Maruti Suzuki, Tata Motors, Ashok Leyland, To Hero: Why Are Auto Stocks Rising Today?

Shares of Tata Motors, Maruti Suzuki, Ashok Leyland, TVS Motors, Hero MotoCorp, Mahindra & Mahindra, Bajaj Auto, etc, rallied on Monday amid buzz around proposed Goods and Services Tax (GST) reforms.

Nifty Auto was trading 4.6% higher at 10:50 am with Ashok Leyland, TVS Motor, Maruti Suzuki, Hero Motocorp, Bajaj Auto, Eicher Motors, emerging as the top Nifty gainers. The auto stocks are rallying, and experts have hinted that the proposed GST rates will have a highly positive impact on auto sector stocks. Let's understand the direct impact of potential GST rates on auto sector stocks.

Auto Stocks Rally: From Tata Motors, Maruti Suzuki, Ashok Leyland, Stocks Jump

With nearly 8% gain, Ashok Leyland shares were among the top auto stock gainers on Nifty Auto. TVS Motors' shares were trading 7.32% higher at Rs 3,242.5 per share on BSE. Maruti Suzuki shares were up 7.49% per share and were trading Rs 13,905 per share on NSE. Mahindra & Mahindra shares jumped around 4.96% and were trading at Rs 3,427 per share. Additionally, nearly all the auto sector stocks were trading higher on Monday.

Why Are Auto Stocks Rising Today?

Auto sector is among the key segments which is likely to benefit from the revised GST slabs proposed by the central government. The rejig of automobiles in the GST slab rates is likely to boost the demand for vehicles, especially four-wheelers.

The central government has proposed the reduction of existing GST slabs. Under the proposed GST reforms, there are likely to be only two GST slabs of 5% and 18%. Additionally, 90% of the items in the GST slab of 28% will be shifted to the 18% slab, reported Press Trust of India, citing sources.

According to brokerage Motilal Oswal, four-wheeler vehicles are in the 28% slab and should benefit from the 18% GST rate. Commercial vehicles can also benefit from the lower GST of 18% against 28%, according to the brokerage.

As per Motilal Oswal's latest report, auto sector stocks like Maruti Suzuki, Ashok Leyland, Tata Motors, will be among the key beneficiaries in auto sector of the proposed GST reforms.

GST Reforms Impact On Auto Sector

The potential GST cuts for the automotive segment, would significantly lower the prices of multiple cars, according to experts.

"We believe lower prices would stimulate demand recovery, and the impact would be more in the mass-market segment. Auto manufacturers (OEM) would gain from higher revenue and potentially higher margin, resulting in possible earnings upgrade. Auto ancillaries would also gain from the potential GST cut, however the impact would vary depending on geographical exposure. Auto ancillary companies having higher revenue exposure in the domestic market stands to benefit more, whereas the gains for global suppliers would be lower given higher export exposure and tariff-related uncertainty," explained Arun Agarwal, VP-Fundamental Research, Kotak Securities

What Are The GST Reforms Proposed?

The central government has proposed to keep only two GST slabs, ie 5% and 18%. However, sin goods and luxurious items like cigarettes and other tobacco products. Nearly all the items from existing GST slab of 28% will be shifted to the 18% slab, reported Indian Express citing sources.

The proposed GST reform will significantly impact the small car buyer. Small cars currently attract th 28% GST and additional cess. These four wheeler items are likely to be moved into the 18% slab, reported IE.

However, bigger luxury cars and SUVs are likely to be shifted into the special category of 40% after the removal of 28% slab. Other than cars, daily use items and other products may also be shifted to the lower tax slab rate.

Agricultural products, fertilisers, construction items, handcrafts, automotive, hair oil, ac, computer, sewing machine, water filter, vaccines, bicycles, electric Irons, etc are also likely to get cheaper.

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