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Shares of auto majors, including Hero MotoCorp, Maruti Suzuki India, Ashok Leyland, TVS Motor and Bajaj Auto, rally 5-8% amid expectations of a GST rate cut.
Tata Motors rose nearly 3% on Monday.
The domestic equity market surged on Monday following Prime Minister Narendra Modi’s announcement on GST reforms, S&P Global’s rating upgrade on India, and other positive global cues. While the benchmark indices, the BSE Sensex and the NSE Nifty, are up by over 1.3% each, the automobile stocks are fuelling the rally the most, with the Nifty Auto Index trading higher by an impressive 4.5%.
Shares of auto majors, including Hero MotoCorp, Maruti Suzuki India, Ashok Leyland, TVS Motor and Bajaj Auto, rallied 5-8% on Monday morning amid expectations that the GST rate on vehicles could be reduced from 28% to 18%.
Maruti Suzuki on August 18 hit its all-time high of Rs 14,048 apiece on the NSE, which is up nearly 8.7% compared with the previous close. Ashok Leyland was up by 7.7% at Rs 131.25, Hero MotoCorp was trading higher by 6.7% at Rs 5,024, TVS Motor Company rose 6.8% to Rs 3,226.8, Hyundai Motor India surged by 8.39% to Rs 2,428 apiece on the NSE.
Tata Motors also rose nearly 3% on Monday to Rs 685 in morning, while Mahindra & Mahindra was up by 4.5% at Rs 3,412. Bajaj Auto was trading higher by 3.7% at Rs 8,521.
Prime Minister Narendra Modi in his Independence Day Speech during the weekend announced a major overhaul in the Goods and Services Tax (GST) structure. Though he did not announce any details, reports said the Centre is considering scrapping the current 12% and 28% GST slabs, realigning most items into the 5% and 18% categories. Certain sin or luxury goods may be placed in a new 40% bracket.
The Centre is reportedly expected to lower the GST on passenger vehicles (PVs) and two-wheelers, enhancing their affordability quotient. Currently, two-wheelers are taxed at 28%. Analysts believe a cut to 18% is highly probable.
Brokerage Notes
Global brokerage firm Jefferies in its note said, “All the listed 2W OEMs – Bajaj, Hero, TVS, and Eicher – should benefit from this cut. We see a low probability of differential GST between entry-level and premium 2Ws.”
In passenger vehicles, small cars currently face an effective tax of 29-31% including compensation cess, making Maruti Suzuki one of the biggest potential beneficiaries of a rate cut. SUVs, however, are taxed at 45-50%, a rate Jefferies said is unlikely to change.
“Hybrid vehicles attract a similar GST rate as ICE vehicles, compared with 5% for EVs. Any reduction in GST on hybrids could be positive for Maruti,” the brokerage added.
Commercial vehicles, also taxed at 28%, may see a reduction to 18%. Ashok Leyland, along with Tata Motors and Eicher Motors, would be key gainers in such a scenario, Jefferies said.
Domestic brokerage firm Motilal Oswal Financial Services in its report on August 18 said automobiles will be one of the key segments that stand to benefit from GST rationalisation.
Passenger vehicle makers Maruti Suzuki and Tata Motors, currently paying 28% GST, are expected to benefit significantly if rates are lowered to 18%. Commercial vehicle maker Ashok Leyland may also see demand tailwinds as GST on trucks and buses comes down to 18% from the current 28%, said Motilal Oswal in the report.
Arun Agarwal, vice-president (fundamental research) of Kotak Securities, said, “The potential GST cuts for the automotive products to 18% would lower on-road prices across segments. We believe lower prices would stimulate demand recovery, and the impact would be more in the mass-market segment. Auto manufacturers (OEM) would gain from higher revenue and potentially higher margin, resulting in possible earnings upgrade.”
Auto ancillaries would also gain from the potential GST cut. However, the impact would vary depending on geographical exposure. Auto ancillary companies having higher revenue exposure in the domestic market stands to benefit more, whereas the gains for global suppliers would be lower given higher export exposure and tariff-related uncertainty, he added.
The government is reportedly planning to propose a simplified two-slab GST structure of 5% and 18%, replacing the current four-tier system of 5%, 12%, 18% and 28%.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
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