Auto Stocks Rally on Proposed 10% GST Cut, Reviving Demand

On August 19, 2025, auto stocks continued their rally on the Dalal Street, building on the previous day's stellar performance. This surge in investor sentiment was driven by the government's plan to lower the GST rate on vehicles from the current 28% to 18%.

Analysts believe that if the proposed GST rate cut is approved, it could lead to a 7% reduction in vehicle prices, which would be a significant boost for the auto industry. The sector has been facing challenges in recent quarters due to weak consumer demand, higher tariffs, and a shortage of rare earth magnets.

To spur sales, automakers have been offering heavy discounts, but this has done little to improve the situation as prices remain elevated due to multiple hikes. The sustained drop in demand, including for entry-level vehicles, has forced manufacturers to slow down production and shift their focus towards export markets.

However, the government's move to rationalize GST rates is expected to provide a much-needed relief. Domestic brokerage firm Motilal Oswal believes that the GST cut would lower ownership costs and drive demand, particularly for small cars, three-wheelers, and commercial vehicles. The positive progress of the monsoon, income-tax benefits, and potential interest rate cuts are also seen as additional tailwinds for the sector.

If the GST rationalization goes through as expected, analysts anticipate a strong pickup in demand during the upcoming festive season, potentially leading to a re-rating of the auto sector. While the gains for two-wheelers may be partially offset by the ABS mandate, the brokerage expects Maruti Suzuki, with its strong small-car portfolio, to emerge as a key beneficiary compared to its peers.