GST Cuts To Festive Demand: Nifty Auto Set For Best September In Six Years — Can Automakers Sustain Momentum?

The NSE Nifty Auto index rose 5.9% this month, its strongest September gain since 2019, when it had advanced 6.9%. The benchmark Nifty 50 index posted a smaller rise in comparison.

The auto index is trading at a price-to-earnings ratio of 27.58, higher than the Nifty 50’s 21.86. Samvardhana Motherson International Ltd. was the top performer in September with a 15% rally, followed by Eicher Motors Ltd., Ashok Leyland Ltd. and Bharat Forge Ltd., which gained 14.4%, 12.7% and 8.1%, respectively. Exide Industries, Bosch and Sona BLW were the only stocks with losses in the 10-member index, falling 2%, 4.6% and 8.6%, respectively.

The rally followed the government’s move earlier this month to cut Goods and Services Tax rates on vehicles. The GST rate on small cars was reduced to 18% from 28%, while the effective tax on large cars and sport utility vehicles was lowered to 40% by removing an additional levy that had taken rates above 50%.

Automakers expect the cuts to revive demand after a period of weak sales. They see the lower prices, along with festive season discounts, drawing more visitors to showrooms and supporting purchases through the final quarter of the calendar year.

Brokerages said the sector is set to benefit from tax relief, stable fuel prices, easier credit and improving household finances. They expect sales of passenger vehicles and two-wheelers to accelerate in the coming years.

Bank of America projects compound annual growth of 8% in volumes for both segments between FY25 and FY28. It noted that disruptions seen in the last decade from fuel price shocks, regulatory cost increases and the pandemic have eased, creating conditions for a sustained recovery.

Morgan Stanley said the GST reset could lead to the steepest price cuts in years, while monetary easing and the upcoming eighth pay commission are expected to further support demand. It sees passenger vehicles better positioned than two-wheelers due to lower household penetration and higher operating leverage.

Analysts said the combination of tax cuts, festive season demand and rising rural incomes could lift sales momentum. Passenger vehicles are expected to see stronger first-time buyer demand, while two-wheelers are likely to benefit from replacement purchases.

While valuations remain high, brokerages said margins could still improve if the recovery in volumes holds. With September’s gains, the Nifty Auto index is entering the festive quarter with its most favourable outlook in several years.

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