The countdown to the GST Council meeting has begun. There are expectations of major change in the current tax slabs. Key brokerages anticipate that India’s automobile sector could see a strong demand revival if the government goes ahead with the proposed Goods and Services Tax (GST) cut. Jefferies noted that rate rationalisation, likely around the festive season, would lower vehicle prices and boost sales of two-wheelers and small passenger vehicles (PVs).
GST rate cuts likely to lower vehicle prices by up to 8%: Jefferies
After the GST reform got positive response from state governments, Jefferies doesn’t anticipate any major legal hurdle.
As the rates are expected to fall to 18 per cent from 28 per cent and to 5 per cent from 12 per cent with GST cess on items such as SUVs, coal, tobacco and aerated beverages, Jefferies anticipates a, “7-10 per cent GST rate cut can result in a 6-8 per cent fall in on-road prices for most vehicles.”
Jefferies noted in the report that two-wheelers and sub-4 metre cars are seen as the biggest beneficiaries, while large SUVs may also see tax falling from 50 per cent to about 40 per cent.
Auto sales expected to rebound with tax cuts
Auto demand has been sluggish in recent months. Registrations in April–July grew only 2-3 per cent year-on-year for two-wheelers and passenger vehicles, while truck sales fell 3 per cent. Tractors, however, grew 7 per cent.
Jefferies expects demand to improve on the back of the recent income tax cut, better liquidity, and GST rate reduction. The brokerage has raised its FY26–28 volume estimates for 2Ws and PVs by 2-6 per cent. It now projects a 10 per cent annual growth in two-wheelers and 8 per cent in passenger vehicles between FY25–FY28.
TVS, Mahindra and Maruti are top picks of Jefferies
Jefferies raised its earnings estimates for FY26–FY28 by 2-8 per cent for TVS Motor, Hero MotoCorp, Maruti Suzuki and Hyundai India. Among them, TVS Motor is expected to post the strongest earnings growth of 27 per cent CAGR in FY25–28, followed by M&M at 19 per cent.
“Our preferred Buys are TVS, Mahindra and Maruti, followed by Eicher Motors,” the brokerage said. It raised the price target for TVS to Rs 4,250 (29 per cent upside), Mahindra to Rs 4,200 (24 per cent upside) and Maruti to Rs 17,500 (21 per cent upside).
Auto sector valuations remain high: Jefferies
Jefferies said valuations across the auto sector are not cheap after a strong rally, but premium multiples should sustain for companies with stronger growth outlook and improving franchises.
The report highlighted that the Indian auto market has seen major shifts in recent years. M&M has become the second-largest player in passenger vehicles, while Maruti and Hyundai have lost market share. In two-wheelers, TVS has climbed to a 22-year high in domestic share and a record high in exports, while Hero MotoCorp has slipped to multi-decade lows.