GST Cuts Ignite Auto Industry Revival: Discounts Decline as Demand Soars

The automobile sector is poised for significant changes as recent GST cuts are expected to drive demand higher, according to a report by Motilal Oswal. The report highlights that with demand picking up, discounts in various segments will likely decrease, potentially increasing margins for automakers.

The report notes that the demand revival and improved earnings outlook have led Motilal Oswal to revise volume growth estimates across key segments, forecasting substantial growth by FY26 and FY27. This trend suggests an optimistic future for automakers as they navigate through evolving market dynamics.

Moreover, the continuous trend of premiumisation is mirrored by an anticipated rise in small car demand, likely contributing to overall market recovery. Updated growth projections for various vehicle categories, including two-wheelers, passenger vehicles, commercial vehicles, and tractors, underscore this positive trajectory.

Fueling this optimism is the GST Council's decision to significantly lower tax rates on most auto segments, effective September 2025. This includes a reduction for SUVs and a sharp cut for tractors and components, creating a more conducive environment for industry recovery.

The report points out that these tax cuts, alongside favorable factors like a normal monsoon and reduced interest rates, enhance the prospects of a robust demand surge as the festive season approaches.