Potential 7% Price Drop for Vehicles to Boost Demand, ETCFO
India’s automobile sector, struggling with sluggish demand in the first four months of FY26, may see a revival from the upcoming festive season if the government’s proposal to rationalize GST rates goes through. The plan to reduce the bulk of auto sector taxation from 28% to 18% could lower vehicle prices by nearly 7%, providing a much-needed demand stimulus across key segments, according to a report by Motilal Oswal Financial Services.
Domestic volumes have been disappointing so far: two-wheeler sales declined 4% year-on-year, passenger vehicles fell 1%, and commercial vehicles were flat. Tractors remain the only bright spot, supported by rural demand. In this context, the GST cut proposal, alongside expected interest rate reductions, income tax benefits, and strong monsoon progress, could trigger a turnaround in consumer sentiment and sales momentum.
The gainers
Segment-wise, small cars, three-wheelers, and commercial vehicles are expected to gain the most, while large SUVs and luxury cars are likely to stay in higher tax slabs. Two-wheelers would benefit from lower GST rates, though part of the advantage could be offset if the government simultaneously mandates ABS for all models. Commercial vehicles, taxed at 28%, would also see significant relief, with Ashok Leyland identified as a direct beneficiary. For passenger vehicles, Maruti Suzuki is seen as the biggest winner due to its strong small-car portfolio.
Auto ancillary players, particularly tyre and battery manufacturers, are set to benefit from the tax reduction due to their high replacement demand base. Forgings and wiring harness players, currently taxed at 18%, may see little change. Endurance, Bosch, Happy Forgings, and MSWIL are among the firms well placed to ride the indirect demand recovery, with Endurance standing to gain additionally from potential ABS implementation in two-wheelers.
However, analysts warn of short-term disruption. Consumer purchases may be delayed as buyers wait for clarity on tax cuts, potentially leaving OEMs and dealers with higher inventory. Transition challenges, including working capital management, remain a key concern.
The Group of Ministers is scheduled to discuss the proposal on August 20–21, with the GST Council likely to take it up in September. If cleared, the changes could set the stage for a stronger festive season and a sector-wide re-rating.
Motilal Oswal maintains a constructive view on the sector, with Maruti Suzuki, Hyundai India, and M&M as top OEM picks, and Endurance, SAMIL, and Happy Forgings as preferred ancillary plays.
