India’s auto sector is gearing up for a potential policy windfall as the government considers a major Goods and Services Tax (GST) rate cut on automobiles ahead of Diwali 2025. The proposed rationalisation—expected to reduce GST on small cars and two-wheelers from 28% to 18%, and on large cars from 43–50% to around 40%—has triggered bullish sentiment among investors and analysts.
Global brokerage Nomura has identified four auto stocks that could see the biggest upside if the GST cut is implemented: Mahindra & Mahindra (M&M), Maruti Suzuki, Ashok Leyland, and TVS Motor. These companies are expected to benefit from improved demand elasticity, margin expansion, and competitive pricing across key vehicle segments.
🧭 GST Reform: A Game-Changer for Auto Demand
Nomura estimates that the GST reduction could have a multiplier effect of 1.0–1.5x on demand, translating into a 5–10% increase in sales across categories. Popular models such as Maruti’s WagonR, Mahindra’s Bolero, and XUV700 could see price drops of 7–10%, while mid-range SUVs like Brezza and Hyundai’s Creta may become 3% cheaper.
| Vehicle Model | Current GST Rate | Proposed GST Rate | Estimated Price Drop |
|---|---|---|---|
| Maruti WagonR | 28% | 18% | ~9% |
| Mahindra Bolero | 28% | 18% | ~10% |
| Mahindra XUV700 | 43–50% | ~40% | ~7% |
| Maruti Brezza | 28% | 18% | ~3% |
| Hyundai Creta | 28% | 18% | ~3% |
The anticipated tax cut is part of a broader reform package aimed at boosting consumption and easing inflationary pressures. Prime Minister Narendra Modi confirmed last week that GST rates on several goods and services would be lowered before Diwali.
📈 Nomura’s Top 4 Auto Stock Picks
Nomura’s scenario analysis considers three possible outcomes of the GST cut, each offering varying degrees of demand impact. Based on this, the brokerage has highlighted four stocks with the highest upside potential:
| Company Name | Sector | Nomura Rating | Target Price (₹) | Current Price (₹) | Upside Potential |
|---|---|---|---|---|---|
| Mahindra & Mahindra | Passenger & Utility Vehicles | Buy | 3,736 | 3,354 | +11% |
| Maruti Suzuki | Small Cars | Neutral | 13,113 | 14,250 | -8% (Neutral) |
| Ashok Leyland | Commercial Vehicles | Buy | 144 | 133 | +9% |
| TVS Motor | Two-Wheelers | Buy | 3,231 | 3,252 | Flat |
While Maruti Suzuki’s near-term rating remains Neutral due to valuation concerns, Nomura notes that the company could see strong upside if the GST cut materializes, given that nearly 68% of its portfolio falls under the small car category.
🏍️ Segment-Wise Impact Analysis
| Segment | GST Cut Impact | Key Beneficiaries | Demand Elasticity |
|---|---|---|---|
| Small Cars | High | Maruti Suzuki, Hyundai | Strong |
| SUVs & Utility Vehicles | Moderate | Mahindra & Mahindra | Moderate |
| Commercial Vehicles | Moderate | Ashok Leyland | Moderate |
| Two-Wheelers | Mixed | TVS Motor, Bajaj Auto | Moderate to Low |
| Premium Motorcycles | Negative | Eicher Motors (Royal Enfield) | Low |
Interestingly, motorcycles above 350cc may face a GST hike from 31% to 40%, which could dampen demand in the premium segment. However, Eicher Motors, whose Royal Enfield lineup is already ABS-compliant, may emerge as a relative beneficiary due to regulatory readiness.
💰 Margin Expansion and Profitability Outlook
Nomura expects auto manufacturers to see 100–150 basis points (bps) margin improvement post-GST cut, driven by higher volumes and better pricing power. OEMs with higher domestic exposure and diversified product portfolios are likely to gain the most.
| Company Name | Estimated Margin Gain | Key Drivers |
|---|---|---|
| Mahindra & Mahindra | 120–150 bps | SUV demand, LCV sales |
| Maruti Suzuki | 100–130 bps | Small car dominance |
| Ashok Leyland | 90–110 bps | Fleet replacement cycle |
| TVS Motor | 80–100 bps | Entry-level two-wheeler demand |
Auto component suppliers such as Uno Minda, Samvardhana Motherson, and Sansera Engineering are also expected to benefit from the demand upswing, especially in the aftermarket segment.
🧠 Analyst Commentary
Nomura’s analysts believe that the GST cut could be a turning point for the auto sector, which has faced headwinds from regulatory changes, input cost inflation, and weak rural demand. The brokerage stated:
“We see scope for upside across all three scenarios from current levels. The GST cut, if implemented, will act as a demand catalyst and margin booster for OEMs with strong domestic portfolios.”
The sentiment in the market has been cautious, with sales reportedly slowing down in anticipation of the tax cut. Dealers expect a surge in bookings post-announcement, especially in the entry-level and mid-range segments.
📊 Nifty Auto Index Performance
| Index Name | Pre-GST Cut Level | Post-GST Cut Projection | Change (%) |
|---|---|---|---|
| Nifty Auto | 18,450 | 19,800–20,200 | +7–9% |
| BSE Auto | 37,200 | 40,000+ | +7.5% |
The Nifty Auto index has already hit a six-month high on expectations of the tax cut, with Mahindra & Mahindra and Ashok Leyland leading the rally.
🧾 Policy Timeline and Implementation
| Milestone | Expected Date | Status |
|---|---|---|
| GST Council Meeting | August 28, 2025 | Scheduled |
| Reform Announcement | September 5, 2025 | Anticipated |
| Implementation Deadline | By Diwali (Oct 29) | Targeted |
The GST Council is expected to finalize the rate changes in its upcoming meeting, with implementation likely before Diwali to boost festive season demand.
📌 Conclusion
The proposed GST rate cut on automobiles has injected fresh optimism into India’s auto sector. With Nomura identifying Mahindra & Mahindra, Maruti Suzuki, Ashok Leyland, and TVS Motor as top beneficiaries, investors are closely watching policy developments for cues on demand revival and margin expansion.
If implemented, the tax cut could reshape consumer behavior, accelerate vehicle replacement cycles, and drive a multi-quarter rally in auto stocks. For now, the road ahead looks promising—and the wheels of reform are in motion.
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Disclaimer: This article is based on publicly available financial research and brokerage commentary as of August 21, 2025. It is intended for informational purposes only and does not constitute investment advice.
