With the GST Council meeting scheduled for September 3-4 to finalize the new rate structure, consumers are deferring fresh purchases in anticipation of lower taxes, creating a peculiar market dynamic where demand softening today could trigger a festive 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 said in its latest report, highlighting how the tax rationalization has already begun reshaping buying patterns.
Auto registration trends show a mixed picture in August month-to-date – while tractors surged 32% and two-wheelers/trucks posted 6-7% growth, passenger vehicles managed just 1% growth, reflecting the consumer hesitation ahead of potential price cuts.
The proposed tax structure overhaul would see most auto segments, currently taxed at 28%, drop to 18%, while EVs and tractors may enjoy a mere 5% rate. Only luxury vehicles may remain in a higher 40% slab, making the new model significantly simpler.
“We expect Aug wholesales to rise 8-13% YoY for Eicher Motos, M&M, TVS Motor, but to remain within -5% to +1% YoY for other OEMs,” Jefferies noted, as companies trim shipments to limit channel inventory build-up ahead of the potential GST cut.Nomura estimates the GST reduction could have a multiplier effect of 1.0-1.5x on demand, implying a 5-10% potential increase. Popular models could see substantial price cuts: WagonR (9%), Bolero (10%), Brezza (3%), Creta (3%), and XUV700 (7%).Also Read | GST Reforms 2.0: Full list of over 40 stocks that can benefit from PM Modi’s Diwali promise
The brokerage houses are bullish on select stocks. Jefferies’ preferred picks are Mahindra & Mahindra and TVS Motor, followed by Maruti Suzuki and Eicher Motors. Nomura identifies M&M, Maruti, Ashok Leyland, and TVS as stocks with the biggest upside potential.
Indian auto demand has remained subdued for months, with April-July registrations rising just 2-3% year-on-year in two-wheelers and passenger vehicles, while trucks fell 3%. Tractors provided the lone bright spot with 7% growth.
Motilal Oswal notes that Maruti and M&M have significant exposure to the small car segment at 68% and 52% respectively, positioning them well to benefit from the tax cuts.
“In anticipation of tax cuts, sales have slowed down substantially, so decisions should be taken quickly in our view,” Nomura warned, highlighting the urgency for policy clarity to prevent further demand postponement.
The GST Council meeting has reportedly been preponed to ensure the industry doesn’t lose crucial festive season sales beginning in September with Navratri and Durga Puja celebrations. Auto OEMs are expected to report August wholesale volumes early next week, with companies likely trimming shipments strategically ahead of the potential tax restructuring.
