Nomura backs auto rally post-GST cut; M&M, TVS Motor, Hyundai in fast lane

Nomura on India auto post GST overhaul: Foreign brokerage Nomura sees a strong re-rating opportunity in the Indian automobile sector following the Goods and Services Tax (GST) Council’s decision to cut GST rates on key auto segments, effective September 22. 

 

The Japanese brokerage said the move will likely boost demand across categories, improve operating margins, and trigger an upgrade cycle, with Mahindra & Mahindra (MM), Hyundai Motor India, TVS Motor, Ashok Leyland (AL), and Motherson Sumi emerging as the biggest beneficiaries.

 

Around 9:20 AM, Mahindra & Mahindra was trading 0.86 per cent higher at ₹3,510.30, TVS Motor advanced 0.76 per cent to ₹3,459, and Ashok Leyland climbed 1.6 per cent to ₹130.15, while Hyundai Motor India traded flat at ₹2,476.

 

 

The Nifty Auto index, meanwhile, gained 0.75 per cent to 26,190.90, outperforming the Nifty50, which was up 0.3 per cent at 24,809.25.

 

According to Nomura, the revised GST rates will result in meaningful price reductions across most categories. Tractor prices are expected to fall by about 6 per cent, while commercial vehicles (CVs), three-wheelers and two-wheelers below 350cc may see an 8 per cent drop. Large cars and SUVs are likely to turn cheaper by 3.5-6.5 per cent. 

 

Among popular models, WagonR could see an 8.5 per cent price cut, Mahindra Bolero by 10 per cent, Brezza and Hyundai Creta by 3.5 per cent each, and XUV700 by 5.5 per cent.

 

The exception, however, will be motorcycles above 350cc, where GST has been raised to 40 per cent from 31 per cent, making prices costlier by about 7 per cent. This, Nomura believes, will accelerate the consumer shift towards higher cc bikes and SUVs, as many buyers may choose to upgrade to larger models given the narrowing price gap.  ALSO READ | GST on luxury cars, SUVs now at 40%, but it's still good news for consumers 

“Overall, we estimate a weighted average portfolio impact of 6-7 per cent price reduction across all OEMs under our coverage. In addition, current market discounts of 5-8 per cent are likely to come down by 1-2 per cent as lower GST drives demand,” the brokerage said.

 

Besides, Nomura expects the GST cut to spark a volume surge of 5-10 per cent across categories, with passenger vehicles (PVs) and two-wheelers leading the growth. “The initial demand bump during the festive season could be as high as 10-20 per cent, as pent-up demand gets released,” the note highlighted. 

 

While electric vehicles (EVs) may see some near-term demand pressure due to the widening price gap with internal combustion engine (ICE) models, the brokerage expects this to be offset by volume gains in mainstream categories.

 

Beyond demand, the sector also stands to benefit from margin expansion. Nomura estimates OEMs could raise margins by 100–150 basis points, aided by lower discounts, operating leverage, and a richer product mix. Auto suppliers are also expected to gain from higher volumes, especially those with strong after-market exposure.

 

On the stock front, Nomura reiterated its preference for Mahindra & Mahindra (M&M) as its top pick, noting the stock has not fully priced in the GST cut amid concerns on higher taxes for EVs and potential cess hikes on SUVs. The brokerage also maintained its ‘Buy’ ratings on TVS, Hyundai Motor India, Ashok Leyland, and Motherson Sumi. CEAT has been upgraded to ‘Buy’, while CARTRADE has been downgraded to ‘Neutral’, citing possible pressure from reduced advertising and promotion spends by OEMs.

 

“The GST cut is a structural positive for the auto sector. With volumes set to rise, margins improving, and consumer sentiment turning favourable, we expect a re-rating across leading auto OEMs and suppliers,” Nomura said.