India's auto stocks saw a significant rise on Thursday, with a 3.7% surge to the highest level in nearly 11 months following a move by the government to cut consumption taxes. The positive development led analysts to predict a boost in demand for the sector. Auto shares were up 1.9% overall, leading sectoral gains on the benchmark Nifty 50 index, which was trading 0.6% higher.
Leading the gains on the auto index were Mahindra & Mahindra and Eicher Motors, both reaching record highs. Mahindra, up 6%, emerged as the top gainer on the Nifty. The positive performance was a direct result of the government's decision to lower taxes on hundreds of consumer items approved by the Goods and Services Tax Council.
Among the key changes, the GST on small cars, motorcycles, buses, trucks, and ambulances was reduced from 28% to 18%. Analysts from CLSA noted that this reduction would benefit all players in the sector by decreasing the total tax on all auto categories, ultimately boosting overall demand.
Importantly, the effective tax on large-engine capacity cars and SUVs was also lowered significantly to 40%, with an additional levy being eliminated. This move was particularly beneficial for Mahindra, known for its SUV-heavy portfolio, according to Jefferies analysts. Similarly, Eicher Motors stood to gain from the tax cuts on tractors, which make up 80% of its portfolio.
Overall, the tax revisions are seen as a positive step towards spurring domestic demand in light of challenging external factors such as steep U.S. tariffs. The market responded positively to these changes, driving the auto sector to new highs and setting a bullish tone for future performance. Investors are keeping a close eye on how these tax cuts will impact the industry in the coming months.
