Indian auto stocks add $33 bn in value as GST cut boosts demand, profits

BSE Ltd's measure of 20 auto firms has added about $33 billion in market value since August 15 when Prime Minister Narendra Modi first announced the government's plan to lower goods and services tax

By Ashutosh Joshi

 

India’s automakers have emerged as the biggest winners of the government’s move to cut consumption taxes, as a potential boost to demand lifts their profit outlook.   

BSE Ltd’s measure of 20 auto firms has added about $33 billion in market value since August 15 when Prime Minister Narendra Modi first announced the government’s plan to lower goods and services levies in the steepest tax reduction in a decade. 

 

The auto gauge has surged more than 12 per cent since then, beating every other sectoral index. Key BSE Sensex Index remained nearly flat during the period, as a 50 per cent tariff on India’s exports to the US — the highest in Asia — weighs on the broader market and the economy. 

 

 

A panel of ministers earlier this month finalized the proposals that will see lower taxes on most items of everyday use. The government cut the GST to 18 per cent on most passenger vehicle categories, from as high as 31 per cent, making cars and bikes more affordable for millions ahead of the India’s crucial festival season next month that drives about a quarter of annual auto sales.

 

Mahindra & Mahindra Ltd, which has offerings from high-end sports utility vehicles to tractors and farm equipment, led the rally among automakers, rising more than 15 per cent this month, while Eicher Motors Ltd and TVS Motor Co also surged.

 

“Exciting times lie ahead for the auto sector,” said ICICI Securities analyst Shashank Kanodia, who sees demand boost for price-sensitive segments such as entry-level cars, as automakers start lowering prices following the tax cuts.