GST rate cuts should provide a boost to auto demand, especially in two-wheelers and small PVs: Jefferies

The Indian auto sector is in focus on expectations of a potential Goods and Services Tax (GST) reduction from the current 28% slab to 18% on automobiles. Analysts believe the move could unleash the next big upcycle for the industry, driving demand especially for two-wheelers (2Ws) and small passenger vehicles (PVs).

Jefferies said a lower GST rate could boost earnings for auto companies over FY26-28, and industry volumes could rise by 2–6%, translating into a 2–8% earnings per share (EPS) upgrade across leading original equipment makers (OEMs).

TVS Motor (TVSL) and Mahindra & Mahindra (M&M) are expected to deliver the strongest earnings growth at 27% and 19% CAGR (FY25–28E), respectively, Jefferies noted.

Separately, Nuvama has maintained a positive stance on Maruti Suzuki as the company kicks off production of its first electric vehicle (EV), eVitara, at Suzuki Motor Gujarat.

Suzuki Motor Gujarat capacity is being expanded from 0.75 million to 1 million units by FY27, with the new line fungible across powertrains, Nuvama said.

Maruti plans 70,000 eVitara units in the first year, to be sold in over 100 countries, including Europe, Japan and India.

Suzuki group firm TDSG has invested ₹4,270 crore in battery capacity (18 million cells), expanding to 30 million cells for hybrids.

Dealer Checks: GST buzz delays purchases

Elara Securities’ dealer checks indicated low single-digit year-on-year (YoY) growth in two-wheelers on Ganesh Chaturthi Day 1, with many customers postponing purchases in anticipation of a GST cut.

Rural markets, however, saw steady buying as GST awareness remains low.

Royal Enfield outperformed due to a low base and some benefit from GST-linked confusion.

PV sales saw more postponements, as big-ticket buyers were more sensitive to potential price cuts, Elara noted.

Meanwhile, HSBC Research warned that while GST reduction would weigh on government revenues, it would boost affordability, demand and job creation. Passenger vehicles currently contribute $14–15 billion and two-wheelers $5 billion annually in GST collections.

If implemented, smaller cars could see 8% price cuts, while bigger cars may fall 3–5%. HSBC highlighted Maruti Suzuki as a prime beneficiary, followed by two-wheeler makers. EV players may see a relative disadvantage.

Morgan Stanley added that a GST cut could trigger the next auto upcycle.