Maruti, Ashok Leyland, M&M Best Placed, Low Tax To Drive Autos Upcycle: Morgan Stanley On GST Rate Cuts

Ahead of the overhaul in India's GST structure, global brokerage Morgan Stanley has said that the potential GST rate cuts could drive a virtuous upcycle for domestic auto players. Maruti Suzuki India, Mahindra & Mahindra (M&M), Ashok Leyland, and Eicher Motors seem the best placed among the auto majors to reap the benefits of the potential GST cuts.

"GST reforms seem imminent with likely positive effects on growth and likely lower interest rates into 2026," said the brokerage in its note on Aug. 18. Looking at 2008, a 4% excise duty, interest rate cuts and 6th pay commission drove 20% plus PV growth in 2009 and 2010 for auto players.

"Autos fall under the 28% GST bracket. So, if autos move to 18% and we see sharp price drops, this could drive the next autos upcycle, as seen in 2008," said Morgan Stanley. "There are unknowns, but looking at key factors we note that Maruti, M&M, Ashok Leyland and Eicher seem best placed," it added.

The government is considering a major overhaul in the GST structure for automobiles, proposing a new categorisation based on engine capacity rather than vehicle type. This could pave the way for lower tax rates on domestic PVs and small cars, NDTV Profit reported on Sunday.

The Group of Ministers (GoM) will consider the Centre’s comprehensive reforms proposal right from moving to a two-slab structure, reduction of taxes on common-use items and aspirational goods, correcting inverted duty structure, easing compliance, rejig in some services including insurance and the future of the compensation cess.

However, it could take the GoM a few meetings to arrive at a final recommendation. The GoM is now chaired by Bihar Deputy CM Samrat Choudhary. The panel is set to meet later this week to review the Centre’s proposal based on three pillars — structural reforms, rate rationalisation, and ease of living.