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Key Points

The recent GST cuts are set to significantly boost demand in the automobile sector. This demand revival is expected to lead to a reduction in discounts offered by automakers. Motilal Oswal has consequently raised its volume growth estimates for all key segments through FY27. A normal monsoon and lower interest rates are additional factors supporting this optimistic outlook.

Key Points: GST Cuts to Reduce Auto Discounts and Lift Demand Says Motilal Oswal

  • GST Council cuts rates on most auto segments to 18% from 28% effective September 22
  • Discounts expected to trend down as demand picks up across key segments
  • Report raises volume growth estimates for two-wheelers, PVs, CVs and tractors
  • Supportive tailwinds include normal monsoon and interest rate reductions
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Auto sector discounts to trend down as GST cuts set to lift demand: Motilal Oswal

Motilal Oswal report says GST rate cuts will lower auto sector discounts and boost demand, leading to higher volume growth and margin expansion for automakers.

"With a pick-up in demand, we also expect discounts to trend down across key segments, which should drive margin expansion going ahead. - Motilal Oswal Report"

New Delhi, September 19

Discounts in the automobile sector are expected to trend down across key segments as the recent GST cuts are likely to lift demand, according to a report by Motilal Oswal.

The report noted that with a pick-up in demand, discounts should gradually reduce across categories, helping drive margin expansion for automakers.

It stated, "With a pick-up in demand, we also expect discounts to trend down across key segments, which should drive margin expansion going ahead. On the back of demand revival and much better earnings growth."

It added that, on the back of demand revival and a much better earnings growth outlook, the report has raised its volume growth estimates across all key segments for FY26 and FY27.

While the premiumisation trend is expected to continue, Motilal Oswal also pointed out that small car demand is likely to grow from a very low base, contributing to overall recovery.

The report has also revised its growth projections as follows: for two-wheelers, volumes are now expected to increase 4 per cent in FY26 and 7.5 per cent in FY27, compared with its earlier forecast of 1 percent and 5.7 per cent.

For passenger vehicles, the estimates have been raised to 3 per cent in FY26 and 8 per cent in FY27, against the earlier 2 per cent and 4 per cent. Commercial vehicles are projected to grow at 5 per cent in FY26 and 7 per cent in FY27, compared with 2 per cent and 4 per cent earlier.

Tractor sales growth has been revised upwards to 10 percent in FY26 and 6 percent in FY27, from the earlier 8 per cent and 5 per cent.

A key factor driving this optimism is the GST Council's decision to cut rates on the majority of auto segments to 18 per cent from 28 percent earlier, effective September 22, 2025.

For SUVs above 4 metres and other specified categories, the rate has been reduced to 40 per cent without cess from the earlier range of 43-50 per cent. For tractors and tractor components, GST has been cut sharply to 5 per cent from 12-18 per cent.

The report shared that these tax reductions, combined with supportive sectoral tailwinds such as a normal monsoon boosting rural sentiment, a nearly 100 basis point reduction in interest rates in calendar year 2025 so far, and income tax benefits, are expected to revive demand strongly from the upcoming festive season.

- ANI

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Reader Comments

P
Priya S
Good for automakers but as a consumer, I hope the reduced discounts don't completely offset the GST benefit. Need to see actual price reductions at dealerships.
Michael C
The tractor GST cut to 5% is massive! This will really help our farmers in Punjab. Agricultural equipment was becoming too expensive.
S
Suresh O
As someone from rural Maharashtra, the combination of good monsoon and lower interest rates plus GST cuts should boost two-wheeler sales. Many families here depend on bikes for daily commute.
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Ananya R
Hope the small car segment revival happens. Not everyone can afford SUVs. We need affordable options for middle-class families.
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Vikram M
The commercial vehicle growth projection is encouraging. Shows confidence in economic recovery and infrastructure development. Good for logistics and transport businesses.
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Nikhil C
While the GST cuts are welcome, I hope the government also focuses on improving road infrastructure and EV charging networks. Growth should be sustainable.

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