers in the Nifty Auto index.

Nifty Auto Index Movement

The Nifty Auto Index opened at 24,804.65, 2.8% higher than the previous day's closing price of 24,118.80. The index continued to gain further to an intraday high of 25,118.85, which meant gains of more than 4% over the last close. 

Hero MotoCorp and Maruti Suzuki India were among the key gainers, rising 7% each. Ashok Leyland and TVS Motor Company, with gains of more than 6%, followed suit. Bajaj Auto Ltd. and Mahindra & Mahindra Ltd., with gains of more than 4%, were also among key gainers.

The gains for the auto stocks are being led by expectations that the government may reduce the GST on automobiles and two-wheelers. The reduction may lead to a pickup in sales with GST cuts (if any) being passed over. The entry-level passenger vehicles and two-wheelers are facing more pressure on volume growth.

The reduction, part of a programme of the deepest tax cuts announced by Prime Minister Narendra Modi since 2017, will boost sales of the country's biggest carmaker, Maruti Suzuki, among other manufacturers.

The government is expected to implement the tax changes around the festival of Diwali in October, shifting to a streamlined two-rate structure with most goods taxed at either 5% or 18%.

Key auto stocks to benefit

Motilal Oswal Financial Services expects Maruti Suzuki, Tata Motors, and Ashok Leyland to be key beneficiaries. MOSL says that four-wheelers are in the 28% GST slab and should benefit from the 18% GST rate, with Maruti being among the major beneficiaries.

Tata Motors benefits not only from the expected reduction in passenger vehicle GST slabs but also may benefit from the 18% GST rate for commercial and other vehicles.

Ashok Leyland is another key beneficiary of any reduction in GST rates to 18% from 28% currently, as per MOSL.

Jefferies India Pvt Ltd says that with the government targeting relief in GST rates for certain ‘essential and aspirational goods,’ it believes the likely beneficiaries may include currently 28% taxed goods such as 2-wheelers and possibly small cars, among others, as well as hybrid vehicles.

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