Indian auto buyers are holding off on purchasing vehicles in anticipation of an expected GST rate cut that could reduce prices by up to 10% before the Diwali festival in the second half of October, but global brokerage Jefferies sees four stocks as clear winners from the tax overhaul.
With the GST Council meeting slated for September 3-4 to ratify the new rate structure, customers are delaying new purchases in expectation of lower taxes, resulting in a unique market dynamic in which demand weakening today might ignite a holiday season explosion tomorrow.
“Consumers are deferring purchases ahead of a potential GST cut, but lower taxes could provide a significant demand boost, especially in 2Ws and small PVs,” Jefferies stated in its most recent study, noting how tax rationalization has already begun to reshape purchasing habits.
Auto registration patterns offer a mixed picture in August month-to-date: although tractors increased 32% and two-wheelers/trucks increased 6-7%, passenger vehicles increased just 1%, showing consumer hesitancy ahead of expected price reduction.
The planned tax structure revamp would reduce most vehicle sectors, which are presently taxed at 28%, to 18%, with EVs and tractors receiving only a 5% rate. Only luxury automobiles may remain in the top 40% slab, making the new model simpler.
“We expect August wholesales to rise 8-13% YoY for Eicher Motos, M&M, and TVS Motor, but to remain within -5% to +1% YoY for other OEMs,” Jefferies stated, as businesses reduce shipments to minimize channel inventory build-up ahead of a potential GST decrease.
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According to Nomura, the GST cut might have a multiplier effect of 1.0-1.5 times on demand, meaning a 5-10% boost. Popular models that might receive significant price reduction include the WagonR (9%), Bolero (10%), Brezza (3%), Creta (3%), and XUV700 (7%).
Brokerage firms are bullish on certain equities. Jefferies’ top bets are Mahindra & Mahindra and TVS Motor, followed by Maruti Suzuki and Eicher Motors. Nomura lists M&M, Maruti, Ashok Leyland, and TVS as the companies with the most upside potential.
Indian car demand has been low for months, with registrations in two-wheelers and passenger vehicles up only 2-3% year on year from April to July, while trucks dipped 3%. Tractors were the lone bright spot, with 7% rise.
Motilal Oswal observes that Maruti and M&M have large exposure to the compact vehicle category (68% and 52%, respectively), putting them in a good position to profit from the tax reduction. “In anticipation of tax cuts, sales have slowed significantly, so decisions should be made quickly in our view,” Nomura said, emphasizing the importance of policy clarity to avoid additional demand delay.
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The GST Council meeting has allegedly been scheduled to ensure that the sector would not miss important festive season sales, which begin in September with the Navratri and Durga Puja festivals. Automakers are anticipated to announce August wholesale numbers early next week, with businesses likely reducing shipments ahead of a potential tax restructure.
