Domestic auto stocks continued to build on their momentum from last week’s robust rally, as 13 out of the 15 constituents of the Nifty Auto index traded in the green during Monday’s session, lifting the index by nearly 3.4% to 27,220 points, gaining 9% in just six sessions.
Today’s rally has also brought the index closer to its near all-time high of 27,696 points, recorded in September 2024, now just 1.7% away from that level.
Among individual counters, Bharat Forge led the pack with a 7% rally to ₹1,214.90 apiece, while Ashok Leyland, Mahindra & Mahindra, Maruti Suzuki India, Tata Motors, TVS Motor Company, and Eicher Motors hit fresh record highs.
Auto stocks have been on a fast track ever since Prime Minister Narendra Modi proposed a two-slab GST structure on August 15. The momentum strengthened further after the GST Council, on Wednesday (September 3), confirmed the simplification of the tax structure, collapsing four slabs (5%, 12%, 18%, and 28%) into just two: 5% and 18%, with automobiles being among the major beneficiaries of this rationalisation.
As per the decision of the 56th GST Council, effective from September 22, GST on small cars will be levied at 18% (down from 28% earlier), while SUVs will be taxed under the 40% slab without any cess. Electric vehicles will continue to attract 5% GST.
GST cuts came at the right time
The GST reductions arrive at a crucial moment for the auto industry, which faced headwinds in the first quarter of FY26. Sales of two-wheelers—especially budget-friendly commuter bikes—saw a dip, largely due to regulatory changes and the impact of heavy monsoon rains on rural demand.
From June to August 2025, the passenger vehicle segment, including small cars, also witnessed a slowdown.
This was driven by rising affordability issues, limited availability of rare-earth minerals, and buyers postponing purchases in anticipation of the GST rate revisions.
Automakers pass on GST benefits with major price cuts
The GST rationalisation has led most Indian automakers to fully pass on the tax benefits to consumers, resulting in significant price cuts ranging from tens of thousands to several lakhs of rupees, depending on the segment and brand, including budget models, SUVs, and luxury vehicles.
For instance, Tata Motors and Mahindra & Mahindra have announced price cuts of up to ₹1.45 lakh and ₹1.5 lakh, respectively, while Hyundai has passed on benefits of up to ₹2.4 lakh. Although Maruti Suzuki has yet to announce revised prices, it is estimated that its small car segment is likely to benefit substantially from the rate cuts.
The GST rate cut is expected to boost demand for automobiles, especially passenger vehicles, a segment currently grappling with weak urban consumer demand. The timing of the cuts, just ahead of the festive season, has further lifted automakers’ hopes of a demand revival.
According to domestic brokerage JM Financial, small cars account for 68% of Maruti Suzuki’s domestic volumes, which will benefit from an estimated 11–13% reduction in GST. Large cars and UVs, which contribute around 31% of domestic sales, are expected to see a 5–10% reduction. The recently launched e-Vitara has yet to contribute meaningfully to overall volumes.
For Mahindra & Mahindra, approximately 30% of car volumes fall under the 18% GST slab. EVs account for around 7% of domestic volume and will continue to be taxed at 5%. The remainder of the portfolio will be subject to the new 40% GST rate.
Drivers in place for auto sector upcycle: BofA
Global brokerage firm Bank of America Securities (BofA) believes the key drivers for an auto sector upcycle are now in place, including improved cost of ownership, easier access to credit, and stable crude oil prices. The firm projects volume growth at a CAGR of 8% between FY25 and FY28, roughly tracking 0.8x nominal GDP growth.
In the two-wheeler segment, the market is increasingly driven by upgraders, supported by high household penetration, rising vehicle financing, and growing aspirational demand. This cycle, along with rural recovery, is expected to benefit players like Eicher Motors and TVS Motor.
Under the passenger vehicle (PV) segment, the brokerage said the focus is shifting from premiumisation to broader market penetration. Maruti Suzuki is seen as a strong proxy to the cycle and upcoming SUV launches, while Mahindra & Mahindra’s product strength remains a standout in the industry.
The brokerage has raised its target prices across the board to reflect the improved growth outlook, with Maruti Suzuki, Eicher Motors, and Mahindra & Mahindra named as the firm’s preferred picks in the sector.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
