Summary of this article
In early trade, the Nifty Auto index gained the most amid all sectoral indices following a modification of GST norms to a two-slab system.
In the new system, the GST imposed on automobiles has been reduced. Notably the GST imposed on petrol, petrol-hybrid, LPG and CNG powered cars has been reduced to 18 per cent from 28 per cent
These rate reductions are expected to lower the price of automobiles across various segments, leading to increased demand.
Shares of domestic automobile manufacturers gained in early trade on September 4. M&M share price (Mahindra & Mahindra) surged to a high of Rs 3550 apiece in early trade up by more than 8 per cent. Shares of other domestic automobile manufacturers also surged with Eicher Motors and Tata Motors gaining 2.4 per cent and 1.43 per cent respectively. The gains come amid a structural revamp of GST norms.
Nifty Auto Gains Nearly 4 Per Cent
In early trade, the Nifty Auto index gained the most amid all sectoral indices following a modification of GST norms to a two-slab system. The Nifty Auto surged nearly 4 per cent to trade at an intraday high at 26,729.65 level.
Mahindra & Mahindra share price and Eicher Motor shares gained up to 8 per cent on the NSE. Eicher Motor share price surged over 5 per cent to an intraday high of Rs 6,713 apiece on the NSE. TVS Motor shares also rallied more than 3 per cent to trade at an intraday high of Rs 3500 apiece on the NSE.
Other major gainers include shares of Hero Motocorp, Balkrishna Industries and Bajaj Auto, which have gained up to 1.2 per cent. Major constituents of the index in terms of weightage, such as Mahindra & Mahindra, Maruti Suzuki India Ltd, Tata Motors and Bajaj Auto traded higher by up to 6.16 per cent at the time of writing the story.
Other constituents of the index which manufacture automotive components, such as MRF, Bosch Ltd, Samvardhana Motherson, Bharat Forge also traded higher by up to 1 per cent at the time of writing the story. Shares of Ashok Leyland and Exide Industries declined amid a rally in automotive sector stocks, trading lower by 0.31 per cent and 0.68 per cent respectively on the NSE at the time of writing.
Why Are Auto Stocks Gaining
In the new system, the GST imposed on automobiles has been reduced. Notably the GST imposed on petrol, petrol-hybrid, LPG and CNG powered cars has been reduced to 18 per cent from 28 per cent. However, the rate cut applies only to cars which do not exceed 4 metres in length and have an engine size of up to 1200 cc.
The GST rates have been reduced for diesel and diesel hybrid cars, which have an engine size below 1500 cc and a length below 4 metres. The GST applicable on three wheelers, motorcycles with engine sizes below 350 cc and vehicles used for transportation has also been reduced to 18 per cent. Additionally, the GST rate imposed on tractors and tractor parts has also been reduced to 5 per cent from 18 per cent.
These rate reductions are expected to lower the price of automobiles across various segments, leading to increased demand. The tax cut is expected to boost demand as vehicles become more affordable following the reduction in GST rates. The move is expected to revive sales ahead of the upcoming festive season. The GST rationalisation is timed to boost sales during the upcoming festive season (Dussehra and Diwali), which is traditionally a period of high demand for vehicles.
Arun Agarwal , VP Fundamental Research, Kotak Securities told Outlook Money that the potentially lower prices of vehicles are expected to stimulate demand recovery across various segments especially within the mass-market category.
“Assuming a full pass-through, the on-road price reduction for two-wheelers (<350 cc), three-wheeler, commercial vehicle and tractors could be in the range of mid-to high single digit. For the passenger vehicle segment, the on-road price reduction may be low-to-high single digit, depending on models. Lower prices would likely stimulate demand recovery across segments, and the impact is expected to be more in the mass-market categories,” Agarwal said.
What Should Investors Do Amid The Rally In Auto Stocks?
Anirudh Garg, Partner and Fund Manager at INVasset PMS told Outlook Money that investors who wish to take fresh entry into the automotive space should balance short-term opportunities with long-term fundamentals.
"For new investors looking to enter the automotive sector, it is important to balance short-term opportunities with long-term fundamentals. One key approach is to focus on high-liquidity, large- and mid-cap automotive stocks. These stocks offer relative stability while still providing upside potential during sector rallies," Garg said.
Garg also advised existing investors to focus on structural growth trends and rebalancing their portfolios to increase exposure to sub-sectors within the automotive space.
"For existing investors, the focus should be on long-term fundamentals and structural growth trends rather than short-term price movements. Investors can consider rebalancing portfolios to increase exposure to sub-sectors with sustainable growth, such as EVs, two-wheelers in urban and rural markets, and commercial vehicles benefiting from government infrastructure spending," Garg said.
