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Key Points

The recent GST overhaul is set to significantly boost the automobile sector's growth. Lower vehicle prices will enhance affordability and attract first-time buyers. HSBC forecasts a 4-14% CAGR increase till FY28 across all segments. This growth is expected to be front-end loaded, with notable benefits for compact UVs and entry-level cars.

Key Points: GST Overhaul Accelerates Automobile Sector Growth to 14 Percent

  • GST cut lowers vehicle prices by 3-9% improving affordability
  • Passenger Vehicles see reductions of Rs 40,000 to 1.5 lakh
  • Two-wheeler sales to surge with festive and rural demand
  • Commercial Vehicle demand upticks with GST cut and macro growth
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GST overhaul to accelerate automobile sector growth to 4-14 pc CAGR till FY28

New GST cuts reduce vehicle prices by 3-9%, boosting auto sector growth to 4-14% CAGR till FY28. HSBC report highlights benefits for PVs, 2-wheelers, and CVs.

"This leads us to an increase in our 4-5-year CAGR across segments by 200-300 basis points. - HSBC Global Investment Research"

New Delhi, Sep 15

The recent GST overhaul, which reduces vehicle prices by 3-9 per cent across categories, is likely to accelerate the automobile sector's growth rate to 4-14 per cent compounded annual growth rate (CAGR) till FY28, a report said on Monday.

The lower prices would lead to better affordability, increases in first-time buyer numbers and higher replacement demand.

"This leads us to an increase in our 4-5-year CAGR across segments by 200-300 basis points. This increase in growth is likely front-end loaded, hence our FY27/28 EPS estimate increases are in the range of 4-14 per cent," HSBC Global Investment Research said.

Passenger Vehicles (PVs) are likely to see price reductions of Rs 40,00 to 1.5 lakh, with the highest cost reductions expected in the Rs 10 lakh to 15 lakh segment.

The top beneficiary will be compact UVs, followed by large diesel SUVs, then entry-level cars. Tata's PV portfolio is set to see the highest price reductions across its portfolio, followed by Maruti, Hyundai, and Mahindra and Mahindra.

Price cut, festive season, and buoyant rural demand will most likely fuel growth in 2-wheeler sales.

"We expect all segments to grow simultaneously due to lower prices on 2W vehicles. While the GST cut may push premiumisation from economy to executive vehicles, it will also attract first-time buyers as the on-road price of entry-level motorcycles will fall from Rs 70,000 to Rs 63,000," the report highlighted.

However, electric two-wheelers might stagnate in the near term due to dilution of the value proposition.

The commercial vehicle (CV) demand will uptick following the GST cut and improvement in macro growth. As per the HSBC economists, the GST cut would accelerate the FY26 GDP growth rate by 20 basis points.

"We assume this will translate to equivalent CV demand, further assisted by GST-led price drops. Although a large share of CV buyers buy on credit (hence the net benefit from lower CV prices may be relatively lower compared to PVs or 2Ws), we estimate the MHCV FY25-FY28 growth CAGR will increase by 150 basis points," the report said.

As demand has accelerated due to the GST reduction, the Indian automobile firms' share prices jumped over 6-17 per cent as compared to the Nifty 50 (up 2 per cent) since 15 August.

Current valuations are punchy and 15 per cent higher than the 10-year average; therefore, we see the stocks tracking EPS growth for the next year, according to the report.

- IANS

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Reader Comments

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Priya S
This is excellent for first-time buyers like me. Entry-level bikes at ₹63,000 instead of ₹70,000 makes a huge difference for students and young professionals. Hope the auto companies pass on the full benefit to consumers.
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Arjun K
While the GST cut is welcome, I'm concerned about electric two-wheelers stagnating. The government should balance traditional and electric vehicle growth. We need to keep pushing for sustainable mobility options alongside affordability.
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Sarah B
As someone in the logistics business, the CV growth projection is encouraging. Better commercial vehicle demand means more economic activity and job creation. This could really boost rural economies too.
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Vikram M
Tata Motors benefiting the most is interesting! Their recent models have been impressive, and with price reductions, they might really challenge Maruti's dominance. Good to see Indian companies leading the charge.
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Michael C
The stock market reaction says it all - auto stocks up 6-17% while Nifty only 2%. Investors clearly see this as a game-changer. Might be a good time to consider auto sector investments for long-term growth.
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Ananya R
Hope the banks also reduce interest rates on auto loans to complement the GST cut. The combined effect would make vehicle ownership truly accessible for many more families across India.

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