Mumbai, September 4, 2025 – The Indian automobile sector hit the accelerator on Wednesday as the GST Council’s bold decision to rationalize tax rates fueled a rally in auto stocks, though the gains were uneven. The Nifty Auto Index surged 3.7% intraday to 26,612.20, its highest in 11 months, driven by optimism over reduced GST rates on small cars, two-wheelers, commercial vehicles, and tractors. However, not all stocks kept pace, with Mahindra & Mahindra (M&M) emerging as the star performer, while heavyweights like Maruti Suzuki and Tata Motors lagged due to profit-taking and pre-priced expectations.

GST Reforms: A Game-Changer for Autos

The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, announced on September 3, 2025, a simplified two-tier tax structure (5% and 18%) for most goods, eliminating the cess on automobiles and addressing the inverted duty structure for auto components, now uniformly taxed at 18%. Key changes, effective from September 22, 2025,

 include:Small Cars: GST on vehicles under 4 meters with petrol engines up to 1,200cc or diesel engines up to 1,500cc slashed to 18% from 28–31% (including cess). This benefits models like Maruti Suzuki’s Swift, Tata Motors’ Punch, and Hyundai’s i10.

Two-Wheelers: Sub-350cc motorcycles and scooters, accounting for 92% of the market, now face 18% GST, down from 28%, boosting affordability for brands like Hero MotoCorp and Bajaj Auto.

Commercial Vehicles: Trucks, buses, and ambulances see GST reduced to 18% from 28%, favoring Tata Motors and Ashok Leyland.

Tractors: A surprise cut from 12% to 5% GST, making tractors more affordable for farmers and driving rural demand.

Large SUVs: Tax reduced to 40% from 43–50%, benefiting M&M’s premium models like the XUV700.

Electric Vehicles: GST remains unchanged at 5%, supporting India’s clean mobility push.

Analysts predict a 5–10% price reduction across categories, potentially spurring a 10–20% demand surge, especially during the festive season (October–November 2025).

Mahindra & Mahindra: The Biggest Winner

M&M shares soared 7.8% to ₹3,539.25, making it the top gainer in the Nifty Auto Index. The unexpected GST cut on tractors to 5% was a major catalyst, given M&M’s dominant market share in the tractor segment. Additionally, two-thirds of its portfolio (compact SUVs and entry-level vehicles) benefits from a 10% GST reduction, while the rest sees a 7–8% cut. Emkay Global flagged M&M as the “biggest beneficiary,” projecting a 19% EPS CAGR for FY25–28, while Jefferies called the SUV tax cut a “surprise win.”

M&M’s strategic moves, including reduced wholesale billing to manage dealer inventory and the upcoming launch of the BE 6 Batman Edition electric SUV, further bolstered investor confidence. “These reforms simplify compliance and energize consumption,” said Anish Shah, Group CEO of Mahindra Group, emphasizing the boost to India’s economic growth.

Maruti Suzuki and Tata Motors: Priced-In Expectations 

Despite the positive GST news, Maruti Suzuki traded down 1%, and Tata Motors gained a modest 0.4%. Both stocks had rallied significantly in August (Maruti up 20%, Tata up 6%) as markets anticipated the tax cuts, leading to profit-taking on September 4. Maruti, the leader in small cars, benefits from a 7–8% blended GST cut, but analysts noted limited near-term upside due to high valuations. Hisashi Takeuchi, MD of Maruti Suzuki, hailed the reforms as a “big booster” for first-time buyers and middle-income families.

Tata Motors faced additional pressure from an IT security incident at Jaguar Land Rover (JLR) and concerns over luxury EV taxation. While its commercial vehicle segment (GST cut to 18%) offers upside, Jefferies maintained an “Underperform” rating due to limited earnings triggers.

Two-Wheeler Stocks: Hero MotoCorp and Bajaj Auto Lag

hero MotoCorp and Bajaj Auto rose marginally by 0.7% and 0.4%, respectively, despite a 10% GST cut on sub-350cc two-wheelers, which dominate their portfolios. The muted response reflects a 4–8% rally in August, as markets had already factored in the tax relief. Emkay Global listed Hero, Bajaj, and TVS Motor as major beneficiaries, with Nomura upgrading Hero to “Hold” and setting a ₹13,400 target for Bajaj Auto. However, high valuations and sluggish domestic demand tempered gains.

Market Dynamics: Why the Mixed Response?

The auto sector’s uneven performance stems from several factors:Priced-In News: Auto stocks surged 9.5% in August, with the Nifty Auto Index’s forward P/E reaching its 10-year mean, indicating that much of the GST cut optimism was already baked in. Posts on X highlighted FII selling and global tariff concerns as reasons for the market ignoring positive triggers.

Inventory Challenges: August 2025 saw weak sales (Maruti down 8%, Tata down 7%, M&M down 9%) as buyers delayed purchases awaiting GST clarity, leading to high dealer inventories (up to 75 days). M&M’s proactive reduction in wholesale supplies mitigated this risk.

Rural Boost: The tractor GST cut and above-normal monsoon rainfall signal strong rural demand, favoring M&M and Escorts Kubota, which surged 13.5%.

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